Garnaut: Cost of stranded assets already bigger than cost of climate action

This is one carbon budget that Australia has already blown. Economist and climate change advisor Professor Ross Garnaut has delivered a withering critique of Australia’s economic policies and investment patterns, saying the cost of misguided over-investment in the recent mining boom would likely outweigh the cost of climate action over the next few decades.

coal_mine_transportatiIn a submission to Prime Minister Tony Abbott’s task-force that is looking at the scope of Australia’s future emissions reduction targets, Garnaut says Australia has invested heavily in mining infrastructure and mining projects on the presumption that other countries would take no action on climate, or on curbing the use of fossil fuels.

He says the cost of these over-investments just in the last few years probably outweighs the total cost of climate action to the middle of the century if Australia had pulled its weight on a global effort to limit global warming to an average 2°C.

But that bet has been proved wrong.

“Hopes that other countries would not take action to reduce the costs of climate change has contributed to the misjudgments that caused overinvestment in Australian resources production capacity over the past four years,” Garnaut writes.

“Failure to recognise the seriousness of other countries’ commitments to reduce emissions, most importantly China and the United States, has imposed large costs on the Australian economy.

“The total of these unnecessary costs may already exceed what would have been the cost to the middle of the century of timely implementation of Australia’s share of a global mitigation effort directed at holding temperature increase to two degrees.”

Garnaut agrees with the independent Climate Change Authority that Australia’s 2020 target should be increased from its current 5 per cent reduction on 2000 levels (including a Kyoto credit bonus that makes up 4 per cent), to a target of a 15 per cent cut by 2020 (not including the Kyoto bonus).

The post 2020 target should be set at the very minimum at minus 27.5 per cent by 2025, and minus 40 per cent by 2030. He said this equated to the lowest rate of reductions that would avoid placing unreasonable burdens on future Australians; and  are broadly in line with the targets of comparable countries.

Garnaut said a more even adjustment would require a target of minus 40 per cent in 2025 and a cut of more than 50 percent by 2030.

Garnaut’s comments come as the G7 prepares to hold a major meeting this weekend , with a focus on climate policy, ahead of two weeks of UN-sponsored talks in Bonn, which will help lay the framework for a global agreement in Paris later this year. It also comes amid a major lobbying campaign to prevent banks – or governments – from financing the massive coal mine developments and associated infrastructure proposed for Queensland.

The Abbott government is yet to spell out its post 2020 targets, despite numerous countries already doing so. It has suggested that the CCA proposals will create too much of a burden, and has insisted that its Direct Action policy – and using taxpayer funds to buy pollution abatement from industry – will form the heart of its policy.

This, however, has been decried as ridiculously expensive by almost all analysts. This week, it was revealed that most of the projects funded in the first auction of the Emissions Reduction Fund already existed. In short, it bought little new abatement. Labor has vowed to go to the next election with a new carbon price proposal, and has brought in climate change minister Greg Combet and former Treasury Secretary Ken Henry to help.

Garnaut said a 19 per cent cut by 2020 could be low-cost – just 0.02 per cent age points off their rate of economic growth – if the most efficient policies were adopted.

Failure to set a meaningful target would not only be a breach of domestic political and international commitments, it would also create economic problems for the future.

“The longer term targets that represent our fair share of the global effort are not diminished by weak early efforts. Accelerating emissions reductions after 2020 to catch up on slow early action would increase the costs of adjustment for Australians in future.

In addition, slow early action by Australia and other countries to the need for convergence toward near-zero emissions at an earlier date than would otherwise be the  case, and would lead to earlier exhaustion of the “carbon budget” that is consistent with holding temperature increases to two degrees.”

 

Comments

18 responses to “Garnaut: Cost of stranded assets already bigger than cost of climate action”

  1. Blair Donaldson Avatar
    Blair Donaldson

    So why is our federal government – who is quick to invoke the dreaded “debt” word when it suits – continuing to subsidise fossil fuels?

    1. Mags Avatar
      Mags

      Because big coal is funding the LNP.

      1. neroden Avatar
        neroden

        Bingo. LNP is basically Palmer United at this point.

    2. john Avatar
      john

      Because it is a historical method around the world when the only knowledge was FF so that is why it happens in every country.

  2. John Saint-Smith Avatar
    John Saint-Smith

    I doubt that an Environment Minister who has deluded himself over the success of his ‘direct action’ auction will be likely to understand the real opportunity cost of sinking billions into fossil fuel infrastructure on what will soon become worthless assets.
    Even in the unlikely event that climate change turns out to be a damp squib, renewable energy, so irrationally hated by this government, will be universally cheaper, cleaner and easier to deploy than coal!
    Combined with the effect of waiting until the last minute, when Australia will forced to take precipitate action to rapidly reduce emissions by 30% or more in order to avoid trade sanctions, this government may consign this country’s next generation to decades of misery.

