Endless tinkering no way to win the carbon game

China has joined France, Japan, South Korea and the United Kingdom to make up the five G20 nations best positioned to prosper in the face of growing global carbon constraints. This is the conclusion of the latest iteration of The Climate Institute/ the GE/ Climate Institute Low-Carbon Competitiveness Index released today.

There are several striking aspects about this leading group of countries.

One significant element they have in common is that they are playing a long game. They recognise that global resources are constrained and/or that the low-carbon transition is underway. They are positioning themselves to prosper in this new reality, using a wide range of instruments from the carbon cutting toolbox.

However, in almost every other respect, they are a mixed group. Not only are their economies very different from each other, but their approaches to low-carbon competitiveness are diverse. Each country is pursuing a range of self-interested goals, including industry development, energy security, pollution reduction, political stability and improvements in productivity. Emissions reduction may be an objective, or a welcome by-product.

These countries also show a range of competitive advantages. South Korea’s economy is the most oriented to high-value, high-technology exports. France has the least emissions intensive electricity sector and very efficient industrial and transport sectors. China is the world’s largest producer of solar panels – from which it now earns $36 billion a year in export revenue, as much as it does from shoe manufacturing. This year it is also forecast by Bloomberg analysts to become the world’s largest solar consumer.

Contrast this group with Australia, which is ranked at 17 out of 19 in the Index. Australia’s absolute score, which had been deteriorating over previous assessments, actually improved slightly. But this turnaround is fragile.

With the implementation of the Clean Energy Future package – which was too recent to affect the Index data – Australia is finally moving in the right direction. However, our nation’s highly polluting power sector, economic dependence on emission-intensive exports, inefficient use of energy, and extraction of natural capital will become greater economic liabilities as the world moves to limit pollution.

Note that three of the top five are Asian countries and the main consumers of Australia’s resources. The shift in low-carbon policy and investment momentum from Europe to Asia is another strong signal that our regional economic environment is transforming.

Unfortunately, in contrast to the strategic approach taken by our neighbours and key trading partners, Australia is at risk of destroying the fragile improvements that we have made.

Not only are the carbon laws under threat of repeal, but in recent weeks the attacks on the Renewable Energy Target (RET) have heightened. Strikingly, many of those calling for the RET to be reviewed yet again with a view to cutting down the 41,000GWh large-scale target are among the initial supporters of the scheme.

The motives behind this inconsistency have already been explored, but it’s worth noting that those arguing to cut the target focus on the short-term costs (although independent modelling puts these at $15 a year per consumer) and avoid mentioning the costs of uncertainty or the long-term costs of fossil fuel dependence.

The RET is a strategic investment in the decarbonisation of the electricity sector. It enables Australia to build on its natural advantages in renewable resources, maintain the growing domestic clean energy sector and hedge against the impacts of rising gas prices and global carbon costs. Sacrificing these objectives to appease vested interests is a costly move that only becomes more costly over time.

Lord Nicholas Stern , economist and author of The Stern Review on the Economics of Climate Change, has noted that “a great competitive margin in the world over coming years is going to be carbon and energy productivity. Countries that slip behind in relation to energy and carbon productivity are going to damage themselves, their competitiveness and prosperity.”

Australia literally cannot afford to keep chopping and changing its carbon policies.

Olivia Kember and Erwin Jackson, The Climate Institute