Is It True, Or Did You Read That in The Australian?

Duty Calls

Having been exposed to it for a while now, I thought that by now I have gotten used to the, um, let’s say outlandish or cobbled together coverage of climate change and climate policy related topics in The Australian. But… I was wrong. Geoffrey Lehmann, Peter Farrell, and Dick Warburton (LFW) have taken it upon themselves to, um, again, what word to use… interpret climate science and climate policy their way in a magazine extract (Quadrant magazine, March 2011, 3(3)) printed in The Australian’s Inquirer (April 9-10, 2011, pp. 1 & 6). Of course The Australian did not waste any time supporting the misrepresentation of climate change-related facts.

Duty calls! Let’s go on a fact-finding mission.

Fact #1: None of them has a proven track-record in anything climate change-related, but they have read and build most of their arguments on the Hartwell Paper.

LFW begin their authorial “masterpiece” by declaring that Dr David Viner’s statement – or as they call it “millenarian prediction” -  about snowfall becoming a rarity was “a dud”. They move on to claim that in 2000, there was a “pause” in global warming and that it has not “resumed” since then. They base their statement on a NASA satellite image showing dated January 7, 2010, showing Great Britain entirely covered in snow.

Fact #2: They should have read the entire article instead of just taking a convenience sample out of context. At the end of the article (to which they are referring to), one can read the following: Heavy snow will return occasionally, says Dr Viner, but when it does we will be unprepared. “We’re really going to get caught out. Snow will probably cause chaos in 20 years time,” he said. If anything, he got the time “wrong”, but then again, it is still in line with recent climate science suggesting a stronger-than-expected and sooner-than-expected climate forcing (e.g., UNEP Science Compendium 2009: 8).

Fact #3: Global warming has not paused since 2000. Different reports (e.g., Murphy et al., 2009) show that, overall, 2005 was one of the hottest years. Globally, the hottest 12-month period ever recorded was from June 2009 to May 2010.

Fact #4: Unfortunately, the authors’ chain of causalitydoes not extend beyond two links: snow + eyes = science and no global warming. Well, unfortunately for the authors, it is a little bit more complicated than that. Again I would like to refer to a nice summary of the climate science on skepticalscience.com: Warming causes more moisture in the air which leads to more extreme precipitation events. This includes more heavy snowstorms in regions where snowfall conditions are favourable. Far from contradicting global warming, record snowfall is predicted by climate models and consistent with our expectation of more extreme precipitation events.

LFW then actually get the explanation of an emissions trading almost right – although emissions trading scheme is not necessarily the same as a cap-and-trade systemNSW’s Greenhouse Gas Reduction Scheme, for example, is an emissions trading scheme, but one that is based on baseline-and-credit approach. Anyways, they move on to criticise the effectiveness of Clean Development Mechanisms (CDM) and claim that it is “perverse to create a reward for otherwise uneconomic activities”. One problem with this statement is their definition of a CDM: “Credits are awarded only if a certifier hypothesises before an emissions-reducing activity is undertaken, that it would not occur unless the credits were awarded: the creditable activity must be uneconomic without the credits”. This is simply too inaccurate.

Fact #5: Firstly, let’s get the definition right. Article 12 of the Kyoto Protocol defines the clean development mechanism: The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under article 3. In layman’s terms, it allows developed countries to satisfy their obligations under the Kyoto Protocol by helping developing countries to reduce their emissions.

Moving on to the issue of “uneconomic activity”. Again, the authors are not sufficiently accurate. What they meant to say (Right, guys? Guys?) is that CDM projects must be “additional”, i.e., emission reduction projects creating those credits must be shown to be “in addition to” reductions that would have otherwise occurred. The proposed CDM project must be able to demonstrate that CDM funding played a central role in determining whether to realise the project or not. The CDM project must be unattractive due to some financial, legal, or institutional barrier without the additional economic incentive provided by, e.g., an emissions trading scheme. Given that the authors speak of rich and poor countries, this may make the functioning of the CDM even easier to understand. Ideally, this links to other UNFCCC activities related to cooperation and support, such as technology transfer to and capacity building in developing countries – which may lack the governance and/or financial structure to see through emission-reducing activities on their own. In addition, a CDM must be measurable, independently verified, address leakage and permanence, and the overall project quality.

As for the “hypothesising” part, CDM projects have to go through a set of defined milestones from the conceptual idea through to actual project realisation, and be approved by the CDM Executive Board. An overview of the entire CDM process can be found on the UNFCCC’s CDM website.

Is the system perfect? Certainly not. But LFW compare apples with oranges when  they link emissions trading to the causes of the Global Financial Crisis and the collapse of Enron and Lehman Brothers. They claim that the market is not the best mechanism for setting a carbon price because Enron and Lehman Brothers were active participants in the international carbon market.

Fact #6: While it is true that both companies have been involved in emissions trading, it seems highly unlikely that emissions trading alone led to the demise of those two companies. Enron’s collapse had to do with recorded assets and profits being inflated or even nonexistent. The company established numerous limited liability special purpose entities, allowing Enron to place liability so that it would not appear in its accounts. Lehman on the other had faced significant losses subprime mortgage crisis, holding on to large positions in subprime and other lower-rated mortgage tranches when securitising the underlying mortgages. And of course, some ‘creative accounting’ was also involved towards its end.

