Top Stories 1 . Bickering over the cost of climate change
Canberra correspondent Bernard Keane writes:



At least economic consultants won't be too badly affected by the
downturn. The emissions trading debate has been a boon for them, with
industry groups regularly commissioning modelling to demonstrate the
disaster that awaits us if we try to do something serious about
reducing carbon emissions -- although, of course, they remain committed
to facing the very serious challenge of addressing climate change.

We've complained a couple of times about environmental groups and
the Greens failing to match this onslaught of dodgy numbers and flawed
assumptions. However, in September the Climate Institute produced a
commissioned report
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examining the question of whether it cost more to start slowly under an
emissions trading scheme and accelerate later, or to go hard early with
a higher carbon price, and whether complementary measures such as
renewable energy targets could reduce the cost of carbon abatement.

The report looked at the electricity industry specifically, and
concluded that long-run electricity price increases were lower under an
"early action" approach, especially if coupled with complementary
measures. The caveat was that in the first two decades, the costs of
early action were higher, but declined after 2030, whereas a soft start
meant much higher prices between 2030 and 2050.

The Australian Industry Greenhouse Network, an industry grouping of
Australia's biggest polluters (the coal, aluminium, forestry,
electricity, mining and steel industries, including the splendidly
named Australasian Slag Association), decided to hit back hard, hiring
Access Economics to reply with its own modelling.

Access is of course the biggest name in economic consulting, even if
their reputation for accurate prediction has taken a hit – along
with everyone else's -- over the last year. Yesterday AIGN released
the Access Report
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the not entirely unexpected conclusion that early action will cost
more.

However, even the biggest names are not immune from the "rubbish in,
rubbish out" principle, and the Climate Institute commendably
counter-punched
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immediately, pointing out the flaws in the AIGN report. It was telling
that Access didn't actually find any fault with the Climate
Institute modelling, conducted by McLennan Magasanik Associates.
Instead, Access opted to model the economy-wide consequences of the
Climate Institute scenarios, rather than those for the electricity
industry, which was the subject of the original report.

Fair enough, you might think. Except Access cut off its modelling at
2030, and declared the contest over. "The economic costs projected
under the `early action scenario are projected 41-45 per cent
higher than the `soft start' scenario over the period 2010-30."

Conveniently, 2030 is about the point in the MMA modelling when the
costs of `early action' are overtaken by those under the "soft
start" option for most scenarios. Thereafter, the cost of carbon
permits under the latter option overtakes that of the "early action"
scenario and the gap continues to widen for the next two decades.

The disparity is nicely illustrated by a graph that shows that carbon
price the electricity industry would face under the different scenarios
-- and the benefits of complementary measures.

This makes intuitive sense. Doing more earlier to reduce carbon
emissions drives the switch to a low-carbon economy more quickly.
Leaving it merely delays the costs associated with that switch -- and,
although the modelling doesn't capture it, increases the costs of
climate change.

But even when Access stops the game at half-time and declares victory,
it can't muster a convincing set of numbers. It concludes that an
"early action" scenario leads to a GNP being 0.5% lower in 2030 that it
would have been under a "soft start". That's about two months'
economic growth.

To dramatise it, Access relies on the trick made famous by Brian Fisher
at ABARE, of calculating the financial value of that GNP difference in
current terms to suggest some vast imposition on Australians.

"Australian GDP is a cumulative $200b lower under an 'early action'
scenario to 2030," its report says. The only surprise is that they
didn't add that that's $10,000 for every Australian.

This is about more than duelling models and economists for hire. The
arguments of advocates of delays and "soft starts" in emissions
trading are relying on our natural tendency to put off difficult tasks.
It's easy to commit ourselves -- those of us who'll still be
around then -- to harder action on climate change in 2030. Strangely,
human nature won't change by then. Come 2028, the descendants of
the AIGN will start lobbying for further delay. There might be another
economic slowdown then, or a need to get the details right, or Burkina
Faso and Liechtenstein won't have started emissions trading yet and
we don't want to lead the world now do we. Meantime, carbon levels
rise, increasing the costs of climate change and adapting to it.

The economics say act as soon as possible.



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