With an emissions trading scheme at the heart of Australia’s efforts to mitigate the effects of climate change, Professor Garnaut said that there is a path to Australia being a low-emissions economy within around 40 years, with continuing strong growth in material living standards.

However this path to a low-emissions economy relies on strong, effective and early action by all major economies to contain emissions to the levels necessary to avoid the devastating impacts of climate change. Without a global agreement, Professor Garnaut warned that “Australians, over the 21st century and beyond, will experience disruption in their enjoyment of life and increasingly of their prosperity.

“The case for strong mitigation is a conservative one. Of all developed countries, Australia probably has the most to lose from inaction and the most to gain from global mitigation. Australia should throw its full weight behind securing an effective international agreement from 2013,” he said. Professor Garnaut said that there are reasonable chances of a practical global agreement adding up to 550 parts per million (ppm) concentrations in the atmosphere.

The report states that at a minimum, Australia should offer to play its “full part” in an agreement that aims to reduce emissions from 2000 levels by 10 per cent by 2020 and 80 per cent by 2050. Australia should also offer to play its full part in an ambitious agreement. “Its fair share of a 450 ppm agreement would be to reduce emissions by 25 per cent from 2000 levels by 2020 and by 90 per cent by 2050,” said Professor Garnaut.

“Such an agreement, aimed at 450 ppm would not be easy to reach. It would place constraints on emissions from both developed and developing countries that go beyond what is being discussed and, more importantly, planned, for any but a few countries.

“The achievement of the 550 mitigation task involves a major change in the structure of our economy. Australia’s total emissions entitlement would be up to 35 per cent below what they would have been in 2020 and 90 per cent by 2050,” he said.

In the absence of a comprehensive global agreement, however, the report recommends that Australia’s first step between 2013–20 should be along the linear path to a 60 per cent cut in emissions by 2050 – a five per cent reduction by 2020.

Transforming stationary energy

Contributing 35 per cent to greenhouse gas emissions, the stationary energy sector will play a major role in Australia’s abatement commitment in a global agreement.

However, with an emissions trading scheme interacting with support for network infrastructure, research, development and commercialisation, the Garnaut Review found that the successful transition to a near-zero emissions energy sector is possible by mid-century.

This transition, the report says, will be a three phase process, beginning with an initial adjustment phase involving a transition from high-emissions growth to greater use of known lower-emissions technologies such as natural gas, then a transition to new technologies – some of which may be important through this phase only, emerge and then facilitate and accelerate the restructuring of the sector, and finally to a long term emergence phase to sustainable, low- and zero-emissions technologies.

The report predicts that carbon capture and storage (CCS) will emerge to play a strong role by mid-century in lowering emissions in Australia and Asia. However the use of CCS will be accompanied by growth in renewable supply sources. As the abatement target becomes more restrictive, the report finds that the residual CO2 emissions associated with CCS would cause it to become increasingly less competitive and would see renewable sources dominate stationary energy generation and supply.

In the 450 ppm scenario renewable energy would dominate Australia’s electricity supply, rising to contribute 13 per cent by 2020 and towards 50 per cent by mid-century.

An ETS – the centrepiece of Australia’s mitigation efforts

The report recommends that the emissions trading system – the centrepiece of Australia’s mitigation policy – should be established at the earliest possible date, in 2010.

It says that the scheme should have as broad a coverage as possible in order to provide an incentive for emissions reductions in all sectors, maximise market liquidity and stability, distribute the costs of the scheme in ways that minimise distortions in resource allocation, and facilitate integration with other markets. The report finds that the stationary energy sector should be included in the scheme, with the source of emissions the best point of obligation for the sector.

Moreover, the report found that emissions from waste – primarily methane emissions from organic waste – could also be covered at source – that is, the landfill facility or treatment plant.

The report states “While there are difficulties associated with coverage of emissions from waste, due to the variability of these emissions and the timing of their release, the early inclusion of waste is desirable. Ahead of being covered in the scheme, other policies to encourage mitigation in the waste sector should be pursued.”

The report says that the integrity, efficiency and effectiveness of the emissions trading scheme will be helped by the following design features: • Establishment of an independent carbon bank with all the necessary powers to oversee the long-term stability of the scheme. • Implementation of a transition period from scheme commencement in 2010 to the conclusion of the Kyoto period (end 2012) involving fixed price permits. • Payments to trade-exposed, emissionsintensive industries (TEEIIs) designed to address the failure of our trading partners to adopt similar policies to constrain emissions, rather than to compensate for Australia having an emissions trading scheme. • All permits to be auctioned with about half the resulting revenue going into support households in the bottom half of the income distribution, and about 20 per cent for research, development and commercialisation to support lowemissions technologies. • No ceilings or floors on the price of permits – beyond the transition period. • Intertemporal use of permits through ‘hoarding’ and ‘lending’ from 2013 onwards. • A judicious and calibrated approach to linking with international schemes. • Strict compliance with appropriately punitive penalties and ‘make good’ provisions. • Scheme coverage that is as broad as possible, within practical constraints. • The existing, non-indexed shortfall penalty in the Mandatory Renewable Energy Target (MRET) to remain unchanged in the expanded scheme, as a way of phasing out the MRET over time.

A manageable cost

Professor Garnaut said that the overall cost to the Australian economy of tackling climate change under both the 450 ppm and 550 ppm scenarios was manageable and in the order of 0.1–0.2 per cent of annual economic growth to 2020.

At what has seemed the height of the global financial crisis for Australia in mid October, Professor Garnaut said that the issue is not one of choosing the environment over the economy or the economy over the environment.

“Here, the issue is one of short-term economics versus long term economics, because the economic costs of unmitigated climate change, on the balance of probabilities, will be very, very high,” he said.

While financial crises are short term phenomena, he said, climate change is a long term structural issue that must be addressed with a long term solution.

Summing up, Professor Garnaut said “Climate change is a long term issue but an urgent issue. It will still be here tomorrow, but our chance of dealing with it may not.”

The Australian Government welcomed the release of the final report of the Garnaut Climate Change Review. Minister for Climate Change and Water, Senator Penny Wong, said Professor Garnaut’s independent review was the most comprehensive economic review of climate change since the Stern Review was released in 2006.

“Professor Garnaut’s work has gone a long way towards getting Australia on the right track to address the enormous challenge of climate change,” she said. The Rudd Government is scheduled to release further Treasury modelling in October. The Government’s White Paper on the final design of the Carbon Pollution Reduction Scheme is due for release by the end of the year.