Have financial services firms been dissolved since then, given the risk of fraudulent behaviour? Have the accounting scandals around the big consulting companies stopped? The E&Y’s, pwc’s, etc., are all still around. Insurance policies are still being sold, despite cases of insurance fraud. What then is the argument? That because there have been cases of fraudulent or wrongful behaviour, this does not permit a generalising statement about the entire market/system? Hmm…

The authors also fail to mention that despite incidents in the EU, such as the phishing scam last year, or the suspension of the spot market early this year as the result of allowances theft, the EU is improving its registries and their security. One would wish for the same level of transparency in other markets. Emissions trading is an emerging marking, and thus more likely to be at risk to fraud as rules and regulations for operating those markets are – for now – less developed or standardised. And despite all the criminal activity, US$118.5 billion worth of emissions permits were still traded across the EU ETS in 2009.

What is more, emissions trading was never really intended to be a money-making market, but a finite market to ensure an environmental outcome.

Furthermore, according to LFW, the European Union’s Emissions Trading Scheme market crashed three times since 2005.

Fact #7: Setting the cap for an ETS right, the maximum number of allowances available, requires good knowledge of historical emissions of the entities covered by the scheme. This was not the case in the first phase of the EU ETS (2005  -  2007). As a result, the EU’s ETS market crashed once. In 2007 – after the release of verified emissions data in March 2006 for 2005. Actual emissions were much lower than expected, meaning that the EU ETS was in fact over-allocated. There were fewer emissions than allowances, the price for permits dropped to nearly zero. This problem has been rectified in the second phase of the EU ETS 2008 – 2012) with actual emissions data being available, National Allocation Plans being carefully assessed by the European Commission, and allowances not allowed to be banked between phases I and II.

The risk of an over-allocation of permits in Australia seems rather low, given the existence of the National Greenhouse and Energy Reporting System, which was introduced in 2007 to underpin the the introduction of an emissions trading scheme. Wait, 2007? Wasn’t that the Howard government? Yup. The issue in Australia is going to be about industry and household support.

LFW also put forward that businesses need certainty, and that neither emissions trading nor a carbon tax can provide that certainty.

Fact #8: In December 2009, Mr Wharburton has actually expressed his preference for the introduction of a carbon tax, claiming it provides the certainty businesses need/want.

Businesses already know that a price on carbon is very likely to come in the near future, be it in form of a carbon tax or an emissions trading scheme. But rather than coming to grips with the two different approaches and working proactively towards reducing any potential liabilities, any opportunity to randomly rant about the impacts of a “big bad tax on everything” on the poor Australian families is being used.

The selection and implementation of either emissions trading or a carbon tax depends on what is to be controlled: emissions or costs. Under an emissions trading scheme, companies will have to decide whether it is more economical to reduce their emissions or buy additional allowances from elsewhere. Thus, emissions trading provides companies with an incentive to reduce their emissions and to improve and invest in low-carbon technology to reduce emissions and costs.A carbon tax might provide certainty in the cost of compliance and lower administrative costs, making it possibly easier to plan long-term investments, that is, if the tax rate remains fixed or known for the period of the investment. However, under a carbon tax, there is no limit on the amount of emissions. In other words, there is no connection between released emissions and the degree of the tax because there is no cap on emissions. This potentially sacrifices environmental certainty for price certainty.

The problem is that when implementing a carbon tax, the government must decide on the level at which the tax should be set, particularly in the case of pre-existing taxes, or other potential distortions such subsidies to certain industries, fuels, or technologies. How will the tax be used? Should the tax income go directly into Greg Combet’s coffers? Should it be used to offset other taxes (i.e., the double-dividend effect)? Maybe it should be transferred across national boundaries to an international body and allocated to those most adversely impacted by either the costs of emission reduction or damage from climate change (i.e., adaptation and mitigation funding – yes, I know, that’s a good one)? Or should it be invested in specific abatement projects, such as renewable energy? Or as Mr Tony Abbott suggests, planting millions of trees?  And if the tax is intended to achieve a given overall emissions limit, the tax rate will need to be increased to offset the impact of inflation, new technological progress, and new emission sources. Furthermore, it is unlikely that political gamesmanship in the form of debates on industry support or exemption would be eliminated. There would still be the temptation to change taxes or push through (politically motivated) manipulations designed to benefit certain companies or industry sectors, undermining any long-term certainty and hindering necessary investments in low-carbon technologies.

As mentioned above, many opinions are actually based on the London School of Economics and Political Science Hartwell Paper, a report demanding a radical change of approach to international climate policy. Of course, the authors conveniently chose to conceal the fact that principal Funding was provided by the Japan Iron and Steel Federation and Japan Automobile Manufacturers Association, the Nathan Cummings Foundation, and the Foundation Hoffmann. I leave it to you to closer investigate the two latter foundations, but the first two should be interesting. Especially given Japan’s reluctance to extend the Kyoto Protocol and ambition to develop an “alternative” to the Kyoto Protocol.

I will not go into too much detail here, but in my opinion, the Hartwell Paper offers little insight into how this alleged needed change is to be achieved, let alone how it is going to be financed. It focuses on criticising the sobering outcome of the COP15 in Copenhagen in 2009 (we conveniently ignore events in 2010), stating that the Kyoto Protocol has failed – influenced by Japanese interest much? Instead, they call for credible long-term global commitments and methods to invest in energy innovation (Hartwell Paperp.34). Energy innovation in this context refers to an article by Galiana and Green published in Nature, in which they argue that a fostering technology revolution, not setting emission targets is the key to addressing climate change. How is this different to the Kyoto Protocol and UNFCCC? How is replacing one global agreement with another one be the better option? You still would have to deal with 195+ countries (195 parties to the UNFCCC plus any other countries that would want to join the credible commitment). And don’t the Kyoto Protocol and UNFCCC have mechanisms that are intended to trigger that technological revolution?

