Australians should prepare for long-term changes to energy pricing as part of an effective policy response to climate change.
That's among the messages from a new CEDA research collection, Climate Change: Getting it right.
"Responding to the risk of climate change is a 100-year challenge," says CEDA's chief executive officer, David Byers. "This is not the five-year or ten-year challenge that our political process is used to. It will take decades to change the global infrastructure for energy in a way that preserves economic growth."
Mr Byers says the report's authors explore ways to reduce greenhouse gases with the minimum impact on economic growth. "We need the lowest cost approach and the biggest bang for our greenhouse buck," he says.
Climate Change: Getting it right includes nine papers from noted economists and climate change experts, selected for their ability to advance the Australian and international climate change debate. The collection is one of the focal points of a two-day international climate change conference which CEDA hosts this week in Sydney.
Papers in the collection, including those by Australia's Graeme Pearman and renowned MIT climate modeller Professor Ronald Prinn, agree that climate change poses potentially severe risks to Australia and the world.
Ronald Prinn, for example, concludes that if there are no significant efforts to curb greenhouse gas emissions over the century, there is a one in four chance of greater than 3 degrees C of warming between now and 2100. With significant policy intervention, however, the odds of exceeding 3 degrees warming drop to less than 1 in 20 while there is a greater than 90 per cent probability that warming can be held below 2.5 degrees C. Prinn also makes the point that predicted warming in 2100 is sensitive to the total emissions up to that time but relatively insensitive to when emissions occur. Higher emissions in the near term can gradually be offset by lower emissions later on.
The papers also warn that climate change policies must take account of uncertain knowledge of climate change and its effects.
The papers suggest deep cuts in emissions will only come when Australia significantly shifts energy production towards low-carbon-emitting technologies and cuts projected energy demand through gains in energy efficiency.
To do that, Australia needs a strong mechanism to produce a carbon price signal rising predictably over time. It also needs to invest in research and development of low emission technologies. This includes participating in global research and development efforts aimed at improving cost, technical viability and performance of low emissions technologies.
Measures that target specific technologies prematurely choose winning and losing technologies and will not reflect a least-cost approach. A broad portfolio of options is best, because we do not know with confidence:
The collection questions the common view that a carbon trading system is better than alternatives such as a carbon tax or a hybrid scheme. In one paper, former US Under Secretary of Commerce Robert Shapiro argues that a carbon tax is the most environmentally effective and economically efficient strategy for addressing climate change. In another paper, noted ANU economist and Reserve Bank board member Professor Warwick McKibbin and co-author Dr Peter Wilcoxen develop their case for a scheme they say combines many of the best features of a carbon trading system and a carbon tax and provides a credible long-term incentive for reducing emissions. The authors say we should focus on achieving a common world price for carbon rather than implementing a rigid system of "targets and timetables" for reducing emissions.
Other papers in the collection:
Mr Byers says that while the cost of reducing emissions is still highly uncertain, it will mean higher prices for energy.
"There's been a tendency in the political debate for all sides to tell people that policies to respond to climate change won't really hurt - that there are ways we can reduce greenhouse gas emissions in the near-term without having any effect on anyone's lifestyle.
"But there will be an impact as a pricing signal aims to provide a direct incentive to reduce carbon-based energy use and generate investment incentives for low emission technologies. Ultimately, we will need to bring forward technologies that allow continued economic growth without rising greenhouse gas emissions." he said.
University of Melbourne economist Professor John Freebairn says in the collection's introductory paper that under policies to fight climate change, consumers will suffer higher costs for goods and services that depend on cheap energy.
"Almost all of the cost increase of greenhouse gas mitigation policy interventions will be passed forward to consumers as higher prices," Professor Freebairn's paper says.
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