The Easy Guide to Garnaut

Ross Garnaut's Climate Change Review explained in seven steps
When I ask Professor Ross Garnaut, writer of the Climate Change Review whether he is hopeful, he pitches his reply in terms well understood by most Australians: "I suppose it's about three quarter time, and the scores might be level, but I'm hoping we'll have the wind with us in the last quarter."

Garnaut could be talking about how close things are with climate change: that the overwhelming scientific evidence points beyond reasonable doubt to rising temperatures and changes in rainfall that, within a generation, could flip our marginal Australian farmlands into permanent desert.

But Australia's most famous professor of economics is actually talking about how his independent review is coping in the world of politics and policymaking. The former trade negotiator (for Malcolm Fraser) and former ambassador to China (for Bob Hawke), knows how the media is being used to scatter fear and alarm out to bewildered voters. Much of the media, accustomed to reporting a Tweedledee and Tweedledum contest in Canberra, hasn't informed us about a complex but, in Garnaut's mind, soluble problem: just how do we get out of being one of the world's highest carbon polluters per capita, and set our country up for future economic success? Garnaut tells a packed auditorium at the University of Western Australia that the "saving grace" of his work is the depth of community interest and concern he's encountering around the country for climate change and his plan to meet it.

Once in a generation, economics matters - even if it's not our favourite talking point. Just as Australia's unproductive economy in the 1980s needed to be fearlessly restructured, so right now we need an economy-wide response to carbon pollution. The way Garnaut proposes to do this takes a little explanation, but it's not rocket science. There are a few myths to dissolve, too. So, in the interests of our future, this is the Easy Guide to Garnaut, in seven easy steps.

1. Australia has the most to lose by not acting
Apart from the calamity to our own agriculture already farming on the extremities, unmitigated climate change will significantly impact our near neighbours in South East Asia and the Pacific, and as Garnaut says, "We'll be on the front of that." But the whole global economy will be affected. "There will be nowhere to hide. All developed countries will be damaged, but Australia will be the developed country, most damaged and earliest damaged." So wouldn't it be smart to act?

2. Australia is in a good position to act
Australia has survived the GFC relatively well, thanks to the stimulus intervention and now our ongoing mining boom, giving us an exceptionally high income per person. We can afford to act as few other countries can. By contrast, Britain is still suffering the ugly aftermath of the 2008 Global Financial Crisis, yet has steadfastly committed itself to reducing its carbon emissions by 50% by 2025 (based on its 2005 levels). California, the world's 10th biggest economy, is also in difficulty with its finances but will introduce carbon trading at the beginning of 2012. There's no real financial excuse for Australia not to act right now.

3. We're actually behind the rest of the world in acting
President Obama may not have control of Congress, but as Garnaut has learned in meeting with the US Secretary of Energy, firm action is being organised via EPA regulation of pollution. China's 12th five year plan is getting tough on polluters, including threats to close down the worst offenders, while spending heavily on alternatives to coal. So the world's two biggest emitters (in absolute terms) are well ahead of us in their commitments. Add to that the decisive action of the European Union, 500 million people, representing one half of the world's developed population, having priced carbon and learned a lot from being an early player, and Australia is well behind the pack. With Scandinavia having started pricing carbon in the early 1990s, Norway in particular is the most instructive to our own case in Australia - in fact, it has more fossil fuel per person than we do but, after carbon pricing, now emits only 10 tonnes of carbon per person, compared to Australia's 27 tonnes of carbon per person. Our mineral wealth doesn't give us a special case against taking action.

4. A Carbon Price will actually benefit our manufacturers and farmers
Our phenomenally high average incomes are due to the mining boom, but not everyone works in that sector. The very mining boom that gives us a strong exchange rate against the American dollar has hurt other exporters, such as Australian manufacturers and farmers trying to sell products overseas, and hurt inbound trade such as the education sector, which hopes for international students, and tour operators looking for inbound tourists. A price on carbon will dampen down the high-polluting mining sector, taking a little heat out of its effect on the dollar: and hence manufacturers, farmers, inbound tourism and education, quite apart from any incidental support, will actually benefit from this price on carbon.

5. Pricing electricity won't cost consumers more, but we will buy less electricity
Here's how it works. A great deal of electricity in Australia is made from burning carbon-polluting coal. Price carbon, says Garnaut, and "There'll be quite powerful incentives to move over to less carbon intensive ways of generating electricity, "from coal to natural gas (still polluting, but less than coal), with obvious incentives to shift to renewables (polluting much less). Low and middle income earners will receive tax breaks and/or targeted relief, paid out of revenues from pricing carbon, to cover the increases in their monthly fuel bill. Yet - and here's the simple but ingenious device - even if you've been given the money to cover the increase in electricity prices, you'll only be human to take a look at the bill and act to reduce your spending.

Garnaut says studies show that a 10% increase in electricity prices will lead people to act to save 3% immediately and eventually it pans out to 7% reduction. So to summarise: carbon pricing raises revenues from high carbon electricity producers, that's partly used to give relief to consumers, who see their bill and, even though they've been compensated, will still change their behaviour to reduce electricity consumption. Other revenues will go to innovation in reducing carbon in electricity generation.

6. Raising revenues through Carbon Pricing is smarter than regulation
Garnaut says Chinese and American regulation will work but it's more inefficient than using the market in the way he recommends. "It's the genius of the market economy that once you put those incentives in place and get Australians thinking of ways of reducing emissions, you find more and cleverer ways of reducing emissions, than when you have a few bureaucrats and politicians deciding which regulations are most suitable." Just as importantly, raising revenue from carbon pollution will give the government $11.5 billion a year it can allocate to alleviate harm to industries trading overseas, as well as consumers, and still allow within that $2.5 billion for research innovation.

7. Set up independent bodies to deal with the transition
Garnaut wants an independent carbon bank (like the Reserve Bank) to regulate the scheme, an independent committee to recommend an adjustment of targets, and an independent agency to advise on assistance to trade exposed industry (akin to the Productivity Commission). With this in place, he tells us, "It's common that once you put economy-wide incentives in place, transformation comes more quickly than you expect, because people will be looking for opportunities to shift consumption away from high emission products."

There may be constitutional questions to deal with, but clearly Garnaut wants to allay fears that governments will just filch the revenue or lose their courage when difficult decisions need to be made. But it's worth remembering we took such difficult steps in the 1980s, and for a time made ourselves the most productive economy in the world.

There, an Easy Guide to Garnaut in Seven Steps. The hard work has been done. Now our own individual obligation is to grasp what is being suggested, digest it, understand it, and debate it. We owe that much to ourselves, our democracy, and our global future.