Australia’s Global Warming Dilemma

The commitment by Australia’s new Prime Minister Kevin Rudd to address climate change issues has been very well received at home and abroad. Indeed, not only was his presence at the Bali conference much appreciated by Indonesia and other developing countries, but his focus on the issue helped secure his sweeping victory in last month’s election against climate-change denier John Howard. There is surely a lesson there for politicians in the US still clinging to the coattails of the oil industry.

However, Rudd’s fellow Australians may be in for a shock when they face the bill for cutting the nation’s carbon emissions, currently among the highest in the world on a per capita basis. This explains why Rudd has been unwilling to commit Australia to any specific reduction targets, least of all the 25 to 40 percent which others, including the Europeans, had tried to set as a 2020 target.

Rudd has been able to take refuge in the fact that a study on the economic impact of climate change and the cost of achieving reductions by the high-profile economist Ross Garnaut is still awaited. It may come as a shock to Australians accustomed to imagine that they are environmentally sensitive and have a huge array of energy resources at their disposal. Popular enthusiasm for embracing climate change may anyway wither if the drought, widely attributed to global warming, which has been devastating farmers and preventing suburbanites from watering their gardens, comes to an end.

Australians may be able to face the prospect of higher, tax-driven petrol prices in the name of carbon reduction. They may be prepared to face forced adoption of power-saving light bulbs and forego TVs and computers which are kept on continuous low power to enable instant activation. They may be willing to see increased carbon offset payments when they fly and opt for smaller and less energy-intensive cars.

However, none of this addresses the crucial issue for Australia – its massive dependence on coal both as domestic power source and major export. Coal provides no less than 42 percent of primary energy – followed by oil at 33 percent and gas at 21 percent. It is possible that gas can assume a higher percentage at the expense of oil, of which Australia is increasingly short. But how to reduce coal’s role while “clean coal” and “carbon capture” remain fine ideas still far from reality?

There is doubtless some potential for reducing emissions from coal but any attempt at a serious shift away from coal will confront political as well as cost interests. The three most populous states, New South Wales, Victoria and Queensland all have large coal industries. Most of Victoria’s power comes from the brown coal of the Latrobe valley west of Melbourne.

Coal is also the nation’s largest export, accounting for A$25 billion or 20 percent. It would be even larger had there been more investment in transport and dock infrastructure which has lagged demand increases in foreign demand and enabled Indonesia to overtake Australia as a coal exporter.

Not only are there huge financial interests in coal but large numbers of voters – who mostly support Rudd’s Labor Party.

Nor is this a time when Australia can afford to lose export income. Despite the resource-price boom, the country is running a current account deficit of A$60 billion or 5 percent of GDP and is having to sell off ever more mineral and other assets to pay for its consumption excesses. This is not the background against which a government can afford to be choosy about carbon exports.

At the same time, the domestic economy is too hot and inflation too high so in the short term at least fiscal policy needs to be more restrictive. So while there may be a case for some carbon taxes there is none from a fiscal viewpoint for subsidizing renewable energy.

Anyway, any money available for environment-related issues is likely to go towards relieving drought-caused water shortages and finding ways of reducing usage and recycling water.

Australia is lucky that it does have alternatives to fossil fuels. But whether it has the will to shift to them is another matter given the influence of the coal lobby. Uranium is one, but opposition to the nuclear industry is strong. There is scant likelihood, least of all under Labor, of Australia using its uranium at home. And although opposition to the export of uranium oxide in the name of both the environment and non-proliferation has weakened, it is still strong enough to prevent sales to countries such as India.

Solar energy is plentiful – and politically correct. Australian-developed technology has been exported, especially to Germany, which, despite its grey skies and long winters, is a leader in solar applications. But there would be strong resistance from competing energy sources if solar were subsidized, and from the now largely privatized power producers.

In the longer run solar cell energy is likely to be extremely important for Australia, which has plenty of space and sun for large plants as well as household installations. But getting there will not be easy given both the cost and the vested interest in carbon-based fuels.

So much though, that Rudd’s enthusiasm for the climate change agenda is welcome, his ability to turn words into action must be treated with reserve.