Scorcher

I reviewed Clive Hamilton’s Scorcher: The Dirty Politics of Climate Change in the Fin on Friday. It’s over the fold.

I was amused to read, the next day, the Oz praising emissions trading as The free market way to save the world, and noting “the rapid change that has taken place in community and business attitudes over a relatively short period of time as the science of climate change has become more widely known and better understood.” Of course, it would have been more widely known and better understood if it weren’t for the continuous attacks on the science that the Oz was making right up to the last possible moment.

Meanwhile, I notice lots of others making an inelegant retreat from Lavoisier-style scientific delusionism to the long-prepared Lomborg line that it will all cost too much. But, thanks to the Stern Review, the recent statement by Australian economist the forthcoming IPCC report and even the PM’s Task Group, that line has already been outflanked. We’re down to arguing about details and numbers now, an argument where rightwing bloviators have little to contribute. Howard has belatedly realised the fact, accepting both emissions trading and quantitative targets (but not until 2008!).

Scorcher

In 1997, the Howard government came away from the Kyoto negotiations on climate change with a double triumph. First, despite opposition from many green groups and European governments, the resulting Kyoto Protocol relied primarily on the market-based policy of ‘cap-and-trade’ under which rights to emit carbon dioxide and other greenhouse gases would be limited in total quantity, and tradeable between users and countries. This idea, pioneered in the United States, contrasted sharply with the policy of direct ‘command-and-control’ over individuals sources of emissions seen by many in the green movement as the only acceptable way of controlling pollution.

The case for emissions trading, pushed strongly by the Australian and US delegations rests on a simple economic argument. With a trading system, there is an incentive to find the lowest-cost way of reducing or offsetting emissions. The SO2 scheme in the US is estimated to have reduced compliance costs by 75 per cent. This is an impressive demonstration of the power of market mechanisms.

The second triumph came at the bargaining table, when targets for emissions reductions were being negotiated. By pursuing hardline bargaining tactics Australia secured the most generous emissions target of any developed country, allowing an increase of 8 per cent over 1990 levels when most other countries committed to reductions of 6 to 8 per cent. Even more strikingly, the agreement allowed Australia to meet its target entirely by restrictions on land clearing which were on the way in any case.

Ten years later, though, the government is floundering on the issue. Although the Kyoto Protocol came into force in 2005, Australia has yet to ratify it. And on the core issue of emissions trading the government has literally turned 360 degrees, rejecting the idea for years before scrambling to regain its original position under pressure from the Labor opposition, the states and much of the business sector.

The report of the Task Force on Emissions Trading provides the government with a last chance to deal itself back into the game. But the fact remains that, having started as one of the early advocates of emissions trading, the government now finds itself in the position of a last-minute, and rather dubious, convert.

How did all this come to pass? In large measure, it can be explained by the presence, within the Australian policy elite of an influential group of politicians, bureaucrats, business leaders, think tanks and commentators determined to stop any significant action that would reduce CO2 emissions. In his new book, Scorcher: The Dirty Politics of Climate Change Clive Hamilton calls this group the ‘greenhouse mafia’ (a name he says they use themselves) and gives a critical description of its members and activities.

The first official reference to global warming turned up by Hamilton’s research is a 1981 memo from the Office of National Assessments (interestingly, addressed to a Mr J. Howard). Concern over the issue developed gradually during the 1980s, culminating in the 1992 Earth Summit, which led to the establishment of the Intergovernmental Panel on Climate Change (IPCC) a body established to assess the huge, and rapidly growing, body of research on the science of climate change, the likely impacts on societies, economies and ecosystems, and the possibilities for mitigation and adaptation. At this stage, the Hawke government had announced a commitment to the ‘Toronto targets’ calling for a 20 per cent reduction in emissions, but had taken no action to achieve this goal beyond the provision of research funding and some voluntary initiatives.

As the Howard government came into office, the pressure was mounting to match words with actions. The government’s main concern was with the Kyoto negotiations. As Hamilton shows, the government’s negotiating team, led by Meg McDonald of DFAT, treated Kyoto as a typical trade agreement, where the objective was to get as much, and give as little, as possible, an objective that was pursued with remarkable success.

It is after 1997 that the story becomes interesting. With the Kyoto agreement signed, a substantial section of the business community wanted to take advantage of Australia’s favourable position to participate in global emissions trading markets, take a lead in energy conservation and develop renewable sources of energy such as wind power. This group included much of the financial sector, the gas industry (energy from natural gas is less carbon-intensive than from coal) and even substantial elements of the energy sector, including BP, which had broken from the main international anti-Kyoto organisation, the Global Climate Coalition (after losing more members, the Coalition shut up shop around 2000).

A smaller, but more determined group, centred on the coal-mining and aluminium industries, emerged in opposition. Despite having congratulated the government on its success at Kyoto, this group rapidly emerged as vociferous opponents of the deal. Although they were motivated by concerns about the political and economic consequences of Kyoto, their chosen battleground was the science of climate change, which, they argued, was at best uncertain but more commonly the product of a deliberate conspiracy to deceive the public.

