Change economic climate in response to global warming: CSIRO

April 8, 2007


Sir Nicholas Stern, author of a report on the economic impact of climate change, has challenged Australia to slash greenhouse gas emissions by 30 per cent over the next 13 years, or risk a level of devastation that could rival the the world wars.

But Prime Minister John Howard says aiming for such a target could harm the economy.

The government argues that Australia, which derives much of its wealth from fossil fuels, can't take action that puts it at an unfair disadvantage against the rest of the world.

"History is littered with examples of nations having overreacted to presumed threats to their great long-term disadvantage," Mr Howard recently told parliament.

CommSec chief equities economist Craig James agrees pursing emission reduction targets, would be harmful to the economy as the nation is heavily dependant on its coal and energy industries.

"If you have got a significant energy producer, such as Australia, and those energy resources are needed by the rest of the world, then there has to be a special case compared with the energy consumers around the world," he said.

But Commonwealth Scientific and Industrial Research Organisation (CSIRO) economist Steve Hatfield-Dodds says meeting targets, including a proposed 60 per cent cut in national emissions by 2050, is consistent with significant improvements in living standards and ongoing economic growth.

The CSIRO policy economist rejects the idea that action to reduce greenhouse gas emissions would result in economic disaster.

"The economic studies such as the Australian Business Roundtable for Climate Change, suggest making deep cuts over long time periods is likely to have almost no impact on the economy as a whole," he said.

With early policy action, trend gross domestic product (GDP) growth would run at 2.1 per cent per annum, rather than 2.2 per cent per annum with no action, Dr Hatfield-Dodds said.

"A significant share of people seem to think that making these big cuts involve reductions in living standards, yet there are no models that show this," he said.

He likened the reforms to tariff reform or a free trade agreement, where economic impacts are manageable if they are implemented carefully over time with attention paid to sectors that may need special assistance.

However, Mr James said it's too early to tell how much it would cost the economy to meet emission reduction targets.

"There has been a lot of focus about the need to do figure work and about how much it is going to cost the economy, but we simply just don't know," Mr James said.

"We can do estimates on most things, particularly things which have a track record like economic growth or labour markets, but climate change is a big unknown.

"I think federal Treasury have been unfairly criticised for the failure to fully account for climate change."

But Dr Hatfield-Dodds argues estimates for carbon dioxide emissions for nearly all countries dating back about 100 years are available.

"The real issue in estimating policy impacts is that it is difficult to model innovation processes in the economic models," he said.

Part of the dilemma the government faces is that the international science has moved faster than the international negotiations.

When the Kyoto Protocol agreement was first debated it was thought to be extraordinarily radical.

But now it is criticised for not being radical enough, Dr Hatfield-Dodds said.

A key assumption of economic models is that emissions reductions will be driven by a carbon trading scheme.

This effectively decouples greenhouse emissions from economic growth, and would raise significant revenue that could be used to reduce taxes in Australia.

While in Australia last month Sir Nicholas noted the country was in a strong position to lead a coalition of developed countries in making deep emissions reductions.

"Australia has a special role, in terms of its international relationships with the United States, with Europe, with Africa, with countries around the world," he told ABC televisoin.

"Australia is in a very good position to start building the international coalition that's going to be necessary here."


