The government must also provide a clear and unambiguous commitment to reaching the 2020 emissions target to reduce carbon emissions by five percent on 2000 levels – without a caveat on costs.
This is clearly ridiculous*. No sensible government would ignore costs when attempting to meet a target. Should Australia keep to the target if it costs one year’s GDP? Or ten year’s GDP? Or all the wealth of the earth?
This is effectively what an emissions trading scheme would achieve, where the target is exogenous and the permit price endogenous. But I can’t imagine a government just allowing permit prices to rise inexorably to levels which lead to riots and threats of revolution. No ETS, therefore, would allow permit prices to approach infinity. Long before then the Government will have reduced the emissions reduction target.
As reported by Matt Ridley, the IPCC is now saying that the likely temperature increase from man-made carbon dioxide emissions is lower than the IPCC thought in 2007. Indeed, as many Cats have noted previously, there are likely to be positive effects from modest temperature increases.
And then we find a working paper from the OECD, conveniently released after the election, which highlights the costs of leakage and a loss of competitiveness where one country pursues significant emissions reductions while other major countries do not have an ETS or carbon tax.
It is therefore time for the incoming Government to re-consider its 2020 target. If the likely warming resulting from any particular level of carbon dioxide emissions is less, then the benefits from meeting a given emissions reduction target are less thus altering the cost-benefit analysis (the costs of meeting the emissions target have not changed because of this research).
In short, the IPCC evidence suggests that the emissions reduction target should be reduced. Rather than seeking to reduce CO2 emissions by five per cent on 2000 levels, it should be perhaps a 2 per cent emissions reduction target. Or, preferably, just remove the target altogether since Australia’s efforts cannot affect the global temperature.
* Note: the Institute also writes
The government needs to take a more businessminded approach to balancing the federal budget. In recent years we’ve become fixated on a set timetable for a return to surplus. That thinking must change.
I’m sure that shareholders of loss-making businesses would be very happy if the management decided not to have a plan to return to profit.