Professor Ross Garnaut delivered the Garnaut Climate Change Review Final Report (Final Report) to the Government on 30 September 2008. We have previously reported on Garnaut's Draft Report (to view our legal update Examining the diabolical policy problem, click here) and his Supplementary 'Targets and Trajectories' Report (to view our legal update on Garnaut's Supplementary Report on Modelling, click here). We also summarised the main design elements of the Emissions Trading Scheme proposed by Garnaut in his March 2008 Discussion Paper (to view our legal update Garnaut releases Discussion Paper on Emission Trading Scheme, click here).
It would appear that the Final Report has made few significant changes to these earlier reports. Consequently, this legal update focuses on the new material included within the Final Report, such as adaptation and the implications for the transportation and land use sectors. Before covering these areas, we provide an overview of the Final Report's major policy recommendations.
Main policy recommendations
There are four main areas of policy recommendations put forward within the Final Report. These are:
- the need for an effective global agreement, and Australia's contribution to this outcome;
- the efficient implementation of mitigation policies, in particular, an Emissions Trading Scheme;
- research, development and commercialisation of lower carbon technologies;
- equitable distribution of the cost burden of achieving mitigation.
In noting that strong mitigation is in Australia's best interests, Garnaut suggests that Australia should support the objective of reaching international agreement to hold concentrations at 450 ppm CO2 -e, and in this context, should agree to reduce its own emissions by 25% on 2000 levels by 2020 and 90% by 2050. Notwithstanding this overall objective, Garnaut notes that the chance of achieving an international agreement with a concentration of 550 ppm CO2 -e is much stronger. In this event, Australia would need to commit to reduce its emissions by 10% on 2000 levels by 2020 and 80% by 2050. In the event that no global agreement is reached in Copenhagen, Garnaut suggests that Australia should only commit to reduce its emissions by 5% on 2000 levels by 2020.
In relation to achieving the necessary emissions reductions, the Final Report reconfirms Garnaut's earlier position that an Emissions Trading Scheme (ETS), if designed and implemented well, is the best approach for Australia. The key points of the ETS design proposed by Garnaut include:
- the establishment of an independent carbon bank to administer the scheme
- fixed price permits for the transitional period of 2010 to 2012 (i.e when the Kyoto Protocol ends)
- assistance to the trade-exposed emissions-intensive industries
- no free allocation of permits
- no ceilings or floors on the price of permits (beyond the transitional period)
- allowing banking or borrowing of permits from 2013
- scheme coverage that is as broad as possible.
In response to the third policy area, Garnaut considers that a stronger Australian climate science research effort is required, and recommends the establishment of a climate change policy research institute. At a global level, Garnaut suggests that there is a need for a global agreement on minimum financial commitments to investment in low-emissions technologies, with Australia's financial contribution to such an agreement comprising around $2.8 billion.
On the area of income distribution, Garnaut confirms his earlier approach which is to provide 50% of the permit revenue from the ETS to households, 30% to the business sector (mainly the trade-exposed emissions-intensive industries) and 20% to research and development.
Garnaut considers both mitigation and adaptation responses within an overarching framework as the necessary policy responses have much in common.
Five areas where the impacts of climate change are expected to be large are examined in detail in the Final Report, showing the diversity of considerations and issues inherent in adaption policy:
- Irrigated agriculture in the Murray-Darling Basin
- Urban water supply infrastructure
- Buildings in coastal settlements
- Ecosystems and biodiversity
- Emergency management.
Garnaut suggests that the first requirement of good adaptation policies is information and the second is flexible markets. Garnaut makes it clear that it is not a realistic expectation for Australians to maintain established lifestyles - market-based policies provide the best avenue to facilitate households, communities and businesses to respond to the impacts of climate change. Three markets; insurance, water and food are given particular attention (see below).
Garnaut recognises, however, that there are some areas in which regulatory intervention is warranted, including the conservation of ecosystems and biodiversity, information, research and development and innovation and income distribution to avoid regressive and inequitable outcomes that may result from climate change adaptation.
1. Insurance markets
Garnaut foreshadows that demand will rise for insurance and financial services related to the impacts of climate change. The insurance industry and financial markets more broadly will enable the market to moderate exceptionally bad outcomes for particular groups of people and provide incentives for the reduction of risk-reduction measures. However, there are also limitations to conventional property insurance due to the nature of climate change impacts. While the recent innovation and deepening in these markets shows their considerable potential to promote adaptation, the Government can promote a deep and flexible insurance sector by:
- Improving the provision of basic climate science information
- Promoting insurability through appropriate approaches to policy
- Minimising regulation.
2. Water markets
Garnaut has also urged that climate change provides an added
impetus to accelerate and raise ambitions for water market reform
as water markets that are transparent, broad and flexible, and
based on clearly defined property rights are better able to manage
3. Food markets
If Australia becomes increasingly dependent on food imports due to the impacts of climate change, rising global food prices and price volatility will become increasingly important issues. Garnaut considers that it is therefore in Australia's long-term interest to pursue the liberalisation of international food markets.
Garnaut notes that transformation of the transport sector, like that of the stationary energy sector, will be driven not only by the ETS, but by a range of other factors including:
- higher global oil prices
- research and development in vehicle and fuel technology
- population growth
- government decisions on transport infrastructure, public transport services and land use planning.
He anticipates three main processes for this transformation:
- more fuel efficient vehicles, and a shift to lower emissions fuels, such as electricity
- a shift to lower emissions in forms of transport such as rail and public transport
- a reduction in travel frequency and distances as a result of changes in urban form, and through pricing decisions.
Garnaut considers that the prospects for low emission vehicles are promising, and that it is likely that such vehicles (or zero emissions vehicles) will become economically attractive, and thus be the most important source of decarbonisation of the transport sector. He suggests that the Government's contribution to decarbonising the transport system is to focus on denser urban form and invest more on public transport infrastructure.
Rural land use
Garnaut identifies a number of areas where the agricultural and forestry sectors can play a role in reducing emissions. These include:
- the cessation of land clearing
- the use of anti-methanogen technology for ruminant livestock (It is to be noted that enteric fermentation emissions from livestock account for about 67% of all agricultural emissions)
- changed management practices for cropping and grazing of land
- improved fertiliser management on agricultural soils
- the reduction of savannah burning
- carbon farming (i.e. plantations of forests)
- biofuel production.
Garnaut notes that more reliable and cost effective ways are needed to measure or estimate emissions in the land use sector, and suggests that resources should be directed to deal with this issue, particularly if agriculture is intended to be included within the scope of the ETS.
It is intended that the work undertaken by the Garnaut Climate Change Review team will feed into the Government's deliberations over the next few months, as it works towards production of the White Paper and draft legislation for the Carbon Pollution Reduction Scheme. The economic modelling work currently being undertaken by Treasury is due to be released by the end of October, and the Government has recently confirmed that it will set out the medium term emissions reductions targets (i.e. for 2020) before the next United Nations talks, which are due to take place in Poznan in early December.
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