1. ENVIRONMENTAL ECONOMICS RESEARCH HUB WORKSHOP ON 20 MAY 2008 Project 11: Economics of Greenhouse Gas Control (in-practice title for “Improving Australia's Energy Efficiency Through Faster Development And Adoption Of Technologies”) Jack Pezzey Fenner School of Environment and Society, ANU

2. Project context and aims In Dec 2006 PM formed Task Group on Emissions Trading (ET) → Project 11 context widened from energy efficiency to more general greenhouse gas control Aims now: use economic analysis to find ways to lower overall cost, and increase overall effectiveness, of policy measures to control Australian GHG emissions - particularly c.75% of GHG emissions that's CO2 from burning fossil fuels and communicate findings to policymakers. Within this, could research any or all of 3 major market failures: - environmental externalities from GHGs → study emission pricing policies (emissions trading and emissions tax) - new knowledge +ve externalities from R&D → study GHG R&D support policy - information and split incentive failures in existing energy markets → study energy efficiency policy

3. Recruitment history Original aim: find someone not for a neat, pre-defined task under close supervision, but build capacity by recruiting a career researcher to do his/her own independent research on economics of GHG control Unfortunately, unsuccessful: – advertised August 2007 – interviewed October 2007 – made offers to 3 good candidates at fortnightly intervals in November – all turned us down, remaining candidates not suitable effectively a result of overlapping circumstances: – 2.5 year time horizon of project – rigour and pace of required ANU recruitment procedures – exceptional market demand for greenhouse gas economists

4. Current personnel (all part-time) Leader: Dr Jack Pezzey, Senior Fellow, Fenner School, ANU Research assistant: Paul Burke, PhD student, RSPAS, ANU (30% since January 2008) Research associate Dr Frank Jotzo, Research Fellow, RSPAS (20% since April 2008) Future staff developments?

5. Theme 1: political economy of permit allocation (Pezzey/Burke) A carbon price will cause losses of asset value, e.g. to power stations So far we've asked: how well-diffused are losses; where and how wealthy are losers; how big are rent-seeking costs of free permits? Answers: losses diffused over '000s of people; 1/3 of listed shares owned by foreigners; 2/3 of shares owned by wealthiest 1/5 of households; large rent-seeking costs likely, even if only 10-20% free Output: Canberra Times opinion piece in Feb 2008, "Garnaut has got the compo right: no heart-melting case for free emission permits" Future possibilities: - Do uncompensated asset losses cause net economic loss to Australia because of loss of investor confidence? What is the debate in NE USA scheme (RGGI) where 100% auctioning is proposed? - Anything worth doing on Pezzey idea of emissions tax with thresholds → price rather than quantity certainty + equivalent political economy?

6. Theme 2: Do global sustainability measures adequately measure sustainability risks of climate change? (Pezzey/Burke) Motivation: resolve gulf between sustainability optimists and pessimists? Do detailed comparison of two global sustainability measures: Genuine Savings Rate (GSR): Net Savings Rate + education spending − nat. resource depletion − particulates − CO 2 emissions (only 0.4%) Ecological Surplus Rate (ESR): Biocapacity − Ecological Footprint, both as global hectares per person, as % of Biocapacity Biocapacity: measure of photosynthetic production Ecological Footprint: human use of photosynthesis, converted to land area (global hectares) - c. 50% is for sequestering CO 2 emissions Conclusion: GSR can be improved, but worth complementing by ESR Output: seminars in Canberra and Perth, paper at SURED conference Further work: refine for publication in quality science journal

7. Global Genuine Savings Rate (GSR) and Ecological Surplus Rate (ESR), 1970-2003 % ESR GSR +8% -26% “ecological overshoot of 0.26 Earths”

8. Graph of global: Ecological Footprint (EF), population (POP), Total Ecological Footprint (TEF) and Total Biocapacity (TBC), 1970-2003 Index (1970=1), except TBC on TEF scale TEF (gha) POP (psn) EF (gha/psn) TBC (gha) +26%

9. Theme 3 (for future?) Effects of Australian population growth or immigration on GHG emissions (Pezzey/Burke) How much has Australian population growth (or just immigration) raised Australian emissions? How much has it raised global net emissions? Theme 4 (for future?) Analysis of other countries' successes in reducing CO2 emissions (Pezzey/Burke) Try to measure the separate effects of - % use of nuclear power - active renewables and/or conservation programs - carbon pricing - population growth

10. Theme 5: the international linkage of Emissions Trading Schemes (Jotzo) How and to what extent should Australia link its emissions trading system internationally? Joint with Dr Regina Betz, UNSW/EERH Linked in with project under the Climate Strategies network, Europe Public events and policy dialogues – Public forum on ETS linking: 8 expert speakers incl from Canada and NZ, high-level government speakers – 120+ participants from government, industry and research community – “Emissions trading for Australia: lessons from Europe”, Dr Felix Matthes Presentation at Bali COP 2007 Poland COP Dec 2008 Continuing toward policy papers and journal publications – Aus-NZ linking – Linking in a post-2012 international regime

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