Five-Pronged Approach to Climate Change Challenge

The Age

By Rod Pearse
CEO, Boral Limited
Chairman, BCA Sustainable Growth Task Force

These days, few doubt the imperative to tackle climate change. In addition to its considerable environmental impact, climate change poses risks to the market and economy that demand attention.

But the debate, with its emphasis on here-and-now and often simplistic solutions, can obscure the far-reaching nature of the challenge.

Make no mistake, this is ultimately about moving from a high-emissions global economy to a low-emissions economy.

Given our heavy reliance on high-emission products, we should be under no illusion about the scale and complexity of this transition – one that is arguably the most far-reaching since the industrial revolution.

A lasting and effective response to climate change does not lend itself to quick fixes or knee-jerk policy.

Kyoto was a good start but it had major flaws. Kyoto hasn’t worked because of its inflexibility in dealing with global developments – notably the rise of China and India – and by the failure of most of its signatories to meet their emission-reduction targets.

It is clear we need a new policy framework to accelerate actions towards effective outcomes.

The Business Council of Australia, after six months of consultation with its members – who represent one-third of Australia’s overall economic activity – has established a policy position that it believes can provide a global and national road map to achieving long-term cuts to emissions while protecting Australia’s economic base.

The policy has been framed by five considerations.

  • The challenge of reducing emissions will be won or lost at a global level.

Developing countries are expected to contribute 70 per cent of the growth in world emissions and will soon be the source of most emissions. Therefore, we need a global emissions reduction scheme that includes the biggest emitters, including China and the US.

  • The most effective system to reduce emissions is one primarily based on a market solution.

Market structures have over many years embedded production and consumption signals and behaviours that underpin the present high-emission economy.

We now need to provide price and other signals to modify these behaviours and patterns to effectively evolve to a low-emission global economy.

  • Given the scope and scale of the transition needed, a multifaceted approach involving a price on carbon through a “cap-and-trade” mechanism, incentives for research and development, improved energy efficiency and adaptation measures is required.
  • The necessity of a global-based solution still allows Australia to make a significant contribution to such a solution by formulating responses that can be used as a template or guide for other countries to adopt.
  • It will be the strength of the Australian economy in the future – not its diminution – that will ensure Australia is able to tackle the  potential risks associated with climate change.

Only a prosperous economy will provide the basis to help fund the many transition strategies to a low-emission global economy.

There is a range of market mechanisms available to create incentives to cut emissions. But the BCA believes building global and national responses around a cap-and-trade scheme – which effectively involves governments setting a cap on overall emissions and issuing a fixed number of permits covering these emissions – is an essential part of the proposed multifaceted approach to climate change.

The proposed framework, involving emissions reduction targets and a system of tradeable permits, can provide the basis for countries to link their national schemes into a global trading scheme.

As part of its national policy response, the BCA believes Australia should develop a domestic cap-and-trade emissions trading market that can be linked to similar schemes as they emerge globally.

Two key steps in the development of the trading scheme will be the setting of immediate and long-term emissions reduction targets in line with Australia’s economic structure and a review mechanism where the progress in technology and science is considered.

In setting initial targets, we need to make sure they allow the Australian economy to make a sensible transition.

It is best to make haste carefully so targets can be met, so success feeds on itself, and so the inevitable disruption is manageable.

In addition, if Australia is to reduce emissions well before many others, this is another reason to move carefully.

Critical to the success of Australia’s response will be the need to offset the impact of the scheme on “trade-exposed” industries for as long as necessary, by providing transitional arrangements through the permit issue process.

It is also important that any yearly targets are continually reviewed to take into account changes in scientific understanding on greenhouse issues, further international agreements on greenhouse abatement and technology breakthroughs.

This will allow Australia’s greenhouse response to be adapted – and made as responsive and effective as possible – as information and scientific knowledge improves and technology develops.

A strong, innovative and dynamic economy is the key to funding the low-emission technologies necessary to support what will continue to be an energy-intensive world, while simultaneously reducing the greenhouse gas emissions relative to economic activity.