Erwin Jackson, The Climate Institute
China Dialogue

Recent news of an Australian firm’s US$60 billion deal to supply coal to Chinese power stations made headlines around the world. Coming on the back of the Australian parliament’s rejection of the government’s emission-trading bill, the move has led some to question the country’s resolve in tackling climate change. 

Outsiders might well be forgiven for feeling confused about Australia’s climate policies, and it is worth taking a moment to examine the current state of play.

Most of Australia’s coal exports are destined for industrialized OECD countries, in particular Japan and South Korea, with around 9 percent going to China. Both Japan and South Korea are moving toward carbon pricing, which will have an impact on these markets. As a possible sign of things to come, India has also put forward a policy to levy coal imports to help fund clean-energy development.

However, as counter-intuitive as it may seem, global assessments by the International Energy Agency (IEA) and others see Australian coal exports increasing for a least two decades, even in the context of global action to reduce emissions. Modeling of the impact of global climate-change action on the country’s economy from the Australian Treasury concluded:

“Coal [and some other emissions-intensive trade-exposed industries] are likely to maintain or improve their competitiveness and share of global trade. These sectors are either less emissions-intensive or energy-intensive than comparable sectors in competitor countries.”

This is not to say that Australia does not have a responsibility to address emissions from its coal trade. It does. But the most practical way of doing this would be to focus on early deployment of carbon capture and storage (CCS) technologies and ensure best practice emission-reduction policies in the domestic resources sector. Along with large-scale solar and geothermal renewable technologies, a focus on emerging CCS capabilities draws on national strengths and is an appropriate contribution to global research, development and demonstration pathways for low-emission technology.

However, beyond the impact of global action on Australia’s coal-export industry, a more fundamental debate is missing in Australia, and key questions remain to be answered: Does the nation remain Asia’s quarry? Does it join global efforts to drive the clean-energy economy? And how does it remain competitive in a world that significantly reduces its emissions?

Recent research commissioned by my Sydney-based think tank, The Climate Institute, suggests that China is improving its carbon productivity and carbon competitiveness at a rate more consistent with avoiding the worst impacts of climate change than that of Australia, the United States and some other developed economies.

Central to this analysis is the concept of “low-carbon competitiveness” — the ability of a country to produce economic prosperity at the same time it is reducing greenhouse-gas emissions. In a world with carbon constraints, countries that can limit carbon pollution per unit of GDP will generally be more competitive than others.

As Nicholas Stern wrote in his preface to the report,

“A global economic recovery will present an ideal opportunity for countries to shift towards low-carbon growth. Countries who don't seize this opportunity will undermine their future competitiveness and prosperity.”

This view is reinforced by a considerable quantity of economic modeling in Australia showing that the countries that act first will gain a comparative advantage in the emerging clean-energy economy.

These projections show that countries that defer action face higher long-term costs as global investment is redirected to low-carbon countries.

Political Roadblocks

While the importance of “carbon competitiveness” to future prosperity has yet to soak into the psyche of many Australian policymakers, in the past 12 months there has been a broadening of the definition of national interest.

The current government headed by Prime Minister Kevin Rudd has, for example, accepted the conclusion from professor Ross Garnaut, a former Australian ambassador to China, that it would be in Australia’s interests to stabilize global greenhouse gas concentrations and equivalents at 450 parts per million or lower. This was driven by the recognition that Australia is the advanced economy most vulnerable to the impacts of climate change and caused Australia to play a more positive role in international talks in the lead up to Copenhagen.