Editorial: June 2007                                

Value judgements, conflicting assumptions undermine Climate Institute ‘research’

On 28 May, ABC radio bulletins were abuzz with news of new research ‘showing power costs would rise less if the Government moved quickly to bring in a mix of measures, including emissions trading, than if it waited’.

The source of that research was not a university, research institution, industry association or government agency, but rather a ‘greenhouse lobby group’, as the ABC called it – the Climate Institute of Australia (CI). As a rule, the ABC isn’t in the business of promoting lobby groups. Why then was this research accorded such prominent coverage and presented as self-evidently true?

The habit of media outlets, particularly at the progressive end of the spectrum, to confer authoritative status on green lobbies is a fact of modern life. The point is made well by former British MP Dick Taverne in The March of Unreason:

Just as parties are a necessary part of democracy, environmental lobbies play an important part in making people and governments aware of environmental issues. But blind loyalty to the cause is just as corrupting as tribalism in party politics. In fact it is more dangerous, because the media subject the pronouncements of parties to ruthless criticism, but treat environmental groups like The Soil Association, Greenpeace and Friends of the Earth as independent authorities above criticism, as if they were a sort of collective Mother Theresa. There is a general feeling that since they are trying to save the planet, they must be right.

To those groups mentioned by Taverne, add CI.

Journalists would deny that their positive coverage of CI’s output is driven by shared ideological assumptions about climate change, if not the world at large. They would argue that it is more to do with the organisation’s independence.

According to a press release, CI was founded in 2005 ‘through a $10 million grant from the philanthropic group, the Poola Foundation’. One of CI’s directors, Mark Wootton, is also a director of Poola, which distributes the bequest of the late Tom Kantor, the brother of Mr Wootton’s wife Eve. The foundation disburses most of its money to environmental projects.

Another of CI’s directors is Clive Hamilton, better known as Executive Director of the Australia Institute, a progressive think tank. The Australia Institute is also funded by Poola. Hamilton is the author of numerous books and articles on the theme that material affluence is incompatible with wellbeing. CI represents an extension of Hamilton’s obsessions, since global warming is seen as the most serious of many negative by-products of the market economy.

For many observers, CI’s funding by a philanthropic trust attests to the integrity and impartiality of its work. In contrast, researchers funded by commercial concerns are routinely accused of bowing to their paymasters. This tactic is rife when it comes to debates about climate change. There is a knee-jerk tendency to dismiss anyone who questions the IPCC-Kyoto-Stern orthodoxy as being in the pay of some sinister interest.

Yet it may be reasonably argued that the type of grant made in this case, an up-front single capital sum, will inevitably confine CI’s field of vision to enquiries which happen to justify the grant’s purposes. These include ‘raising public awareness and debate about the dangers to Australia of global warming and to motivate the country to take positive action’. As we will see, this results in a tendency to fish around for worst-case scenarios.

A hermetically sealed trust like Poola isn’t subject to commercial or political pressures. Nor is it instinctively sensitive to the day-to-day reality of people who may be damaged by its purist agenda.

Nonetheless, it is rarely productive to prejudge the quality of research into the implications of global warming (or anything else for that matter) on the basis of who funds it. The public interest will only be served if all research, whatever the source, is examined on its merits.

Faking the switch

The CI paper that attracted so much attention on 28 May was Making the Switch: Australian Clean Energy Policies. The underlying assumptions and modelling methodologies are contained in a supplementary report by McLennan Magasanik Associates, ‘one of Australia’s leading electricity sector modellers’.

The principal paper’s headline story, the one that so interested the ABC, assumes a scenario in which the government introduces emissions trading with a ‘soft’ carbon price of $10 a tonne in 2012 and delays ‘full emissions trading’ until 2020. This is called the ‘wait and see’ scenario. If this comes to pass, says the paper, we will have electricity ‘prices around 20 per cent higher in the 2020s, 60 per cent higher in the 2030s and 90 per cent higher in the 2040s’.

‘This rapid price increase’, it is explained, ‘risks significant shocks to the industry and wider economy.’

CI urges the government to go for a ‘mix of policies’ option: full carbon pricing as of 2010, clean energy targets and comprehensive energy efficiency. ‘A mix of policies reduces carbon price increases by around a third and electricity price increase by around 20 per cent over the first two decades of action [sic]’. The precise meaning of this sentence (and many others) isn’t so clear. Apparently, prices would be 20 per cent lower than the ‘wait and see’ scenario outcome.

(ABC newsrooms wouldn’t have appreciated that this isn’t such a dramatic improvement, considering that CI forecasts prices rising by as much as 90 per cent in the 2040s under the wicked ‘wait and see’ scenario.)

As noted above, these findings were reported as pressing and self-evident. Closer examination reveals that the paper is built on a collection of gratuitous value judgments and conflicting or arbitrary assumptions.

Gratuitous value judgements

Making the Switch starts with a familiar premise: ‘No other conclusion can be drawn from the scientific assessments of Australia’s, and the world’s, premier scientific institutions that countries like Australia will need to reduce emissions by 60 to 90 per cent by 2050 [sic]’.

