November 2011
It’s not the tax that will hurt
It’s been suggested that the carbon tax will put jobs at risk and increase the cost of living.
The tax is only one of a package of measures (collectively referred to as the Clean Energy Future plan, the CEF) that will support households and businesses in making the necessary changes to reduce climate change.
The cost of the carbon tax and other measures in the CEF are insignificant compared to the cost of climate change.
Australia has already warmed, on average, by about 0.7oC since 1960 with some areas having become 1.5 -2oC warmer. This is not projection – it’s observed data. It’s expected the temperature increase by another 2.2oC to 5.0oC by 2070.
To put the carbon tax and other measures into perspective, this article describes the four types of cost associated with climate change that will affect our jobs, the cost of living and quality of life. The four types were identified by Professor Ross Garnaut who was commissioned by the Australian Government to provide an independent assessment of the effects of climate change on the Australian economy.
Type 1 includes the costs to agriculture and infrastructure (e.g. commercial and residential buildings, water supply, electricity facilities and ports); the cost of reduced demand for Australian exports, particularly from developing countries which represent Australia’s major trading partners; and less demand for labour.
There are claims that the carbon tax will increase the cost of food by up to $30 a week. These estimates haven’t taken into consideration the $150 million in funding available to food manufacturers to help businesses reduce greenhouse gas emissions. Food is expected to cost about 80 cents more a week – that’s insignificant compared to what food might cost if climate change is not reduced.
For example, in good years, Australia typically harvests 20 to 25 million tonnes of wheat. Climate change is likely to result in production levels more like those of the recent drought when only nine million tonnes were harvested and Australians consumed seven million of those. It’s widely recognised that Australia could change from a big wheat exporter to a net importer in some years and it’s expected that irrigated agriculture in the Murray-Darling Basin would decline by 92 per cent.
The rising cost of electricity has also been associated with the carbon tax. But of course the carbon tax will not go into affect until July 2012. Fifty percent of the current price increase is due to replacing aging infrastructure such as poles and wires, and making expensive incremental extensions of old technology to meet increasing high peak demands. The hotter it gets, the more these costs are going to increase. As long as there is uncertainty about climate change policy, business is likely to continue extending old technology instead of making the necessary long-term investment in clean energy.
Renewable energy does cost more to produce - wind is about $120 a megawatt hour as opposed to $40 a megawatt hour for black coal. But no one should kid themselves that $40 is the full price they pay for black coal. The cost of coal’s contribution to existing pollution and future extreme weather events (such as heatwaves and floods which will increase with climate change) must be considered. The floods that devastated south-east Queensland and northern NSW cost the economy about $12 billion in lost output. They pushed up the cost of fruit and vegetables, damaged homes and commercial buildings and disrupted crucial industries. A full recovery of mining in the area is considered unlikely before next year. And it’s not just the storms in Australia that affect us; Japan’s earthquake and tsunami caused world-wide economic disruption and depleted confidence in one of Australia’s biggest tourism markets.
The price difference between renewable energy sources and coal must be considered in the context of what happens to our cost of living and quality of life in a world of unmitigated climate change.
The CEF will increase the cost of living (including electricity and gas) by less than $10/week and groceries by 80 cents/week. As for the carbon tax going “up and up” – the carbon tax will rise by about 5 per cent a year for the following two years. So the added cost of $10.80 a week in 2012 will increase to $11.91/week by the year 2014-15.
Climate change would not only more dramatically increase the cost of living, it would reduce demand for labour, effectively lowering real wages by about 12 per cent.
Alternatively, at least three separate studies (from the Treasury Department, Access Economics and CSIRO) indicate that a carbon tax will result in additional jobs. A shift away from coal will have a net positive effect on employment with an additional 1.7 million jobs created from 2008 to 2020; with average annual incomes also projected to increase.
A study by CSIRO showed that alternative energy sources, more energy-efficient buildings and transport options and changes in eating habits (of reduced meat consumption) would increase employment 60 percent above current levels by 2050.
