Climate Change Mythbusters

If there’s one single lesson about the politics of economic reform in Australia, it’s that the politics are never easy. Climate change is no different. Whether it’s vested interests overplaying their hand, or the Coalition confusing opposition with opportunism, reformers need to fight fear with facts.

Here are ten common myths about climate change.

Myth 1: Climate change isn’t real.
Simple temperature data show that the world is warming. Globally, 2010 was the warmest year on record. If you’re aged under 35, then every year of your life has been hotter than the 20th-century average. In Australia, every decade since the 1940s has been hotter than the preceding decade.

Myth 2: Climate change isn’t caused by human activity.
The vast bulk of scientific evidence points towards human activity as the cause of climate change. For a straightforward overview of the science, see the summary put out by the Australian Academy of Science last year, which stated ‘The role of greenhouse gases in the atmosphere is qualitatively well understood. It is known that increasing the atmospheric concentration of the principal anthropogenic greenhouse gas, CO2, leads to higher mean global surface temperatures.’

Myth 3: Australia is moving ahead of the world.
Already, 32 countries and 10 US states have emissions trading schemes. Other countries have policies that effectively act as a carbon price. In Europe, emissions trading schemes are fostering innovation. For example, Ecogen has devised a technology that will generate heat and hot water, Novacem has developed cement that it claims is carbon-negative, and Sorption Energy has developed an absorption heat pump for use in houses and cars.  As the most carbon-intensive economy in the developed world, the risk for Australia isn’t moving too quickly – it’s being left behind.

Myth 4: The carbon price debate is causing electricity prices to rise
It’s true that electricity prices have increased substantially over recent years. From 2007 to 2010, real electricity prices rose by 32 percent. But this increase is largely due to higher costs of transmission and distribution, as well as uncertainty regarding the carbon price among generators. Capital investment in the electricity sector requires the certainty of a carbon price. Without a carbon price, we are unlikely to see sufficient investment in zero-carbon generation technologies (such as wind and solar) and low-carbon generation technologies (such as gas).

Myth 5: We can deal with climate change without a carbon price.
A central insight of economics is that if you want to reduce pollution, the best way is to put a price on it. Because Tony Abbott’s plan misses that fundamental truth, his plan is both expensive and ineffective. The inconvenient truth for the Opposition is that if you want to subsidise alternatives to carbon pollution, you need a lot of money ($30 billion, to be precise). The only way of raising that money is through taxation. And the most likely source of tax revenue they would turn to is personal income taxation. That means that under Mr Abbott’s plan, your income taxes would need to go up to pay for the Opposition’s grab-bag of subsidies. While the Gillard Government is proposing to raise the price of carbon pollution, the Opposition’s scheme will most likely raise the price of work. While we want to tax polluters, they want higher taxes on workers.

Myth 6: Business doesn’t support a carbon price.
Companies like AGL, Linfox, Fujitsu, BP, Better Place, IKEA, Kell & Rigby, Alstom, Pottinger, ARTC and Pacific Hydro have backed a carbon price. In their words “[p]ricing carbon is critical to providing business certainty and unlocking the jobs and investment that will accompany the transition to a prosperous, cleaner and internationally-competitive economy.”

Myth 7: The proposed emissions targets are too timid
Under our climate change plan, Labor has committed to emissions in 2020 that are 5% lower than they were in 2000. In terms of emissions per dollar of output, this represents a halving of our emissions intensity from 2000 levels. We want our economy to grow, so Australians can enjoy higher living standards. But we need to decouple economic growth from environmental pollution. As a nation, we have done this before. Once it was thought that urban air pollution was an inevitable consequence of economic growth. But over recent decades, we have managed to increase the size of our economy while cleaning up the air quality in our cities.

Myth 8: Labor has been inconsistent on carbon pricing
In the 2007 election, both Labor and the Coalition promised voters a price on carbon. Labor has always argued that in the long-run, the best way to do that is through an emissions trading scheme, in which the government sets the number of pollution permits and the market determines the price. In the last term of government, we attempted to do this through the Carbon Pollution Reduction Scheme, which had a fixed price for the first year, and a price cap for the next four years. Now, we are proposing that carbon pricing should be implemented with a fixed price for the first three to five years. The economic reality is that these schemes are fundamentally very similar. The backflip in the climate change debate is Tony Abbott’s, who won his job as Opposition Leader by being a self-described political ‘weathervane’ on the issue of climate change. Mr Abbott supported carbon pricing in the 2007 election – but has now staked his leadership on denying both mainstream science and mainstream economics.

Myth 9: A price on carbon will be costly for business
In his address to the National Press Club, Greg Combet pointed out how small the price impacts are likely to be, using the example of a $20 per tonne carbon price and the assistance package that applied under the former CPRS.

At $20 in the steel industry, the average carbon price after 94.5 per cent assistance for the core pollution intensive activity would be around $2.60 per tonne of steel, out of a price per tonne of steel of around $800.

In the aluminium industry, the average carbon price after assistance for the core pollution intensive activity would be around $18.70 per tonne of aluminium, out of a price of around $2,500 per tonne of aluminium.

In other words, the carbon cost relating to the core pollution activity for steel would be one third of one per cent of the value of a tonne of steel and three quarters of one per cent of the value of a tonne of aluminium.

Another reason why costs are likely to be low is that market mechanisms harness the ingenuity of entrepreneurs to serve environmental ends. When the US used an emissions trading scheme to tackle acid rain, the costs ended up being one-third of what had been projected, because those setting up the scheme didn’t predict all the creative ways that firms would reduce pollution.

Myth 10: Carbon pricing will be costly for households.
The Federal Government has committed to spending at least half the revenue from a carbon pricing scheme on assistance to households. Because we are a Labor Government, this will be focused on those most in need. Only Labor can be counted on to improve the environment, foster economic growth, and look after the neediest.

(Cross-posted at the ALP blog)

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