Photo by Chris Lim.

The axis of environment

10 April 2014

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Frank Jotzo is Director of The Centre for Climate Economics and Policy at Crawford School, and director of the School’s Resources, Environment and Development program. He currently teaches the graduate courses Domestic Climate Change Economics and Policy and Issues in Development and Environment.

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The roots of future global environmental policy will be planted in Asia, writes Frank Jotzo.

The future of the planet’s environment will be determined in Asia.

Over the coming decades the success of global environmental policy will be decided in the region – particularly when it comes to climate change. Rapid industrialisation, urbanisation and the ascendency of middle class lifestyles mean that energy use rises relentlessly – and with it, output of greenhouse gases.

Business-as-usual would have greenhouse gas emissions grow to entirely unsustainable levels, risking damage not just to natural environments but to many people’s livelihoods and the global economy. Based on current trends China alone would quickly accounting for the entire global greenhouse gas emissions budget that appears within acceptable environmental limits. Business-as-usual would see India and other fast growing developing countries follow in those footsteps, and developed countries at high and stable emissions levels.

Thankfully for the planet, business-as-usual is not the trajectory that the world is on. Breaking the link between growth and pollution is no longer just a theoretical concept, but a project that is underway in many countries, and a concrete ambition for others. China is already heavily investing in energy efficiency and lower-carbon energy supply, and its coal consumption could peak within years. Brazil’s annual emissions from deforestation have fallen drastically, and a downward trajectory is also apparent in Indonesia. Emissions have fallen in recent years in most of the large developed countries, including the United States.

Nowhere is there any evidence that moves to cut emissions have subdued economic growth rates.

To achieve the same on a larger scale, robust and cost-effective policy frameworks are crucial: policies that give investors confidence to go the low-emissions route, that foster the development and use of clean technologies, and that encourage structural change towards less resource intensive economic activity. Where the leading economies can show that economic prosperity is possible while reducing emissions, and how it can be done, others will follow. Two countries at the vanguard are China and Indonesia.

China is the lynchpin for global climate mitigation. Its annual carbon emissions doubled between 2004 and 2013. The country is now by far the largest global emitter ahead of the United States. But China’s leadership is changing course. A raft of policies is in place to increase the efficiency of energy use, to boost renewable and nuclear power, and to limit coal use.

Many of these changes have taken the form of regulation and state directed investment, but China is beginning to rely more on market mechanisms, in line with a general shift to a more market-based economy. Seven large emissions trading pilot schemes are getting underway, and the Chinese government is working on plans for a national emissions trading scheme and possibly a carbon tax.

Putting a price tag on carbon emissions is widely seen as the cost-effective core of emissions policy in any country. The OECD, IMF and World Bank unanimously recommend carbon pricing, which could also serve as a handy source of fiscal revenue.

We do not need to search for altruistic motives to understand China’s decision to limit emissions. There are clear risks from climate change for China itself, and air pollution is an immediate pressure, causing popular discontent in the cities. Coal trucks and trains clog the transportation networks, and the energy import bill is rising. It all points in the same direction: halting the growth in fossil fuel use.

For Indonesia and a number of tropical developing countries meanwhile, the big near-term challenge and opportunity is in land use. Logging of natural forests and conversion of forests to palm oil plantation and other uses is highly profitable. But much progress has been made over the last two decades. Deforestation rates have been reduced and deliberate forest fires for clearing are rarer.

The Indonesian government can take some of the credit for measures it has taken, though much more remains to be done to put land use on a sustainable footing. That is a big challenge, especially where decisions over land use are devolved to local governments and where corruption is still prevalent.

At the same time, choices in the energy sector cannot be ignored. As in all developing countries, power demand is rising rapidly, and fulfilling it through coal plants would lock in high-carbon structures for decades to come. Indonesia is expanding the use of alternatives, including geothermal energy, though the institutional obstacles can be daunting.

How can Australia, one of the smaller members of the G20, help on an issue of such global proportions that poses intricate challenges for policy and economics in each country? The answer is obvious: set a positive example for domestic policy settings, and make an effort commensurate with the global level of climate action that Australia would like to see.

Successive assessments, from the Garnaut Climate Change Review to the Climate Change Authority’s draft report, have argued that Australia’s commensurate action should be to turn around the trajectory of Australia’s emissions and achieve reductions by 2020, moving toward deep cuts by the middle of the century. Achieving this in an economically responsible way requires good domestic policy as well as integration with the international effort.

Read more about Environment policy in Asia at Policy Forum. The axis of environment was published at Policyforum.net - the website of the Asia and the Pacific Policy Society.

This article was also featured in the Autumn 2014 edition of Advance, Crawford School’s quarterly public policy magazine.

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