Both bad climate policy and no policy will see Australia lose jobs and investment overseas

Brian Wilcox, the chief executive of the national employer association, the Australian Industry Group (AI), wrote the following article (The Guardian  16 October 2021). He puts the case for Australia embracing a carbon neutral policy direction. Whether one believes that the Morrison government is moving in this direction or not, it remains that from the viewpoint of  much of Australian business, to not keep up with the pace of other nations will inevitably mean loss of trade and investment, a blow to the economy, and a loss of jobs and income for many. He says that the transition means paying due attention to the mass application of new technologies through the economy, providing suitable incentives, and the involvement of  in making this a reality. Brian Wilcox speaks for those he represents within the context of division in the Coalition, and some of what he says may not be in accord with everyone’s views. Nevertheless, he makes good points that should be taken seriously.

Agreement within the federal government on strong climate ambitions and a sensible strategy for achieving them will set Australia up for greater economic success this decade.

The case for action has been strengthening rapidly. The costs of action to reduce emissions are turning out to be lower than expected. The costs and risks of climate change itself are becoming increasingly clear and serious. And as Australia’s most important trading partners set their own economies on a course to net zero emissions via deep 2030 reductions, their demand for minerals, energy and other goods will shift. We can make the most of their energy transition – and join it ourselves – or we can be run over by a hydrogen-powered truck as others rush to supply our region’s needs.

The prime minister is simply talking good sense in steering the federal government towards a substantially evolved national climate strategy.

The full details of a long-term strategy are complex and ongoing work will be needed to elaborate and iterate them. But three major elements should be part of the directions agreed by the government this year.

The first pillar is a firm long-term commitment to net zero emissions by 2050. That goal will provide welcome guidance for immediate action and long-term decision-making by a slew of public agencies, and will do much to end the mixed messages industry has been receiving from Australia’s governments.

“Net zero” is shorthand, and there is room for nuance in the letter of a commitment. While all sectors of the economy can and should participate in a fair and efficient path to climate neutrality, scientific advice implies that agricultural methane needs to be cut deeply and stabilised, rather than necessarily reduced to zero.

Carbon budgets are not unlike fiscal budgets – they need mid-term discipline as well as long term objectives. The second pillar of a climate strategy should be a commitment to deeper emissions reductions this decade. Australia’s advanced economy peers and our own largest states have been setting 2030 goals ranging from cuts of 40% (Korea), 40-45% (Canada), 46% (Japan), 50-52% (US), 55% (EU) and 68% (UK) below their emissions peaks. There is no magic number, but roughly halving Australia’s emissions from our own peak would put us in the mainstream on 2030 goals.

The third pillar is policy directions to accompany these goals. Fully designing policies to deliver 2030 and 2050 goals will take much more time and consultation with business and other stakeholders. But the government can set clear directions. Low, zero and negative-emissions technologies hold the key to achieving deep emissions reductions alongside greater prosperity. The biggest cost reductions will come as the most promising technologies are rolled out at large scale.

The next frontier in policy development should therefore be economic incentives for mass deployment of clean technologies. These policies need to be substantial and sustained to be investable; broad in coverage of businesses and technologies to be efficient; and grounded in rigorous emissions data to have integrity.

Mechanisms to consult on in 2022 include a strengthened safeguard mechanism with declining baselines; incentives for the uptake of clean gas substitutes; and strengthened incentives for energy efficiency, including through the smarter use of energy and the concentration of distributed energy resources.

Trade competitiveness needs to be front of mind in designing these policies. But it is becoming ever clearer that our competitiveness hinges on successfully making the transition to net zero emissions, not on holding it back. Ai Group’s research on the carbon border adjustments taking shape in Europe and beyond highlights that our industries can become more competitive if they can keep up with the pace of decarbonisation overseas. Well-considered policy will unlock the necessary investment. By contrast, both bad policy and no policy will see Australia lose jobs and investment overseas.

The other central factor in pursuing a national climate plan is ensuring affected communities, workers and businesses are not left behind, especially in our regions. The economic change involved is manageable – if it is managed to prevent people falling through the cracks between risk and opportunity.

Industry has welcomed the strengthening of emissions commitments and action by major economies over the past year, and businesses are making growing commitments themselves. Supercharging Australia’s climate plan will bring people together with rolled-up sleeves to make Australia’s next phase of growth a success for us all.

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