A discussion of the technological and commercial viability of renewable energy will not be part of this little post, but I am surprised to see LFW taking a critical stance towards carbon capture and storage technology – and rightfully so.

LFW also mention Bjorn Lomberg, author of “The Skeptical Scientist”, saying that there are many worthwhile cause to fund with our taxes and philanthropic dollars that rank ahead of global warming, such as ensuring safe drinking water and educating both sexes in poor countries, eliminating malaria and other tropical diseases, maintaining biodiversity and cleaning up real pollutants. That, by the way, is the same Bjorn Lomberg who is now is urging world leaders to invest heavily in clean energy.

Fact #9: Many of these worthy causes have to deal with challenges of climate change. according to the Climate Change Synthesis Report by the University of Copenhagen, the observed temperature rise to date, about 0.7oC, is already affecting health in many societies. Beyond the direct impacts on health, climate change also affects the underlying determinants of health – quantity and quality of food, water resources, and ecological control of disease vectors. The risks arise from direct stresses (e.g. heat-waves, weather disasters, workplace dehydration), from ecological disturbance (e.g.altered infectious disease patterns), and disruptions of ecosystems on which humanity depends (e.g. health consequences of reduced food yields), from population displacement and conflict overdepleted resources (water, fertile land, fisheries). Biodiversity is at risk because of changed weather and climate patterns  (see, e.g., UNEP Climate Change Science Compendium 2009). And “real” pollutants? seriously?

What do they think we are trying to achieve? Just trying to adapt because adaptation to adverse climate change, if and when it does occur, may be the best and only viable strategy? Having to adapt to climate change may mean that it is already to late, while mitigation may provide us with the opportunity to alleviate some of the worst effects, to prevent a runaway effect of dangerous climate change.

The Garnaut Climate Change Review – Update 2011 | Opinion

In November 2010, Professor Ross Garnaut was commissioned by the Australian Government to provide an independent update to his 2008 Climate Change Review. He is also an independent expert adviser to the Multi-Party Climate Change Committee. The Garnaut Climate Change Review – Update 2011 will release a series of papers in early 2011 and present its final report to the Australian Government by 31 May 2011.

The purpose of the Garnaut Climate Change Review – Update 2011 (the Update) is to provide an overview of developments in key areas such as international policy, climate science, emissions trends, policy instruments (i.e., a price on carbon) and technology since the initial 2008 Climate Change Review. The Update will be comprised of eight papers:

1. Weighing the costs and benefits of climate change action
2. Progress towards effective global action on climate change
3. Global emissions trends
4. Transforming rural land use
5. The science of climate change
6. Carbon pricing and reducing Australia’s emissions
7. Low emissions technology and the innovation challenge
8. Transforming the electricity sector

So far, the first three papers have been released on February 3, 7, and 11. The fourth paper is due on March 11.

The first update paper “Weighing the costs and benefits of climate change action” finds that:

• the Review’s choice of discount rate was sound and that the Australian case for climate change action is not affected by reasonable variations in the approach to choosing a discount rate;
• the presence of uncertainty in the range of possible climate outcomes strengthens the case for climate change action;
• the Review’s approach to the treatment of developing countries as part of a global response remains a robust and ethical basis for a long-term solution;
• the case for substantial and well-designed Australian action to encourage international agreement on climate responses remains compelling; and
• while the current and prospective realities of damage from climate change warrant effective efforts on adaptation, this does not weaken the case for strong focus on mitigation.

This is nothing new and should not come as a surprise. The proposition that the (economic) risks of inaction in the face of climate change are very severe, and that action, adatation to and mitigation of climate change, is worthwhile and likely to reduce these risks has already been strongly advocated, not only by the IPCC, but also by Stern in his Review on the Economics of Climate Change in October 2006 – 4.5 years ago. Of course there has been a lot of debate and criticism around the discount rate, but one might argue that what constitutes the “optimal” discount rate lies in the eye of the beholder. Stern and his team have released responses to the criticism in 2007 and 2008.

The case for strong and urgent action set out in the Review is based, first, on the severe risks that the science now identifies (together with the additional uncertainties [...] that it points to but that are difficult to quantify) and, second, on the ethics of the responsibilities of existing generations in relation to succeeding generations. It is these two things that are crucial: risk and ethics. Different commentators may vary in their emphasis, but it is the two together that are crucial. Jettison either one and you will have a much reduced programme for action—and if you judge risks to be small and attach little significance to future generations you will not regard global warming as a problem. It is surprising that the earlier economic literature on climate change did not give risk and ethics the attention they so clearly deserve, and it is because we chose to make them central and explicit that we think we were right for the right reasons.

It should be obvious that the risks posed by climate change raise a set of significant issues that go far beyond those related to discounting.

