Carbon Pricing: The Big Picture

With the details of the Multi-Party Climate Change Committee’s (MPCCC) carbon price proposal almost fully fleshed out, it is worth reminding ourselves of the broader context in which this policy should be assessed.

The starting point – and simultaneously the final metric of assessment – is the state of the Earth’s climate. We can have the most well-designed, democratic, efficient, no-loser everyone-gets-a-pony policies in place – if the climate goes to pot, we’ve lost.

The ultimate goal, according to the U.N. Framework Convention on Climate Change (UNFCCC), is to “stabilize greenhouse gas (GHG) concentration in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system,” which was further specified in the Copenhagen Accord to recognise “the scientific view that the increase in global temperature should be below 2 degrees Celsius” from pre-industrial levels. The most commonly accepted atmospheric concentration of greenhouse gasses commensurate with a 2°C rise in temperatures is roughly 450 parts per million (ppm) of carbon-dioxide equivalent gasses (CO₂-e).

This goal is by no means unanimous within the United Nations: countries more vulnerable to climate change (typically small island states) have called for the target to be only 1.5°C of warming (roughly 350 ppm CO2-e). However, the present concentration of CO₂-e is 394 ppm, and at the current rate of abatement the world appears more likely to hit 4°C of warming, if not higher.

Regardless, the ultimate goal is to stabilise the atmospheric concentration of GHGs. In principle, this is very simple: for the level of CO₂-e in the atmosphere to remain constant, the inflow should equal the outflow. (The climate system is more complicated than this, involving time lags and higher-order effects, but for our purposes the principle suffices.) The “outflow”, in this case, is the amount of CO₂-e that nature absorbs or that breaks down over time (and, possibly, the CO₂-e humans are able to remove), while the “inflow” is the sum of naturally-released CO₂-e and human emissions. (Skeptical Science has a good overview, as does Wikipedia.)

The global carbon cycle is such that nature can safely absorb a certain amount of human-produced CO₂-e, and it’s only human emissions in excess of this level that would cause atmospheric concentrations to rise. Stabilising concentrations thus means reducing worldwide human emissions to this “safe” level, and it would seem equitable that, eventually, each person has the right to emit an equal share of this level.

So what should the global annual per capita allowance of CO₂-e be? Australia’s Climate Commission recently estimated that “humanity can emit not more than 1 trillion tonnes of CO₂-e between 2000 and 2050 to have a probability of about 75% of limiting temperature rise to 2 °C or less [by 2100].” At the current global population of 6.8 billion people, that’s slightly less than three tonnes of CO₂-e per person, per year – remembering that this is only to slow the rise in CO₂-e concentration to 450 ppm by 2050.

To stop CO₂-e concentrations rising altogether, the 2011 Garnaut Review estimated that global per capita emissions would need to fall to less than two tonnes of CO2-e per year (even less if we want to reduce concentrations). Australia, as we well know, is the developed country furthest away from this limit: our 2010 emissions were roughly 25 tCO₂-e per capita (excluding land use, land use change, and forestry (LULUCF)).

No-one is pretending that a domestic carbon price of $20-$30 per tonne will reduce Australian emissions from 25 tCO₂-e pa to anywhere near two or three tonnes per year. Even the Greens’ target of reducing Australia’s emissions by 40% on 1990 levels, which Bob Brown recently described as being visible in the current MPCCC proposal only with “a pair of binoculars”, would still result in roughly 12 tCO₂-e emissions pa at current population levels and can only be seen as an interim target.

Just as, if not more important than the starting price of any Australian scheme are therefore the structures and institutions the scheme establishes to enable future transformation of our economy: for example, whether future (interim) targets are set by an independent body or the Government of the day; or the manner in which the carbon pricing scheme interacts with other climate policies (a point also raised by Richard Denniss in Crikey).

A balance must be struck between the need to decarbonise the Australian economy and the transitional difficulties that this will bring. Government policy, with the MPCCC’s scheme as its centrepiece, will – and should – be scrutinised on how disruptive the transition will be. But this disruption must be assessed in the long-term context of decreasing our CO₂-e production, or else it’s merely politics, not policy.

This post was first published at Crikey.

Update on Thursday, July 7, 2011 at 18:58 by MCJ

Some things I left out to get the article closer to the usual 700-800 words:

• The numbers there aren’t etched in stone; they’re probabilistic ranges (as you can see from the source material); the bigger point is that our emissions have a long way to decrease.
• An alternative to decreasing emissions is to increase the amount of CO₂-e removed from the atmosphere or speed up its break-down (neither of which humanity is really capable of doing at the moment).
• One could argue (in my view justifiably) that it would be fairer to assign CO₂-e pollution to the countries that consume the goods & services in question, rather than those that produce them. This is of particular importance to Australia, as we export a significant amount of goods that are carbon-intensive in production and for whose emissions we therefore are currently responsible. However, given the torpidity of global climate change negotiations, these accounting rules seem unlikely to change.
• If the world moves to an allowance of 2 tCO₂-e pp pa, that doesn’t mean everyone needs to consume that little: rich countries (consumers) will be able to purchase the emissions rights of poorer countries (consumers).
• Getting to 2 tCO₂-e pp pa means continually tightening caps, which means (ceteris paribus) higher prices. Making the transition easier is important, both in terms of switching behaviour and using cleaner production methods.

Update on Tuesday, September 10, 2013 at 10:25 by MCJ

Taking an even broader view of sustainability, Steb Fisher argues that “climate change is a problem, not the problem.”

He’s right. Climate change should be seen through the broader lens of general sustainability, and while I’ve presented it in that context in talks and lectures, I haven’t done so on this blog.

By Fisher’s calculation, Australia should reduce its consumption of energy and materials to 6% of current levels. I don’t know whether I agree with that figure, but his conceptual approach is sensible and it’s a discussion we should be having.