The most prominent public face of the greenhouse mafia has been the Lavoisier Group, which described Kyoto as ‘the greatest threat to our sovereignty since the Japanese Fleet entered the Coral Sea in 1942’ Hamilton notes, the Lavoisier Group was one of a string or similar organisations, the first being the HR Nicholls society, set up by then CEO of Western Mining Corporation, Hugh Morgan, and his executive officer Ray Evans.

The public activity of the Lavoisier Group was matched by effective behind-the-scenes organization by bureaucrats, lobby groups and individual politicians. Hamilton notes that many of the most effective lobbyists, such as Dick Wells of the Minerals Council, are former senior bureaucrats.

All of this activity was cheered on by a substantial section of the commentariat, and particularly The Australian newspaper. In much of the Australian media, there was a striking inconsistency between news coverage, which generally reported the findings of mainstream science, and the opinion pages which accepting the framing of the issue as a political dispute in which balance required equal time for both sides. The only real exception to this was The Australian, where both the news and opinion pages were dominated by views hostile to mainstream science.

Responding to this the Howard government adopted a set of positions that seemed to work well for some time, despite their inherent contradictions. The government officially accepted the science of climate change, but gave key portfolios to vocal skeptics. While refusing to ratify Kyoto, it promised to meet the Kyoto targets for emissions reduction. And having been among the leading proponents of market-based policies it set up the AP6 group, based on the claim that purely technological solutions were needed.

Hamilton’s final two chapters deal with the collapse of the government’s position over the last few years. In this period, the public debate was reshaped by the success of Al Gore’s film An Inconvenient Research, the release of the Stern Review of the economics of climate change, and in 2007, the progressive release of the Fourth Assessment Report of the IPCC. Over the same period, the occurrence of record temperatures, catastrophic bushfires and one of the worst droughts in history convinced ordinary Australians that the time for delay was past.

In retrospect this seems inevitable. By the time of the IPCC Third Assessment Report, released in 2001, the science was already fairly clear-cut. The fact that the earth was warming was well-established, and remaining concerns such as the discrepancy between surface and satellite measurements were approaching resolution (both data sets now show similar rates of warming). The evidence that human activity was responsible for the observed warming was not yet conclusive, but it was strong and getting steadily stronger as alternative hypotheses fell by the wayside. The Third Report concluded that the probability of human-caused global warming was between 66 and 90 per cent. The recently-released Fourth Report gave a probability of at least 90 per cent.

Of course, 90 per cent isn’t perfect certainty, but it is comparable to the scientific evidence we have to go on, for example, when we decide whether to allow the introduction of new drugs or genetically modified crops. In these circumstances, as many critics of extreme environmentalism have pointed out, insistence on absolute certainty is a recipe for paralysis.

Moreover, the remaining uncertainty surrounding global warming does not help a case for inaction. The core projections put forward by the IPCC exclude the small probability that warming will turn out to be the product of a natural cycle, but they also exclude various low-probability catastrophic scenarios, involving runaway feedbacks, collapse of the Greenland ice sheet and so on.

The most likely outcome of improvements in scientific knowledge is an increase in the confidence with which the mainstream IPCC model is held. But even if that does not happen, the news is just as likely to be bad as good.

So it seems that the critics of Kyoto, by focusing their attacks on the science of climate change, were backing an almost-certain loser in the long run. The obvious question is, Why?

For most of the book, Hamilton presents the methods, motives and successes of the greenhouse mafia as an example of effective delaying tactics, undertaken by well-organised interest groups particularly in the coal and aluminium industries. He sees the government’s stance as one of protecting short-term economic interests at the expense of our long-term national interest, not to mention those of the world as a whole.

This is certainly part of the story, But this analysis seems unsatisfactory for a number of reasons. Energy companies in Europe and elsewhere have had few problems in adapting to the new environment. Indeed, as Hamilton notes the intransigence of the Australian branches of Alcoa and Rio Tinto contrasts sharply with the positions of their corporate parents. And even Western Mining seems to have decided in the end that the campaigning fervour of Morgan and Evans was a distraction from their core business rather than a political asset.

But the most striking problem with the interest group explanation is its failure to account for the extraordinary ferocity of the climate change debate. As Hamilton notes at a couple of points in the argument, the rancour of the greenhouse mafia reflects a deep-seated hostility to environmentalism that goes beyond any calculation of corporate interests, or even the interests of the market system.

In fact, the dispute is not so much ideological as tribal. For the mining executives who lead the group, the retired engineers who typify the rank-and-file, and the culture warriors who push its case in the Murdoch press, greens or “enviros� are natural enemies. If they wear suits, turn up at business meetings and use the rhetoric of the market, that only makes them more subtle and dangerous threats.

And those who speak with the authority of science are disliked and distrusted even more. The most prominent recent statement from the greenhouse mafia, Ray Evans’ Nine Lies About Global Warming asserts that ‘If the IPCC were a commercial corporation operating in Australia, its directors would now be facing criminal charges and the prospect of going to jail’. Even normally sober commentators like Alan Wood, economics editor of The Australian, make free use of use of terms like ‘hoax’ or ‘fraud’ to discuss the main body of climate science supporting global warming theory.