The second paper’s (“Progress towards effective global action on climate change“) key points are:

• The 2008 Garnaut Climate Change Review said that strong mitigation, consistent with Australia’s national interest, requires effective global action, with Australia playing its proportionate part. Effective global action requires comprehensive agreement among countries.
• The Copenhagen meeting in December 2009 and the Cancun meeting in December 2010 moved the world towards several elements of such agreement, but away from one important element.
  - The reality of considerable positive movement is obscured by the diplomatic fiasco at Copenhagen, which was rescued from comprehensive failure by the President of the United States reaching an understanding with leaders of China, India, Brazil and South Africa during the meeting itself.
• The Copenhagen and Cancun meetings have led us into a messy world in relation to the setting of each country’s ambitions on emissions reductions. But they have embodied strong progress on several crucial and difficult issues, and may have laid a basis eventually for the comprehensive and binding international agreement that is still necessary to avoid high risks of dangerous climate change.
• Most developed countries—members of the European Union, Japan, New Zealand and now Korea—are reasonably well placed to make full contributions to achieving strong global mitigation goals.
• Major developing countries seemed to be sources of weakness at the time of the Review, but are now making large emissions reductions below business as usual. Chinese climate change policy is at the centre of the international effort to reach global agreement, because it is the world’s largest source of greenhouse gas emissions, because it is by far the largest prospective source of emissions growth, and because economic and strategic competition between China and the United States is important in the policy dynamics of both countries.
• The three countries which have been the largest drags on the global mitigation effort are the three highest per capita emitters amongst the developed countries—Australia, Canada and the United States.
• The United States faces large domestic constraints on early action, but is still committed to a significant reduction in emissions. It is also benefiting from favourable developments, such as the ‘gas revolution’, in its efforts to reduce emissions.
  - The United States commitment is supported by substantial government support for low-emissions technologies; by extension of regulatory oversight of energy efficiency and emissions standards by Federal agencies; and by many state-based initiatives to establish ETSs and emissions-reducing regulations.
• If Australia were to introduce a carbon price, one that was seen as commensurate with carbon prices in other countries, it would cease to be a drag on international mitigation. Australian success in introducing a carbon price is likely to assist the United States and Canada to maintain momentum in policies to reduce emissions.
  - Australia could also exercise global leadership in the mitigation effort without making unrealistic demands on community support for action, by implementing efficient means of reducing emissions through policy innovation.

Probaby most interesting is the the reference to Australia being a drag on international mitigation. A statement that is certainly justified.  Australia has committed to an uncoditional greenhouse gas reduction target of 5% below 2000 level by 2020. There is now disagreement (again) about the appropriateness of such a weak target.  As discussed in a previous post, not only is a 5% (15% if there is global agreement) reduction by 2020 is unlikely to unleash the technological innovation and commitment that is necessary to shift towards a low carbon economy, but it is also well below those recommended by the IPCC and the Garnaut Review. In fact, GHG reductions of 5-15% are equivalent to a stabilisation at about 510-550ppm, not the 450ppm the Australian Government is lobbying for.

The question is whether taking the same level of commitment to Cancun that was demonstrated in Copenhagen and Poznan was actually going to be the catalyst for change both domestically as well as for international negotiations.  Already in 2008, Australia’s targets have been deemed insuficcient. Australia has repeatedly voiced a desire to take a leaderhsip role in tackling climate change, but a 5% target and the lack of a clear climate change policy fall extremely short of a leadership role. Now with a number of trade partners discussing the implementation of  emission trading schemes and/or carbon taxes (despite recent delays in Japan and South Korea), Australia really need no longer fear of “going it alone“. The EU has an emissions trading scheme (with some member states also having in place various carbon taxes), so does New Zealand, there are two regional emissions trading schemes in place in the US – despite their stance during international climate negotiations – with a third one about to be launched (RGGI, MGGRA, and the WCI), India has a carbon tax on coal, and China is investigating the option of a cap-and-trade scheme to redcue emissions. The time has come for serious commitment and action. These countries and companies operating there are already gaining valuable experience and expertise in dealing with a price on carbon.

While emissions of greenhouse gases in the EU ETS fell 11.6 % in 2009 compared with a 2008, Australia is still debating the best approach to a price on carbon, despite previous findings and recommendations. Again, the Update findings are neither new now particulalry surprising. The biggest contribution of this update paper probably is the summary of the outcome of recent COPs.

The update on “Global emission trends” comes to the following conclusions:

• Without mitigation, and in the absence of negative feedback from climate change, global emissions will double between 2005 and 2030. This updated business as usual projection is in line with the projections of the 2008 Review.
• The shift in global growth momentum towards developing countries discussed in the 2008 Review has become more pronounced.
  - Developing countries are now projected to account for 70 per cent of global emissions at 2030 under business as usual, compared with the Review’s projection of 63 per cent.
  - China and India are growing strongly, and other developing countries are also experiencing an acceleration of growth that began in the early twenty first century.
  - China is heading towards developed country income levels even more rapidly than anticipated in the 2008 Review, and therefore will need to accept developed country emissions constraints at an earlier date, if global objectives are to be met.
  - China’s Copenhagen mitigation commitments to 2020 are stronger than anticipated by the 2008 Review, providing a platform for what will subsequently be required.
• The Great Crash of 2008 has pushed the developed countries of the northern hemisphere onto a lower long-term economic growth trajectory. This and other factors will result in lower underlying emissions growth in developed countries, but is fully offset by stronger emissions growth in the developing world.
• There has been a large recent expansion of known gas reserves that has reduced the relative price of gas and which may provide significant opportunity for reductions in business as usual emissions over the next decade beyond what is anticipated in these projections.
• Australia is unique among the developed countries: its business as usual emissions are set to grow considerably.
  - Growth in projected business-as-usual emissions is primarily due to expected strength in the resources sector in the years ahead.
  - The Department of Climate Change and Energy Efficiency estimates that Australia’s emissions are projected to rise by 24 per cent above 2000 levels by 2020, under current policies (which are below ‘business as usual’).
• Mitigation efforts in higher income developing countries will need to be stronger earlier, and other developing countries will need to be brought within emissions constraints sooner than once may have seemed necessary.
• This is unlikely to be possible without an acceleration of mitigation effort in the developed countries. Achieving a given abatement target has become easier in most developed countries, given lower growth prospects.