A United Nations Environment Program report concluded that, rather than killing jobs, environmental policies create new jobs; particularly in services including solar panel installation, LPG conversions, grey-water systems, green accounting, energy-efficiency monitoring and enforcement, public transportation, retrofitting buildings, appliances and machinery to be energy-efficient, and manufacturing.
It’s not just public institutions that are revealing the need and potential for change to a more sustainable economy. ABC News reports that more than 50 businesses representing finance, energy, technology and retail have signed a letter supporting a carbon price and stating that a carbon price is critical if Australia is to reduce emissions and ensure the nation remains globally competitive.
Type 2 impacts of climate change include the increasing costs of building construction; road and bridge maintenance; reduced tourism (which is otherwise expected to increase substantially); and political instability in the region requiring increased support from Australia - the scale of which is, for example, $700 million a year during Australia’s five-year intervention in East Timor and $200 million a year in the Solomon Islands. There’s been a ten-fold increase of refugees in the two decades since 1975 and there’s growing evidence suggesting that environmental decline is a contributing cause. The impact of floods, storms and droughts on countries in our region will reduce political stability by reducing carrying capacity and undermining government response capabilities.
Type 1 and Type 2 costs of climate change represent approximately 10 percent of gross national product (GNP). Alternatively, reducing climate change cost only about 0.8 percent of GNP spread over several years, drops to about 0.1 per cent per year until 2050 and then starts adding to the growth rate of the economy. If technology improves more than anticipated (and there is good reason to believe that it will given incentives such as those in the CEF), the economy should grow marginally faster in the last half of the century than without mitigation.
Beyond the cost of living and jobs, there are other climate change impacts that are important to consider.
Type 3 costs represent worse-case scenarios that radically alter the natural environment such as the following. With an increase of greater than 2oC the risk of the Amazon forest (covering 40 per cent of South America) dying increases from 20 per cent to 60 percent. Its death would contribute more CO2 to the atmosphere, triggering further climate change.
Beyond a rather narrow range of temperature the Greenland and Antarctic ice sheets would be committed to irreversible meltdown. Greenland’s ice sheet is currently shrinking by 50 cubic miles each year. As the ice (which reflects sunlight) melts, it exposes ocean and land – both of which absorb sunlight making the planet warmer and the ice melt faster. If all of Greenland’s ice melts sea level will rise by about 8 metres, inundating coastlines around the planet. In Australia, about 85 per cent of people live in coastal areas; and coastal assets at risk are valued at more than $226 billion.
Without mitigation the probability of these events by the end of the century is nearly 50 per cent. Action against climate change is basically an insurance premium we pay to protect ourselves from these risks. The Centre for Strategic and International Studies says that the collapse and chaos of extreme climate change would destabilize virtually every aspect of modern life. Garnaut’s report to government adds that this perspective is not alarmist – it simply recognises the reality of rapidly increasing emissions and the possibility of catastrophic consequences.
Finally, Type 4 is things which are difficult or impossible to cost such as our health and longevity (e.g., malaria and dengue fever are already spreading into previously malaria-free zones). It includes the welfare of those most directly affected, as well as environmental loss.
At the high level of temperature increase the Great Barrier Reef would be destroyed within the lifetime of our children – what they would have is David Attenborough films of how it was. In the lifetime of our grandchildren the Kakadu wetland system would be inundated by sea water and 88 per cent of species would be at risk of extinction.
To reduce climate change money must be spent now but the costs will stabilise, as stated above. The alternative is that temperature will rise and the impacts and their associated costs will continue to increase over this century and into the next. The estimated impacts of unmitigated climate change increase threefold during the lives of our children (2050 to 2075) and then threefold again for our grandchildren (2075 to 2100) and continue dramatically after that. I reckon it’s worth $10.80/week to avoid the larger costs and the un-costed impacts to Australia’s heritage and quality of life.
Next month’s article is about the government’s CEF - generally describing how the plan will reduce climate change and the direct and indirect benefits of those policies. That will be the last in this short series of articles. I, along with a small group of others, invite questions to encourage dialogue (via The Voice or a forum) on this most important issue.
References available on request
S. Fritz