Green activists and scientists alike are presented, in the rhetoric of the greenhouse mafia, as irreconcilable enemies of markets and freedom. Yet, Kyoto did not mark a triumph of anti-capitalist greens. Rather it signified the acceptance by the mainstream environmental movement that capitalism is here to stay, and that catastrophic climate change can only be prevented through the use of market mechanisms. Faced with a choice between pursuing fundamental social change and saving the planet, environmentalists have opted for the latter.

Serious advocates of capitalism have long recognised this. At meetings like the annual Davos conference and its Australian offshoot, the need to act on global warming is taken as given. The central issue is not the political fight over Kyoto and alternative proposals, but the opportunities for individual businesses and the business sector as a whole to take a leading role in the process.

Overall, the story told by Scorcher is one of a series of tactical victories for the greenhouse mafia leading to what appears certain to be a massive strategic defeat. The end of the Bush Administration will almost certainly signal the abandonment of the policies of denial and delay for which the ‘skeptics’ have fought so hard. The adoption of some form of emissions trading is inevitable, and the resulting political dynamic will ensure the adoption of long-term targets requiring large reductions in emissions. The only outcome of a decade of delaying tactics will be to increase the costs of the inevitable adjustment.

With its early advocacy of market-based policy, the Howard government, and the political right in Australia, could now be challenging the lock on environmental issues held by the left. Instead, having painted themselves into a corner by denying the plain evidence of science, they now find themselves scrambling to regain credibility and relevance.

Clive Hamilton, Scorcher: The Dirty Politics of Climate Change, Black Inc. Agenda, Melbourne 2007, 266+vi pp.

36 thoughts on “Scorcher

  1. Bilb,

    Different companies and different industries have a different marginal cost of carbon abatement.

    The point of a trading scheme is to allow the ones with the highest cost of internal reductions to pay other people to reduce emissions by more than they would otherwise.

  2. As to the claim that the aluminium industry would be “wiped out”, check both the MEGABARE and McKibbin modelling of Kyoto implementation which both show that employment in the aluminium industry would continue to rise, just at a slower rate than in the BAS scenarios.

  3. Ian G,

    You are going to have to spell all of that out a little more clearly. Are you saying that every company is going to have a customised price for their CO2 emissions, so if one company is granted a low cost for their emission credits then they can buy more credits than they need and sell them to another company which has been given a higher cost for their credits, pocketing the difference?
    I am only guessing at what “different marginal cost of carbon abatement” and “the highest cost of internal reductions” is means.

    As for the aluminium industry there is no modelling done that can have any meaning because there is no trading system and from this vantage point it is impossible to accurately determine what will happen. From my observations of the aluminium industry (Tiwai Point) and their reaction to electricity price variations in New Zealand there will be a huge amount of posturing going on as soon as there is the faintest glimmer of a price increase. There is always Western Papua just across the bay from the bauxite with plenty of hydro potential.

  4. Bilb,

    Permits will be issued to companies based on their current emissions. If we go down the McKibbin path they may be sold to industry. If we following Kyoto, they’ll probably be issued for free at least initially.

    Over time, government will either cancel/buy back some permits; reduce the amoutn of emissiosn authorised by each permit or, in the McKibbin version, increase the price for additional permits.

    Companies that want to emit more (or maintain their emissions as permits are cut) will have to buy additional permits either from other companies or in the McKibbin model from the government.

    Companies that can cut their own emissions for less than the market price will be the sellers of permits.

    Up to this point, because the cost of emissions has been minimal, companies haven’t designed their production processes to minimise emissions.

    Wjhen thye can make money from it you’ll see companies cutting their emissions in any number of ways from turning off lights overnight to replacing electric heating with natural gas.

    The aluminium industry has been screaming and posturing since at least 1995. They’ll continue to do so. But to be blunt, Alcoa has a multi-billion dollar sunk investment in Gladstone. They can’t pick up that investment and move it offshore. At worst, they’ll put their new investment elsewhere.

  5. “Wjhen thye can make money from it you’ll see companies cutting their emissions….”

    I read this to mean, ‘when they can reduce costs by reducing emission ……….

    It seems to me, ‘making money’ is possible only for traders in secondary markets (eg futures)

  6. Ernestine, if they can resell their permits, they can turn a profit, especially if the initial allocation of permits is gratis.

  7. Ian G,

    That proposal has the whole Murray Darling feeling about it and would be only a fraction as successful as that failure. For starters giving away free permits is a no win position. Those permit holders get a free ride and have no incentive to reduce their emissions. The guy next door who had to pay for his permit is going to be completely annoyed, and the guy who was denied a permit is going to release CO2 with out telling anybody, simply because he has no other choice.

    That doesn’t make sense at all. I doubt that a government that argued against a sales tax structure in favour of a flat GST would have the moral position to come up with a bitsy programme as described.

  8. Ian, there is a serious incentive compatibility problem with an ’emission trading’ scheme as described by you. (The problem is akin to a problem with many options in performance scheme for CEOs. At best the scheme works when it is redundant – ie people act on moral grounds in the appropriate way – and at worst it is counter-productive – ie the opposite to what is desired is achieved.)

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