Once again, the Update does not really provide any new or previously unknown facts. The need for early and drastic cuts in greenhouse gas emissions in order to prevent a dangerous runway effect of unmitigated climate change has been highlighted in reports such as the Stern Review (2006), the IPCC (2007), the 2008 Garnaut Review, the 2009 Climate Change Congress’ Synthesis Report, UNEP’s 2009 Climate Change Science Compendium, and the 2010 Emissions Gap Report. Data on global emissions and trends can be found at the UNFCCC’s website.

However, what is interesting are the latest emissions projections by the Department of Climate Change and Energy Efficiency. Emissions in Australia are projected to increase 24% above current levels without “decisive and effective new policy action”. Obviously, Mr Combet blames Tony Abbott and the Opposition for the very slow progress (or complete lack thereof). However, it must be said that the Government itself has not done that much either other than going through the same debate over and over again. While according to Mr Combet not all is lost, one has to remember the insufficient commitment made by Australia so far.

In summary,  the Update does not really provide any new information or knowledge. It is rather an agglomeration of already available reports, research and information. Just like the initial 2008 Garnaut Review seems to be more of an Australian Version of the 2007 IPPC’s Fourth Assessment Report, the Update, too, conveys the impression that while the information was/is already available, it was not compiled by an Australian. One has to think of the time and money being spent for this exercise. Rather than implementing policies based on exisiting knowledge now, the wheel is being reinvented. The final report of the Update is not due until the end of May 2011, which certainly will be followed by much discussion and debate (again) about the validity, assumptions, projections, if not the science per se. Then there is the Multi-Party Climate Change Commission, which will meet monthly until the end of 2011. Action is not to be expected before next year. And by then, a new update is probably required.

Once again, I would like to cite Yvo de Boer, Executive Secretary of the United Nations Framework Convention on Climate Change from 4 September 2006 to 1 July 2010:

The perfect is the enemy of the good.

Australia has to commit to something, get action started. The EU ETS was not perfect, it still is not, but at least it is a start, and it seems to be working rather well.

Reconstruction in Queensland – But Where?

Today, Queensland Premier Anna Bligh announced the formation of a new Queensland Reconstruction Authority to determine if infrastructure, and even entire suburbs, should be rebuilt in flood-affected and flood-prone parts of Queensland.

The new Queensland Reconstruction Authority will replace and have more power than the recently established rebuilding taskforce under Major General Mick Slater. It will still need the approval of Parliament and will be the first item on the agenda when the House resumes next month.

She said

The reconstruction authority will be charged with working with local governments to determine, in some cases, whether we should be rebuilding exactly the same thing in exactly the same place, whether it’s a bridge, or whether it’s a suburb.

and

The last thing we want to do is rebuild in the same place and see that home flooded again in two or three years’ time.

Part of the task will be to speak with affected residents and discuss whether their homes need to be rebuilt on stilts or new sites altogether. This makes sense, and the different response to Victoria’s approach to rebuilding after the Black Saturday bushfires is commendable. While most Royal Commission recommendations were accepted or are being taken under consideration, the only recommendation rejected was the one referring to relocation.

Brisbane is built on the river’s natural flood plains. Brisbane has a subtropical climate. Relying on the dam system alone seems somewhat imprudent. And just as much as family homes were affected, so were businesses.

In our paper “Firm relocation as adaptive response to climate change and weather extremes“, we discuss significant disruptions to firm operations, for instance through droughts, floods, or sea level rise, which might ultimately create the necessity of a geographical shift of firm and industrial activities away from highly affected regions. The framework we propose may serve as a decision making tool, which can be of use to firms considering relocating or flood-proofing their facilities.

2011 Queensland Floods: Commission to investigate whether flooding could have been prevented

This Monday (17/01/2011), clean-up efforts continued in flood affected suburbs of Brisbane. While businesses in the CBD area recommenced their operations, 22.000 households were still without power. Supermarkets in several suburbs encountered supply shortages of fresh produce such as fruit and vegetables. There were also bottlenecks in the supply of fuel. Road closures and damages to transportation infrastructure caused problems with public transport. The City Cat ferry service, an essential part of Brisbane’s local transport, will be out of service for 90 days.

Prime Minister Anna Bligh meanwhile announced a Commission of Inquiry into the state’s flood disaster. The purpose of the commission is to investigate whether the flooding in Brisbane, Toowoomba and in the nearby Lockyer Valley could have been prevented. The Commission will be headed by Queensland Justice Cate Holmes, with Deputy Commissioners Jim O’Sullivan, a former Queensland Police Commissioner and Phil Cummins, an international expert on dams.

Subject to enquiry will be the disaster preparation and planning by federal, state and local governments. Large parts of the population were unprepared for a flood disaster. Past days have also seen the emergence of a debate on whether warnings from meteorologists were not sufficiently considered, and whether water from the Wivenhoe Dam should have been discharged earlier. The partial opening of the dam to prevent an overflow had contributed significantly to the flood disaster.

