Market Needed to Drive New Technology


One thing that makes people disillusioned with politics is the tension between short political election cycles and the vision required for planning the long term future.

But with climate change, the problem and the solutions needed to address it extend not only beyond political cycles, but over lifetimes.

It’s not just about whether children born today will ever get to see the natural splendour of the Great Barrier Reef. It is also about planning for our economic future, knowing that the costs of adjustment to a low carbon economy will increase in direct proportion to the delay in action.

This was recognised at the Montreal UN Climate Summit when the 157 countries that have ratified the Kyoto Protocol determined to strengthen and extend it beyond 2012.

Thanks to Hinze

Of the industrialised world only the United States and Australia remained on the outside looking in.

In spite of this, the Montreal Summit was a triumph. It is a timely reminder that hegemony does not automatically accrue to the most powerful, for in spite of the attitude of the prevailing elite in Washington, there is enormous movement in the United States towards adopting strong action to avoid dangerous climate change.

This momentum comes from across the political spectrum.

The US, under George Bush Senior, signed the UN Framework Convention on Climate Change at Rio in 1992.

Under Bill Clinton, the US agreed to a Kyoto target of 7 per cent reduction in greenhouse gas emissions in 1997.

Indeed the architecture of the Kyoto Protocol reflects the influence the US administration had at that time. The key to the Kyoto Protocol is using flexible market-based mechanisms through emission trading to drive cost reductions.

Many of the current Kyoto critics, including the Howard Government, conveniently ignore how its structure came into being. Of course, at this time Australia also received generous concessions of a 108 per cent target and the inclusion of land use changes. John Howard declared that Kyoto was ‘a win for the environment and a win for Australian jobs’.

Kyoto followed the emissions trading model adopted in the United States for sulphur dioxide. This emerged as an amendment from the Clean Air Act of 1990 and was successful in stemming the acid rain sweeping across the nation. This was George Bush Senior’s major environmental achievement and is hailed by current Bush appointees Jim Connaughton and Sam Bodman.

Last year, Republican Senator John McCain and Democrat Senator Joe Lieberman sponsored a bill to introduce emissions trading in the US, which was opposed by the White House.

As in Australia, US states have taken action in the absence of national leadership. The north east states, including New York, have formed the Regional Greenhouse Gas Initiative to introduce a cap and trade scheme. During the Montreal Summit, Australian states met with US and Canadian counterparts to discuss linking their emissions trading schemes. More than 50 major US cities have adopted emission reduction targets based on Kyoto. 28 states have climate action plans.

Perhaps most impressive is the leadership of California Republican Governor Arnold Schwarzenegger who has adopted a target of terminating 80 per cent of emissions by 2050. This month he backed that up with real action, through the California Solar Initiative, a US$3.2 billion program providing rebates for solar energy with the highest rebate being for those residents and businesses that act quickly. This contrasts with the pathetic $5 million a year the Howard Government committed to renewable energy at the recent Asia Pacific Climate Pact meeting.

At the Chicago Climate Exchange, 81 major companies, including Du Pont, Bayer, Ford and IBM have adopted voluntary but legally binding targets and emissions trading.

Carbon trading will represent the world’s biggest market and is up and running. Major corporations in the United States are preparing the way for the post-Bush era. Even in the world’s strongest economy this is smart business practice. For an economy the size of Australia this is an imperative.

History tells us that having good intentions has not been enough to achieve positive environmental outcomes in other areas. Indeed, companies have fiduciary obligations to achieve the best possible outcome for their shareholders. Just ask the victims of James Hardie.

The notion that voluntary self-regulation will avoid dangerous climate change is a triumph of hope over experience. As Eileen Claussen of the private Pew Center on Global Climate based in Washington stated, ‘if you really want results, you have to do something that’s mandatory. It’s not going to happen with voluntary approaches’.

The Australian government has moved away from the climate sceptics in acknowledging the reality of climate change. It is now time to move away from the market sceptics and embrace the future. Not only does our environmental conscience tell us this, so does our economic interest.

The notion that there is a choice between new technology and mandatory targets is false. Everyone supports new technology. We need the pull of the market as well as the push of new technology to ensure it is deployed. That is why market mechanisms are at the core of Kyoto’s key instruments of Emissions Trading and the Clean Development Mechanism to encourage deployment in developing countries.

The necessity of market mechanisms has been acknowledged by some Government members, ‘but not yet’. This is the equivalent of a footy coach directing their team not to tackle until after halftime.

It is obvious that failing to price carbon restricts the demand for zero or low carbon technologies. Without economic mechanisms, existing and new technologies will simply not be rolled out to the extent required. This is recognised in the economic modelling done for the Climate Pact, which predicts a best case scenario of a doubling of emissions by 2050.

Avoiding dangerous climate change requires urgent action.

Labor is committed to ratifying the Kyoto Protocol, introducing a national emissions trading scheme and significantly increasing the mandatory renewable energy target.

The Howard Government’s failure on this issue highlights a critical difference between the major political parties.

Younger generations will record those climate sceptics who deny human contribution to climate change as being, at best, misguided.

Those who acknowledge the problem of climate change but fail to take serious action will be judged far more severely.

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