Australia's priceless dilemma  

AGL CEO Michael Fraser has a column in the Business Spectator on the need to transition to a clean energy economy - Our priceless dilemma.

The issue of climate change should be no different. We should be taking prudent, sensible and measured action today to ensure that the risks associated with climate change are managed properly. Given the risks, we would be failing as business and community leaders to ignore the quantitative evidence. It is a long-term issue that requires long-term solutions.

It is clear that all industries, including the energy sector, require a clear policy framework if we are to make that transformation to a low carbon future with as little disruption to the economy as possible.

There certainly appears to be a consensus around “community concern” over climate change when you consider that the Climate Institute and Auspoll recently found that 83 per cent of people are concerned that greenhouse gas emissions are making climate change worse.

However, there is not yet consensus among political, business and community leaders around the policy frameworks we need to establish to achieve the cuts required to manage the risks associated with greenhouse emissions.

Our government has agreed to a minimum 5 per cent reduction in emissions by 2020, relative to 2000 levels, or to a 2 per cent cut if countries collectively reduce emissions to achieve the objective of keeping temperature rises below 2 degrees Celsius.

If we take the midpoint – a 15 per cent reduction on 2000 levels – that would require a 29 per cent reduction in business-as-usual emissions, or about 190 million tonnes. Policy makers around the world believe the three main policy tools to address climate change are emissions trading, renewable energy targets and energy efficiency programs.

Australia’s 20 per cent renewable energy target can potentially achieve around 40 million tonnes of abatement. If energy efficiency measures manage to maintain a constant consumption of energy to 2020, it would save another 40 million tonnes.

This leaves a gap of 110 million tonnes still to cut. And this is where emissions trading, universally regarded as the least-cost way to reduce greenhouse gas emissions and a policy which had bipartisan support at the 2007 federal election, comes into play.

Reducing emissions is an economy-wide exercise. A market based solution will deliver a lower cost outcome. It is my firm view that a broad-based cap and trade emissions trading scheme is the best way to deliver least cost solutions for reducing emissions.

Emissions trading can achieve all of the abatement we would need to achieve our midpoint target of 15 per cent.

What is very clear, however, is that if we don’t put a price on carbon, as well as implement additional policy mechanisms, we won’t see the investment necessary to meet such a target.

We need a broad-based emissions trading scheme and the government should implement such a scheme as soon as a consensus can be achieved. But we don’t have much time.

The transition to a lower carbon economy is likely to take decades; but the earlier we begin, the greater the benefits and the lower the costs – a point that has been highlighted by the Climate Institute’s new report, which concludes that the lack of a price on carbon will cost Australian households an extra $2 billion a year in higher electricity prices by 2020.