Insensible on coal

Why climate change policy is such a challenge for Australian politics

By Peter Burnett

As I write this, our national Treasurer Josh Frydenberg is mocking his Opposition counterpart as some sort of guru-seeking hippy for daring to suggest that Australia might adopt New Zealand’s idea of a ‘well-being budget’.

This is just the latest example of our very low level of Australian policy debate: the ‘well-being budget’ is a serious attempt to address the well-known limitations of GDP (basically national income) as a measure of ‘progress’. It is particularly relevant to environmental issues and deserves a considered debate. Perhaps I’ll write about it in another blog.

It’s easy to despair over the shallow debate involving the environment, particularly when the state of our environment has started biting us in ways that are, to deploy once again this summer’s most overused word, unprecedented.

Is political agreement on a rational and proportionate environmental policy even possible? I thought I would look at this question by focusing on the troublesome issue of coal and climate change.

A tough challenge even in an ideal policy world

Our quality of life has been built on fossil fuels. In Australia, one fossil fuel in particular, coal, has supported our lifestyle not only by providing most of the energy needed for electricity production, but also by serving as a ‘top three’ export-earner.

So, phasing out coal presents a double policy challenge.

It is common to reflect on the fact that climate change requires concerted global action. Yet it is uncommon to reflect on the system behind the international approach to orchestrating such action.

The underlying problem is one of too many people consuming too much stuff, most of which generates greenhouse gases, one way or another. This is a problem tailor-made for economics, a discipline often defined as the study of efficient allocation of scarce resources.

If we had asked economists rather than diplomats to come up with a solution, they would have told us that getting consumption down to sustainable levels is all a matter of ‘getting the prices right’ and that if ‘stuff’ produces too much greenhouse gas, the answer is to put up the price of ‘stuff’, in proportion to the amount of gas it generates.

In an ideal world, then, we would have ended up with a uniform global carbon tax, with the rate set at just the right level to disincentivise the production of excessive greenhouse gases. Problem solved.

The realpolitik of the Climate Change Convention

However, the real world is not built around economic theory. It’s based on nation states and their absolute sovereignty. International diplomacy is a parliament of equals, but with no overarching government to enforce the rules.

As a result, when countries agree on international action, they tend to do so by agreeing to regulate only what goes on inside their own borders, relying on other countries to implement their own corresponding regulation but usually without any means of making them do so.

With climate change, this system of each nation focusing on their own back yard leads to a system where by countries regulate domestic emissions not just from consumption, but also from production. Mixed models such as this tend to produce anomalies.

For example, resource-rich countries such as Australia are advantaged in comparison to manufacturing countries such as China. Emissions from manufactured goods such as tools and furniture will be counted mostly in the country in which they are produced, increasing export prices if carbon is priced, while emissions from natural resources such as coal are (mostly) accounted for in the country in which they are consumed, with little effect on export prices under a carbon price.

What’s more, if we did reduce coal exports by restricting new mines, any emission reductions would not count towards our international targets. This leaves us with an unbalanced incentive to promote coal mining, but only for export.

Just make the best of it?

Okay, so the model is less than ideal but it is not likely to change. So, despite its flaws, can we extract policy success (ie climate change mitigation) from the existing system?

If we stay focused on the outcomes rather than the inputs, as any good policy should, the answer is a qualified ‘yes’. Under this approach we’d be targeting greenhouse gas reductions and not coal specifically, even though coal is a major source of greenhouse gases.

In the case of coal we would still need to phase-out domestic use, although we could be technology agnostic and pursue emissions reduction generally rather than reduced coal consumption specifically. We would also want to reduce emissions reductions from coal mining, but again the measures could be industry-blind and not directed at mining specifically.

On the other hand, we would not target emissions reduction from coal exports, because these emissions would count towards the targets of our customers rather than ourselves. Nevertheless, because it is essential for the planet that we get out of coal on a global basis, we would need to work towards the adoption of increasingly ambitious targets and regimes internationally.

Success here would have the incidental effect of reducing demand for coal, including our own exports.

Is this feasible?

Even though we wouldn’t be targeting coal or exports, this approach would remain a hard sell domestically. Despite the double policy virtues of good prospects of climate mitigation success and compliance with the letter and spirit of international agreements, the politics would still be tough.

Domestic environment groups have managed to demonise not just the consumption of coal, but its production. They have done this for their own reasons, in part because domestic place-based campaigns are what they do best: the environment movement was built on them.

On the other hand, coal-producing regions would not be appeased just because we weren’t targeting coal directly. We’d still be taking action internationally that would harm the coal industry. Jobs would still be under threat and transition programs would still be needed.

So action on coal, or more accurately, action on emissions including those from coal, is politically feasible, but hardly attractive. The best policy path available barely dents the political risk and pain.

The conundrum with coal is the same as that posed by climate change more generally: would you like a moderate dose of pain now or a much bigger and tougher dose of pain delivered to your children? At this point in time it seems we are happy to pass the burden to our children.

Image: Then Treasurer (now PM) Scott Morrison holds up a chunk of coal in Parliament in 2017. “This is coal,” he said mockingly to the Opposition. “Don’t be scared. It won’t hurt you.”