The Wivenhoe Dam was built after the major flooding in 1974 further upstream to protect Brisbane city from flooding, and to ensure a reliable water supply. In recent years, during the ongoing drought in Australia, water levels of the dam fell below 15% and caused concerns about Brisbane’s drinking water supply. However, due to the heavy tropical rains over the last weeks of the dam was filled to almost 200% of capacity.

An important question for Brisbane and the surrounding South-East Queensland region will be the future urban development. Large parts of Brisbane are built on flood plains, and the expansion of the city is continuing. The South-East Queensland region has seen a strong increase in population and a construction boom. Brisbane alone had a population increase of 2.7% in 2008/2009. The Intergovernmental Panel on Climate Change (IPCC) classified the region as hot spot for national disasters, especially flooding, storm surges and sea level rise.

2011 Queensland Floods: Economic Impacts of a Flood Disaster

The 2011 Queensland Floods severely affected a number of important industry sectors, including the coal industry, logistics service providers, the agricultural sector as well as retail, insurance, and construction. First estimates suggest that the floods will lead to significant cuts in Queensland’s exports of coal and agricultural production which could amount to up to AU$ 6bn or 0.5% of GDP – not including clean up costs.

Coal Industry
One of the industry sectors most affected by the Queensland Floods is the coal industry, one of Queensland’s most important industry sectors. Direct damages to mining operations were caused primarily by flooding of the mines, but mining companies also encountered logistical problems with coal transports due to flood impacts on transportation infrastructure. Many of the large mining companies have declared a “force majeure” event. Among the companies affected are Anglo American, Aquila Resources, Macarthur Coal, Rio Tinto, BHP, Peabody, Wesfarmers and Xstrata. First estimates suggest that about 75% of all mines are closed. The exact extent of the damage is currently unclear, as many companies have not yet released loss data and floods still persist in many areas. It can be expected that the floods will cause short to medium term supply shortages which are likely to result in revenue losses for affected companies and to bring about increases in commodity prices. Mining companies in Queensland primarily produce metallurgical coal used in steel production. Queensland exports about 150 Mt of coal per year, about 75% of which is metallurgical coal and 25% thermal coal. As a result of supply shortages, the price of steel is likely to increase. Some effects on prices for electricity generation can be expected as well, albeit to a lesser extent. Most affected by price increases will be the main buyers of coal from Queensland, including Japan and Europe, followed by India, Korea and Taiwan. Some of these countries have started to investigate raw material supplies from other regions in order to overcome supply shortages.

Road and Rail Traffic
Road and rail traffic across all flooded areas of Queensland was severely disrupted. Affected by the floods was the “Black Water Line”, a major rail line for coal shipments to the port of Gladstone in Queensland, the fourth-largest coal export terminal in the world. The Black Water line was closed temporarily. QR National, operator of the Black Water Line, expects that the line will be reopened at the end of next week (20 Jan). The exact economic losses from flood impacts on passenger and cargo traffic are still unclear. The Port of Brisbane was closed temporarily. Reports by Sydney Morning Herald suggest that there is already a 30 km line of ships off the coast of Queensland, waiting to be unloaded.

Agricultural Sector
Due to the extensive flooding of farmland a decline in agricultural exports can be expected, especially of wheat, sugar and cotton. As a direct response to the flood and supply shortages, cotton futures extended gains to a three-week high in New York. The exact impact of the floods on the agricultural sector is still uncertain; further crop losses may occur if the wet weather conditions continues. Prime Minister Julia Gillard, in a joint statement with Queensland Premier Anna Bligh, announced that small business owners and farmers in flood-affected areas of Queensland are to receive additional disaster assistance of up to $25,000 from the Commonwealth and State governments.

Retail
The retail sector suffered from supply shortages, brought about by panic buying, logistical problems with the delivery of goods due road closures, power and staff shortages. Supermarket chain Coles had to close 14 of its 148 shops, while Woolworth reported the closure of 13 of its branches. Several department stores were also affected. Prices for many food items have already risen considerably, such as for fruits (mangos, bananas, pineapples, papayas) and vegetables.

Insurance
According to initial estimates, insurance damages will amount to about AU$1bn, however, accurate damage reports are not yet available. It can be expected that the economic damage brought about by the floods will comparable to the damage caused by the 2009 Victorian Bushfires in the state of Victoria.

Construction Sector
Many infrastructure projects have come to a halt due to heavy rain and flooding. Leighton Holdings, for example, has temporarily stopped work on one of its biggest infrastructure projects, the AU $ 4.1bn Airport Link in Brisbane.

Other Impacts
Longer term implications for a range of sectors such as the tourism sector remain to be seen. The impact of flood runoff on tourist attractions like the Great Barrier Reef is unclear. It is expected that potential environmental damage could occur.

Australian Climate Policy Odyssey Continues

On September 27, 2010, Australian Prime Minister Julia Gillard announced the establishment of the Multi-Party Climate Change Committee. The Committee will explore options for the implementation of a carbon price and will help to build consensus on how Australia will tackle the challenge of climate change. The first meeting took place October 7.

Key facts:

The Multi-Party Climate Change Committee has been established to

consult, negotiate, and report to the Cabinet, through the Minister for Climate Change and Energy Efficiency, on agreed options for the implementation of a carbon price in Australia, and provide advice on, and participate in, building community consensus for action on climate change.

