Sydney Morning Herald

By Geoffrey Garrett 

What a difference a year makes. Just 12 months ago, Kevin Rudd was still riding high and about to go to Copenhagen to fight for the greatest moral challenge of our time while the leader of the opposition was under siege from within for his support of Rudd's emissions trading scheme.

The Gillard government will head to the latest global climate change summit in Cancun this week with much less lofty aspirations for a global deal.

Listening to the Australian debate, you would think the climate change issue is solely about the impact of Australian action to reduce emissions on the climate and the costs to consumers, businesses and taxpayers of taking action. But the global story is increasingly about the interaction between concerns about energy security and the parlous state of most western economies, rather than climate change per se. Compare Australia with the world's two largest economies and two largest carbon emitters, the United States and China.

Australia is even less dependent on imported fossil fuels than the US, where President Barack Obama has abandoned his emissions trading scheme and curtailed his green economy investments while ramping up regulatory activism by the Environmental Protection Agency. Countries that lack Australia's and America's energy independence have clear economic incentives, not to mention clear national security drivers, to wean themselves off imported coal, gas and oil. But for Australia, like the US, there must be other reasons to reduce carbon emissions.

One of these is concern for the climate, pure and simple. The other reason to move to a lower carbon economy is to get a head start in the "green race" - investing in alternative energy technologies that could be the next iPads and fibre-optic cable.

Neither motive has been strong enough in the US. The spectre of enduring near double-digit unemployment makes any new costs on business political suicide. The fact that the government budget is drowning in red ink leaves little room for public investment in alternatives.

Economic conditions are very different in Australia. The unemployment rate is half that of the US. Australia's public finances are among the world's strongest. Australian experts increasingly look on with envy at what another strong economy with low government debt - China - is doing to fire up its nascent greentech sector, from the world's biggest utility scale wind and solar farms to the first mass production electric car.

But this is a necessity for China, not an option. On the estimates of the New York-based Council on Foreign Relations, China is on track to consume nearly three-quarters of today's total annual global oil production by 2020.

China may or may not care about the climate. Its citizens probably care more about clean water and clean air. But heads, China wins from less reliance on imported oil and gas that can only get more expensive over time. Tails, China wins from first mover advantage in greentech, replacing low wage manufacturing with new high skill, high value-added exports.

China committed unilaterally at Copenhagen to reduce the carbon intensity (not total emissions) of its rapidly growing economy by 40 per cent of 2005 carbon intensity levels by 2020. But it has little interest in being part of a big global deal that would constrain its autonomy and not put enough responsibility on the West for two centuries of industrialisation.

The US was unable to push hard for a global deal at Copenhagen because domestic support for a national deal had collapsed. President Obama was left to reiterate his country's existing domestic commitment to reduce its carbon emissions by 17 per cent of 2005 levels by 2020, roughly comparable to Australia's Copenhagen commitment of a 5 per cent reduction on 2000 emissions by 2020.

The positions of China and the US, the world's two biggest economies and emitters, show the limits of what summits like Copenhagen last year and Cancun can achieve. The maximum feasible goal is to tie a ribbon around disparate national commitments in the hope that this will forge a loosely co-ordinated global path to lower carbon emissions.

This has three implications for Australia. First, for the next several years at least decisions on carbon emissions will be essentially national ones rather than grand global bargains.

Second, like the US, Australia does not have an energy security imperative to reduce its carbon emissions. Both countries have big domestic reserves of coal, gas and oil, with plentiful export opportunities. Higher fossil fuel prices may help the national economies as much as hurt them.

The exact reverse is true for China, with the single exception of its own coal that it is fully exploiting.

Third, like China, Australia's strong economy and budget give it the chance to impose a price on carbon and invest heavily in alternative energy.

Climate change may well be a great moral challenge. But more mundane considerations are increasingly driving policy. Rudd hoped his ETS would be part of a global wave. If Gillard chooses to put a price on carbon she will more likely be flying solo.

Professor Geoffrey Garrett is chief executive of the United States Studies Centre at the University of Sydney.