    1. john Avatar
      john

      Climate Change is not a damp squid.

      1. Chris Turnbull Avatar
        Chris Turnbull

        You mean squib. I had to look this up after an entertaining episode of “The IT Crowd.”

        a damp squib
        (British & Australian)
        an event which people think will be exciting but which is disappointing when it happens
        Usage notes: A squib is a type of firework (= a small container filled with chemicals which explodes to produce bright lights and loud noises) and if it becomes wet, it will not explode.The party turned out to be a bit of a damp squib. Half the people who’d been invited didn’t turn up.

        1. John Saint-Smith Avatar
          John Saint-Smith

          I don’t know whether to laugh or cry.

    2. Jacob Avatar
      Jacob

      We do not know if Mr Hunt is a puppet of the PM.

      Hunt could be just saying what the PM wants without actually believing it.

      1. John Saint-Smith Avatar
        John Saint-Smith

        Is there an effective difference? Would it have mattered if Heinrich Himmler had been a mere puppet of his master or an independently evil man with a similar turn of mind?
        What would you say to Minister Hunt, if, following the political demise of Abbott, he immediately acted to reverse the insane policies he has so assiduously developed and defended for the past six years?
        “Good job”?

        1. Blair Donaldson Avatar
          Blair Donaldson

          “What would you say to Minister Hunt, if, following the political demise of Abbott, he immediately acted to reverse the insane policies he has so assiduously developed and defended for the past six years?”

          I’d be curious to know if he thought his connivance and power trip was worth the loss of credibility?

          1. John Saint-Smith Avatar
            John Saint-Smith

            To say nothing of the lost opportunity to do something meaningful about Australia’s greenhouse emissions, and our economic future.

        2. Jacob Avatar
          Jacob

          Well I do not follow the internals of the Liberal Party enough to know if Hunt developed anti-planet policies.

          Abbott is an absolute nutter though. So delusional about coal. I heard him spruiking a coal mine in front of the India PM after it was crystal clear that banks are refusing to lend money to the planet-destroying coal mine.

          1. John Saint-Smith Avatar
            John Saint-Smith

            Hunt graduated from Melbourne Law School with a Bachelor of Laws (First Class Honours), where he won a prize for a final year thesis he co-authored entitled A Tax to Make the Polluter Pay – similar to Labor’s emissions trading scheme, which requires polluters to buy the right to pollute

            This is the opposite of his crazy ‘Direct Action Scheme’, which pays the polluters taxpayer dollars not to pollute. The trick is, instead of buying permanent emissions abatement with roof insulation or a solar panel, which keep on working for at least 40 or 50 years, Hunt’s polluters go back to polluting the moment he stops paying them. The $660 million he’s spent buying 47 million tonnes of CO2 emissions, or about 0.8% of Australia’s present emissions, will run out in ten years, then he will have to spend the same or even more to bribe the same polluters to not pollute for another 10 years. If he wants more than 0.8% (he promised 5% by 2020) he’ll have to go back to the market with another fistful of dollars to buy some more temporary protection. And next time they will see him coming and put their prices up! It has been estimated that his scheme will be costing us $100 billion a year by 2050 to reduce emissions by 50% !

          2. Jacob Avatar
            Jacob

            Wow my gosh! Hunt got an honours degree and the thesis was titled “A tax to make the polluter pay”!

            So he must be a puppet of Abbott.

            If we had presidential elections in AUS, Abbott and Gillard would never have become PM.

            By 2050 the coal power stations would be superseded by renewables anyway.

  3. George Michaelson Avatar
    George Michaelson

    Q: what do we call a stranded asset?
    A: a liability

    Seriously: its an on-book disaster, which will leave a board looking bloody foolish if they signed off on a future-income capex, to see the future change. And, since its real physical infrastructure it has either maintenance opex (wasted) or removal/recycle costs which even without being nuclear will be huge. Think of the remediation costs on the spoil heaps, the asbestos insulation, the chemical residues..

    The longer they can keep the plants in operation mode, the less they have to care since the next board will deal with it..

  4. john Avatar
    john

    My feelings are these.
    Australia will present this new policy called ” Direct Action”
    and the esteemed minister will sell its virtues pointing out how it manages to get cheap abatement achieving goals that are unheard of with using a price on the cost of emitting co2.
    There is a small problem.
    Just who is going to ensure that the goals are actually happening?
    What type of monitoring is going to be done on real emission’s?
    And how exactly are we going to go to a low carbon economy under this regime?

  5. Paul Turnbull Avatar

    Garnaut nails it again – misguided investment in mining- if it had been directed to climate change action would have met our fair share. This Governments self talk about its financial capability is in shreds- Garnaut’s big picture wisdom is a stark contrast.

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