Fossil fuel growth centre harks back to old ideas about climate costs

On Wednesday, the minister for industry, innovation and science, Christopher Pyne, launched a new “growth centre” for Australia’s fossil fuel industry (and uranium), to be known as National Energy Resources Australia. The government will invest A$15.4 million over four years in the centre, which seeks to make coal and gas firms operating in Australia more competitive with fossil fuel firms operating overseas.

Pyne said the fossil fuel growth centre will help facilitate innovative and collaborative research projects between the CSIRO, university researchers and the fossil fuel energy sector. His enthusiasm for this type of tripartite research venture to aid industry ends is significantly compatible with the view held by CSIRO chief executive Larry Marshall.

Competition in climate policy

Securing the international competitiveness of Australia’s fossil fuel sector has been a bipartisan convention since Bob Hawke’s Labor government. Take, for example, the recently released Hawke cabinet documents of December 1991, which say that:

Australia will need to consider the implications of becoming a Party to the Framework Convention on Climate Change. An important factor in this consideration will be Australia’s commitment not to proceed with measures which have net adverse economic impacts nationally or on Australia’s trade competitiveness in the absence of similar action by major [greenhouse gas] producing countries.

Fast-forward 25 years to the terms of reference of the Climate Change Authority, which is currently inviting submissions on the future direction of government climate action. These require the authority to:

…consider the possible effects of an [emissions trading scheme] or other policies on the international competitiveness of Australian businesses. The main issue of policy concern is that emissions reduction policies could place Australian firms at a competitive disadvantage relative to firms in countries that do not face comparable measures.

A key difference between the two statements is that comparative advantage – ensuring state advantage against foreign states – dominated Australia’s decision-making on climate policy until US business expert Michael E. Porter’s notion of competitive advantage took hold in the late 1990s. This is about the ensuring the competitiveness of firms.

‘Profit to act’ phase?

Between 1988 – when climate change first emerged as a major policy issue – and 2006, business and government in Australia routinely highlighted the immediate economic costs associated with establishing a price on carbon pollution. Let’s call this the “cost to act” phase.

Between 2006 and 2016, however, the cost-to-act argument, which had dominated for so long, was gradually eroded. It was eventually replaced by the “cost not to act” argument – to quote UK climate economist Nicholas Stern:

The benefits of strong and early action far outweigh the economic costs of not acting.

Labor prime ministers Kevin Rudd and Julia Gillard were strong supporters of this argument. The coal industry resisted, while oil and gas were accepting – mostly because they viewed the establishment of a carbon pricing mechanism as a commercial advantage over coal.

The Abbott-Turnbull government, as it is currently working, has revived the cost-to-act argument of the pre-2006 phase. For example, former prime minister Tony Abbott made the following comment to the media after he repealed Gillard’s Clean Energy Package, which was the most environmentally effective climate policy Australia has ever seen:

Today, the tax you [the Australian people] voted to get rid of is finally gone. A useless, destructive tax, which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment, is finally gone.

The cost to act argument is also embedded in the thinking behind the government’s Direct Action policy.

But business has not been deterred. While Australia’s biggest banks are still investing sizeable amounts in fossil fuels, some businesses, such as energy supplier AGL, are now leading the government. There is a rapidly growing sense among the energy business community that there are good profits to be made in combating climate change. Perhaps a new “profit to act” phase is dawning.

The government and opposition should play their part and give business a clear bipartisan target, a planned trajectory to reach it, and an appropriate policy mechanism to do the job.

A freer Malcolm Turnbull and Labor opposition could manage this. Indeed Turnbull, as opposition leader in 2009, was one of the strongest advocates of the cost-not-to-act argument. Given his business background, I suspect the profit to act argument would be even more attractive.