Finance Finance News Richard Denniss: The massive contradiction in the Morrison government’s net-zero plan
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Richard Denniss: The massive contradiction in the Morrison government’s net-zero plan

The most egregious flaw in the federal government's net-zero plan is that it doesn’t actually reach net zero, writes Richard Denniss. Photo: TND
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Buried in the Morrison government’s net-zero modelling is the policy that dare not speak its name: a carbon tax. Or a carbon price as Julia Gillard described it, or a ‘tax arrangement’ in the words of those who wrote up Morrison’s modelling.

Whatever you call it, the Morrison government is using economic modelling based on the efficiency and effectiveness of a carbon price to prove that – you guessed it – Australia can get to net zero without a carbon price.

Despite the strategic timing of its release, a number of big flaws in the model have already been identified. The most egregious is that Australia’s plan for net zero doesn’t actually reach net zero.

It assumes the world will still be buying huge amount of gas and coal from Australia in 2050 and it relies on imaginary emissions reduction technologies being invented ‘very soon’.

But, despite the absurdity of these assumptions, they pale into insignificance when compared to the phantom carbon price that sits at the heart of the economic model.

Inventions not yet invented

Economic modelling always requires the ability to make bold predictions about the future, but never in the history of economic modelling has so much transformation been achieved by so little policy change. The modelling assumes the carbon price we don’t have, will drive the rollout of technologies we haven’t invented yet. The strategy is nothing more than a hope and prayer.

Until now, economic modelling has revolved around the principle of ‘cause and effect’. But in the topsy-turvy land of the Morrison government modelling, it’s all about the effects with literally no mention about the cause. It’s all sizzle, no sausage.

While the conventional approach to modelling would be to start with the cause (for example a carbon price, a renewable energy target, or fuel efficiency standards) and then study the effect on GDP, employment and emissions, the most expensive modelling exercise in Australian history starts with the effect (an 85 percent reduction in Australia’s emissions) and asks us to imagine the cause of the surge in new technologies and the collapse in those emissions.

As the economic modellers confess on page 29:

“The marginal abatement cost in the model represents the wide variety of ways that action can be motivated, including voluntary action (to meet investor expectations or consumer preferences), government regulation (such as efficiency standards or technology mandates), government financial support or incentives, or tax arrangements (such as fuel excise).”

The model estimates that the marginal abatement cost under the Morrison government’s plan is $24 per tonne, which, coincidentally, is about the starting price of Julia Gillard’s carbon price.

But whoever wrote the net-zero modelling was very careful to be vague about what the cause of this change in business and consumer behaviour might be.

Economic models are both complicated and simple. While Brian Fisher, one of the architects of the GTEM model on which the net-zero modelling was done, claims that this model has “millions of equations”, what he doesn’t say is that most of them are virtually identical.

Such big talk is designed to scare the uninitiated away from asking simple questions about the key features of the model design. And the key feature of the GTEM model is that it assumes companies and consumers respond to prices.

Whether a carbon price is paid voluntarily or compulsorily, the model assumes it will be passed on in full to consumers. And while Julia Gillard’s carbon price had compensation for low-income earners, Scott Morrison hasn’t mentioned the need for compensation for “working families” from the voluntary carbon price he is banking on.

Major own-goal

While the purpose of the economic modelling was to show Australia can get to net zero without a carbon price, or new government policy, the modelling actually proves the opposite. It shows that, even with incredibly optimistic assumptions about new technologies, it will take a carbon price of at least $24 per tonne to motivate firms to roll them out.

But in order to conceal the simple truth that carbon prices work, the modellers simply ask the reader to instead imagine that some magical combination of voluntary action, regulation and subsidies might be implemented instead.

The problem is that Scott Morrison just announced a plan with no such policies in it. Just last year, Scott Morrison said he wouldn’t commit to net zero until he knew exactly what the costs were. But now he’s committed to his net-zero plan even though the modelling states very clearly it won’t achieve net zero and can’t even get to ‘net 15’ without taxes, subsidies or mandates. None of which the PM has announced, let alone costed.

Good and bad news

The good news is the net-zero modelling shows that the costs of reducing greenhouse gas emissions has been enormously exaggerated for decades.

The bad news is the net-zero modelling is clearly designed to deliver more of one thing: delay.

Fantasy emissions reduction technologies might spread across our industry in the coming decades, but if they do, it will be because of big investments in research and development, from taxes, and from subsidies and mandates to drive their deployment. In short, all the things Scott Morrison has ruled out doing.

But in an environment where voters and business are demanding more climate action, Scott Morrison’s modelling might have just handed Anthony Albanese and Labor a gift.

Now that everyone agrees that a 2050 target won’t harm the economy, the only question is the ambition of our 2030 target.

The freshly minted Glasgow Pact requests Australia to boost its 2030 ambition next year.

The Business Council of Australia recently released modelling suggesting short-term ambition would create jobs and lower electricity prices and Australia Institute research shows the Australian public support such a shift.

Labor now has a golden opportunity to wedge the Liberals from the Nationals, the BCA and most voters. Time will tell if it takes it.

Richard Denniss is the chief economist at independent think-tank, the Australia Institute. He tweets @RDNS_TAI