Some researchers and a few national and international agencies have estimated that global emissions need to be reduced by around half from 1990 levels if atmospheric carbon is to be stabilised at safe levels. This is not to say, however, that there are scientific grounds to suggest Australia ‘will need to’ do so. There are no scientific grounds for Australia to do anything. Extinguishing our 1.4 per cent contribution to global emissions will scarcely affect the world’s climate systems. If CI believes there are other grounds for Australia to act, they are not spelt out in the paper. The need to act now is asserted as obvious.

CI, like other green groups, insists the debate on whether Australia should take early action to cut emissions is over. The subject is far from closed, however. Considering our minuscule share of global emissions, and the severe impact such action would have on our fossil fuel dependent, energy exporting economy, the issue ought to be subjected to continuing scrutiny. A model approach is found in the Productivity Commission’s submission to the prime minister’s task group on emissions trading, which contains critical examination of various rationales for early action like avoiding climate change, meeting the Kyoto target, being a good world ‘citizen’ and influencing others, reducing investment uncertainty, and facilitating the transition to a lower emissions economy.

In contrast, CI prefers to indulge in gratuitous value judgments.

‘It is inevitable’, says the paper, ‘there will be winners and losers in the transition to a low carbon economy …’ CI, unlike other green lobbies, concedes that ‘certain greenhouse intensive trade exposed industries such as aluminium production and iron and steel may suffer disproportionate impacts from domestic carbon pricing’. But CI claims the right to decide that some industries deserve to flourish at the expense of others, without any consideration of alternative policy frameworks. The prospect of losers ‘should not be an excuse for inaction across the wider economy’, it says.

CI is cold on nuclear energy because, amongst other things, of ‘public opposition’. On the other hand, public opposition to the closure of power stations or steel and aluminium plants doesn’t rate.

Conflicting assumptions

The modelling behind CI’s benign ‘mix of policies’ assumes there will be emissions trading as of 2010 and a concurrent, if transitional, clean energy target (CET) scheme. This flies in the face of most other commentary on emissions trading.

The paper explains that CET is a market-based mechanism that ‘operates like the Government’s Mandatory Renewable Energy Target (MRET) through tradable permits to drive the lowest cost technologies to market’. However, national emissions trading is advocated by many, including the Commonwealth Treasury, precisely because a single all-embracing scheme will eliminate economic distortions produced by piecemeal state and federal abatement measures like MRET. The paper itself says an important purpose of carbon pricing is to ‘create a level playing field for business and consumers’. That message is delivered by several submissions to the PM’s task group, as well as their final report.

Neither Making the Switch nor the supplementary report, however, comments on the potential for emissions trading and CET to cancel each other out. Nor do they attempt to quantify this possibility. Perhaps CI is just ideologically committed to renewable energy and doesn’t trust the market forces generated by emissions trading.

At any rate, this represents a significant rupture in the logic of CI’s argument.

Arbitrary assumptions

As noted, the ‘wait and see’ horror story assumes the government will impose a ‘soft’ carbon price of $10 a tonne from 2012 to 2020 and aim to reduce emissions by 80 per cent from 1990 levels by 2050. The paper was timed to pre-empt the PM’s task group’s final report, and these figures reflect speculation about the report’s recommendations. In the event, the task group didn’t specify a carbon price or target, so CI’s exercise is purely hypothetical. It can be consigned to the category of political tactics rather than economic analysis.

(This may explain another gaping hole in the paper – at no stage does it nominate the appropriate carbon price for ‘full’ emissions trading.)

Nevertheless, it is striking that CI chose the high emissions reduction target of 80 per cent. This served to deliver the alarming figures, but positions CI way out on a limb. Almost everyone else, including the IPCC, Stern, the G8 and Labor, talk about 50 or 60 per cent.

Clearly, CI wants to exert maximum pressure on the government to take strong action now. Perhaps it fears the heat will go out of the issue if, over time, adverse climate predictions are modified or if giant emitters such as the US, the EU and China take matters in hand and let bit players like Australia off the hook. Stressing the need for urgent measures, the paper asserts ‘the costs of inaction through climate change are expected to far outweigh the costs of action’. The sentence bears a footnote to Sir Nicholas Stern's Review.

True to form, however, there is no attempt to balance the discussion by acknowledging the criticisms of Stern’s methodology. A cash sum will be worth less at some future date than it is now. In finance and economics, the discount rate is a percentage by which the current value is reduced to reflect that future lower value. Stern used a low ‘social’ discount rate of 0.1 per cent per year (virtually zero), so that any future costs of climate change emerge as more significant today in financial terms than if he used a higher (and arguably more realistic) discount rate.

Stern’s approach supports the contention that we should bear the costs of abatement action now rather than later. But he has many detractors. William D Nordhaus, Sterling Professor of Economics at Yale University, a foremost expert on the economics of climate change, is but one of those who have questioned Stern’s arbitrary choice of discount rate.

Therein lies a lesson for media outfits like the ABC. Early action is particularly unwise when ascribing authority to green lobbies like the Climate Institute.

 TNC  25 June 2007                       Like to respond?                                       Top