Climate policy is all about investment

As published in the Australian Financial Review on 17 January, 2020.

As the Morrison Government starts to clean up the damage caused by this summer’s catastrophic bushfires, can it use this political near-death experience to re-set the way we manage climate change.

Only seven months ago the Coalition won the 2019 election with a deliberately modest approach to climate policy. The speed and ferocity of the political backlash is breathtaking. The bushfires have thrust climate change back into personal experience of Australia’s suburban heartland.

In addition to the loss of at least 28 lives, millions of native animals and more than 18 million hectares burnt, a smoky haze has enveloped major cities for days. Sporting events and other outdoor events have been cancelled, while third world air quality has forced millions indoors during the depths of the summer holidays.

It is reminiscent of the millennium drought in 2006, the last time “quiet Australians” were so directly impacted by the climate.

Plummeting dam levels required ferocious water restrictions that killed suburban gardens and rendered backyard pools useless.

The physical manifestation of climate change in the suburbs translated into a political catastrophe for the incumbent Howard Government.

Until that point Howard had been successfully playing a night watchman role on climate change: politely acknowledging its existence but not offering a serious policy shot until there were clearer signs of coordinated global action.

By the time Howard managed to wheel out an emissions trading scheme to salvage the situation, it was too late. Kevin Rudd had seized the political initiative and won the 2007 election in a landslide.

This time round the Morrison Government has more time to recover, and is being more cautious in its policy response.

But it will eventually have to reconcile itself to the same political problem that has bedevilled its predecessors: deferring or delaying effective climate policy does not mean nothing will happen.

On the physical plane droughts and heatwaves will continue to intensify and their scale and political impact will intensify. On the economic plane investment will continue to stall wherever it is exposed to climate risk.

The lesson is simple: you cannot fly above the storm. The economic and physical impacts of climate change cannot be avoided by governments. They can only be managed.

This week Prime Minister Scott Morrison committed to revisit climate policy, but only if it does not destroy jobs and regional communities or push up electricity prices.

It’s a promise he can’t keep. Electricity prices are already higher because of insufficient investment in a climate exposed sector. Regional communities have already been impacted by bushfires, power station closures and stalled new investment in climate risk industries like aluminium.

Climate change will require two separate but related policy responses: how we adapt to a warming climate and how we mitigate greenhouse emissions.

Adaptation is easier and inside the Federal Government’s comfort zone. The Federal Government is already moving to increase its emergency response powers, and inevitably followed by reform of back burning practices and increased resources for emergency services.

Policies to mitigate emissions are harder. There are only two ways of reducing Australia’s emissions: deindustrialisation or investment.

Decarbonising the economy will require the replacement of high emissions capital with lower and eventually zero emissions replacements. Renewables for coal, new steel for old steel.

In its climate policy announced last year, the European Union estimated it will need to invest ($420 billion) every year until 2050 to decarbonise its economy. On a per capita basis that translates to around $22 billion every year in Australia.

This model has already delivered more than 25GW of new zero emissions capacity through the Renewable Energy Target. It’s an unfinished project. Another 75GW of renewables is still needed along with investment in demand response systems, storage and gas peakers needed to complement them. They will require some form of government investment policy to get there.

A broader investment plan for the economy will require an honest conversation about what Australia thinks it will do for a living in the 21st century, and ewhich industries we can realistically adapt and grow in a carbon constrained world.

This multi-billion dollar investment swill also need to extend to lower emissions vehicles, development of new technologies from hydrogen to zero emissions steel and cement, carbon capture and storage and anything else that can cost effectively reduce the emissions of industrial processes, buildings, aviation, transport and agricultural processes.

This investment will require policy mechanisms that mobilise private capital and use government support as sparingly and efficiently as possible. This means a voluntary approach like Direct Action is limited, because on its own there is insufficient motivation for firms to take the investment risk at the scale required.