The Government is represented by Prime Minister Julia Gillard as Chair, Deputy Prime Minister Wayne Swan, and the Minister for Climate Change and Energy Efficiency, Greg Combet, who serves as the Deputy Chair of the Committee. Also on the Committee are Australian Greens Senators Bob Brown and  Christine Milne – Mrs Milne serves as co-Deputy Chair, and Independent MPs Tony Windsor and Rob Oakeshott. Two representatives from the Coalition (opposition) were invited, however, the opposition has turned down an offer to nominate two of its MPs to join the committee. Independent Senator Nick Xenophon has expressed a “keen interest” to join.

Providing expert advice to the Committee are four independent advisors:

• Professor Ross Garnaut, Vice-Chancellor’s Fellow and a Professorial Fellow in Economics at the University of Melbourne as well as a Distinguished Professor of the Australian National University, as well as author of the 2008 Garnaut Climate Change Review;
• Professor Will Steffen, Executive Director of the ANU Climate Change Institute at the Australian National University (ANU), Canberra, and Science Adviser to the federal Department of Climate Change and Energy Efficiency;
• Mr Rod Sims, Director of Port Jackson Partners Limited, Chairman of the Independent Pricing and Regulatory Tribunal in NSW, Chairman of InfraCo Asia Development Limited, Commissioner with the National Competition Council, and a Director of Ingeus Limited; and
• Ms Patricia Faulkner, chair of the Australian Social Inclusion Board, Chair of Jesuit Social Services. She is also a Chair and member of a range of health care and government advisory services boards, including the Federal Government Health and Hospitals Infrastructure Fund and the Council of Australian Governments Reform Council.

Further input will be provided by a Business Roundtable which will discuss how the Government’s climate change policies intersect with other economic policies including tax reform. The Business Roundtable is co-chaired by Wayne Swan and Greg Combet. The Minister for Resources and Energy, Martin Ferguson, is be a member.

The Environment and Non-Governmental Organisation Roundtable will be co-chaired by Greg Combet and the Minister for Sustainability, Environment, Water, Population and Communities, Tony Burke. The Minister for Agriculture, Fisheries and Forestry, Joe Ludwig, will also be a member.

The Committee will also be supported by a Secretaries’ Group, comprising Secretaries of the Departments of Prime Minister and Cabinet, the Treasury, Finance and Deregulation, Resources, Energy and Tourism, Climate Change and Energy Efficiency (chair), Agriculture, Fisheries and Forestry, Families, Housing, Community Services and Indigenous Affairs, Foreign Affairs and Trade, Infrastructure and Transport, Innovation, Industry, Science and Research, Sustainability, Environment, Water, Population and Communities, with others participating as required.

The first meeting produced the following outcomes:

• First – and most importantly - the highly controversial “Citizens Assembly” will not be implemented - initially part of Julia Gillard’s election climate change policy promise;
• The Committee will meet monthly until the end of 2011, and there will be a communiqué after each meeting, as part of building public consensus for action on climate change and public understanding of the issues surrounding carbon pricing; and
• Information papers will be released as a means of informing the public and encouraging public debate. A website will also be established containing public information about the Committee and its work.

So, why do I say then the odyssey continues? Starting talks about – finally – implementing a price on carbon in Australia seems like a good thing, doesn’t it? Especially when companies like BHP or Wesfarmers are all for putting a price on emissions, and Xstrata and other mining companies at least demanding certainty around the issue.

In my opinion, the problem is around timing and the desire to get everything perfect from the start. That and the need to reinvent the wheel by trying to establish another science committee (similar to the Garnaut Review, which is merely a reworded version of the IPCC report), and waiting for that committee to properly communicate the issue to the general population.

All this should have already happened! We know the science, we know what the issue is, and we know about what needs to be done. There is no need for lengthy discussion until end of 2011 on whether or not to have a price on carbon. It seems the discussion is going to be more about how much emitters need NOT pay under either an emissions trading scheme or a carbon tax. The key point here is: Carbon pricing is designed to make emissions more expensive, to penalise pollution and to allow for a transition to a low-carbon economy. When business speaks of the necessity of certainty to ensure investments can go along, they do not speak about shifting to renewable energy, but LNG projects where millions of dollars have already been invested. Of course they are after subsidies to increase profitability.

The Committee seems like a good avenue to artificially delay a necessary commitment to properly tackle climate change. Australia is falling behind in terms of climate change policy – most of the industrious nations have left behind the discussion about whether to do something. It remains to be seen how Australia’s position will be influenced during and after the COP16 in Cancun.

Australia Trails World in Climate Policy

Australia is trailing the rest of the world in climate change policy and risks becoming uncompetitive, says climate change economist Cameron Hepburn, senior research fellow at the Smith School of Enterprise and the Environment, at the University of Oxford.

Dr Cameron Hepburn, at the Mining under the Microscope Conference in Wollongong, NSW, said that “There is no risk of Australia taking a leadership position,” and that Australia ”is so far behind the post we risk coming last.”

The G20 emerging nations, especially China and India, had already taken strong steps.

“China says it will introduce an emissions trading scheme in the next 5 years… They are very serious about it. India has just in July imposed a carbon tax.”

India has introduced a clean energy tax on coal, at the rate of Rs. 50 (~USD 1) per tonne, which will apply to both domestically produced and imported coal. This money will go into a National Clean Energy Fund that will be used for funding research, innovative projects in clean energy technologies, and environmental remedial programmes.  The expected earnings from this tax is around USD 500 million for the financial year 2010-11.

Japan prepares the implementation of an emissions trading scheme in 2013, and South Korea is also considering an emissions trading scheme. And that is in addition to the trading schemes in place in the EU and the US.

Dr Hepburn said Australia needed a price on carbon if it was to remain in step with global trends and stay competitive.

