Carbon reform will not be a painless journey

WORLD leaders in climate science and policy are in the Mexican city of Cancun this week, seeking a global consensus to tackle climate change.
But I’m not holding my breath that they will return with any greater agreement than what we have seen from them in recent years.
If anything, given the frequency of political regime changes in the last 12 months, the appetite for dealing with this problem realistically and globally is at a low ebb.
However, Australia’s Climate Change Minister, Greg Combet, is at the summit, and if his language in the last 10 days is any guide then he will be telling delegates that Australia will introduce carbon pollution reduction legislation in 2011.
Given the bruising that the government received last time around, it will be interesting to see how he and Julia Gillard approach this reform with a minority in both chambers of Parliament House.
The first half of the year will see them confront the same blockade in the Senate that they faced in 2009.
The second half of the year will see them negotiate solely with the Greens, and we can only hope that the Prime Minister’s recent reference to there being “nowhere to hide” is a message to the Greens that they will have to be more realistic in their negotiations.
Given the Greens’ ruthless targets for a carbon pricing and reductions, there are significant risks posed to the agricultural sector from their policies and the party will have to temper its demands if it wants to introduce reform that does not gut the economy.
Likewise, recent suggestions from the Clean Energy Council that an $85/tonne carbon price would be no worse than the high exchange rate demonstrates a gross misunderstanding of the agricultural sector.
Farming is an energy intensive activity, with ABARES (formerly ABARE) categorising about 45 percent of costs to a cropping operation as being energy intensive.
ABARES modelling suggests that a $40/t carbon price would add 4.5pc to the costs of a cropping operation assuming agriculture is not covered by of a carbon trading scheme, and 6pc if it is covered.
However, we know that Queensland farmers are at the coalface of susceptibility to climate variability.
The natural variability of this year compared to recent years is proof of the wide ranges of weather patterns that we experience.
ABARES’ estimates suggest that Queensland agriculture faces reductions in production due to climate change effects greater than other States.
On a business as usual basis, beef production could fall 9.6 percent by 2030 and 19pc by 2050, and sugar production by 12pc by 2030 and 17pc by 2050.
These changes, which would be reflected in massive reductions in Queensland’s farm exports, would contribute to a reduction in State GVP of over 8pc by 2050.
Ultimately, agriculture is in a difficult situation: we have a lot to lose from inaction and we have a lot to lose from a carbon price or poorly designed climate policy.
At the moment, the Minister for Climate Change is emphasising the upside of a carbon price by framing it as vital “economic reform”.
But he has a job ahead of him if he wants to convince the nation that a price on carbon will “stimulate growth and prosperity as we invent new technologies”, as he said in a speech last week.
I think it would be very rare that increased government regulation and tax structures actually improve an economy, and we must remember that a unilateral Australian carbon price will create many losers and few winners.
Australian politicians are treading a dangerous path by wanting to be seen to do something with climate change and relabelling it as economic reform, when in fact no matter what they do an Australian carbon price would disadvantage the tradeable goods sector, of which agriculture is a part.