“If we don’t price carbon soon we will be forced to do it at some point, in a way we don’t like very much. If you do things rapidly, they tend to cost more. The mining industry has an interest in moderate and stable carbon prices.”

That’s exactly what BHP CEO Kloppers said - or meant to say in a raoundabout way.  But while Australian business is doing everything to delay that very necessary process, companies overseas have or will develop a perceptible advantage for a possible worldwide greenhouse gas market, and significant experience with regard to the operation of

BHP CEO Marius Kloppers Outlines Carbon Price Concerns

BHP Billiton chief executive Marius Kloppers

 

Yesterday, September 15, BHP CEO Marius Kloppers spoke to the Australian British Chamber of Commerce in Sydney, and outlined the global mining giants’ concerns with measures likely to be taken in Australia to cut carbon emissions and address climate change. 

For corresponding news items, please see the Sydney Morning Herald, The Australian, and Bloomberg.  In a nutshell, Mr Kloppers is pro-carbon-pricing. However, he emphasises the importance of a price on carbon to be “revenue neutral”. What does revenue neutral mean? Evil tongues might say it is simply another expression for “axe the mining tax”. Or “let’s try to get a carbon price in place before the Greens get control in the Senate next year”. 

Mr Kloppers also said that “a single encompassing trading system and the academically elegant economics surrounding it is not the solution” – nobody said that (I would like to use this opportunity for some shameless self-promotion and link to our recent AICD publication). No one policy by it self is sufficient to address the issue. As outlines in a previous post, there is a number of policies instruments available: regulations and standards, taxes and charges, emissions trading, voluntary agreements, subsidies and incentives, and R&D. It seems as if BHP’s CEO favours a tax over an emissions trading scheme. There are, however, a number of issues which need to be addressed when implementing a carbon tax. 

When implementing an emissions tax, the government must decide on the level at which the tax should be set, particularly in the case of pre-existing taxes, or other potential distortions such subsidies to certain industries, fuels, or technologies. How will the tax be used? Should the tax income go directly into Penny Wong’s coffers? Should it be used to offset other taxes (i.e., the double-dividend effect)? Maybe it should be transferred across national boundaries to an international body and allocated to those most adversely impacted by either the costs of emission reduction or damage from climate change (i.e., adaptation and mitigation funding)? Or should it be invested in specific abatement projects, such as renewable energy?  And if the tax is intended to achieve a given overall emissions limit, the tax rate will need to be increased to offset the impact of inflation, new technological progress, and new sources – as in, for example, the 12 new coal power plants (to which, by the way, the new climate policies promised during Labor’s election campaign will not apply). 

 

  

 

Australian Coal Industry Safe…

…at least accoring to Australia’s new Minister for Climate Change, Greg Combet. In an interview with The Australian, he today vowed to fight for and protect the Australian coal industry – AND implementing a price on carbon. Of course, all based on trust and commonsense. But what do trust and commonsense mean in an Australian climate change policy context, where coal, and the resource sector in general, are an important backbone of Australia’s economy? How can the pursuit of renewable energy, energy efficiency, and a price on carbon be combined with a vow to fight for coal?

However, there already appears to be some confusion within the government regarding the treatment and classification of coal. While PM Gillard announced during her election campaign that under Labor, new coal power plants would have to be equipped with carbon capture and storage technologies (read: clean coal technologies), Mr Combet made a commitment not to use the word “dirty” when speaking about coal. So, what should the debate be then about? Here is an excerpt from the interview:

“People will use whatever language they want. But you won’t hear me using it. You do not take the back of the axe to the fundamentals of the Australian economy. We just work through it very carefully with reforms such as energy efficiency improvements, where you can reduce emissions quite significantly. With investment in renewable energy sources, which will help us reduce emissions significantly and work towards introducing a carbon price. The key thing about a carbon price, from my point of view, from the outset is that it created an incentive to reduce emissions . . . but do it sensibly. And we did do it with the CPRS (carbon pollution reduction scheme), with all the negotiations we had with industry. We’ve got to keep it on it a commonsense frame.”

Working carefully through reforms, delivering efficiency improvements – where possible, and working towards a price on carbon. It seems that, once again, the purpose of putting a price on carbon is not quite clear to everyone. The purpose of emissions trading or a carbon tax is to make the fossil fuel industry unattractive, and, yes, to put them out of business eventually. Artificially prolonging the shift to a low-carbon economy will only hurt Australia, as other countries and regions, such as China, Japan, and the EU, are moving towards, or have already implemented corresponding policies. So what then is commonsense? Maybe this:

 

Minding the Sustainability GAAP | World Resources Institute

WRI’s Janet Ranganathan on how limited transparency around corporate sustainability risks can lead to investments that are bad for the environment, and investors’ bottom lines.

A very good summary of some of the more contemporary issues around sustainability reporting. There are a number of different (voluntary) reporting schemes out there… which ones ought an organisation to use, how do reporting requirements differ, what are the consequences of inaccurate reporting? The  International Integrated Reporting Committee initiative to “create a globally accepted framework for accounting for sustainability” seems like a good start.

While sustainability reporting is important, it should not distract from the fact that there also exist mandatory requirements such as pollutant inventories, energy and emissions reporting, emissions trading, and so on. It is crucial that any voluntary and mandatory reporting be combined into one comprehensive, meaningful statement about the reporting organisations’ intention, position on climate change and sustainability, and be of sufficient integrity. Saving some random rainforest frog seems more than insufficient.