International expert delivers climate policy perspective

Posted : Thursday, April 05, 2012

The renaissance of coal is the most important economic and environmental problem in the 21^st century, an International climate policy expert visiting Australia to deliver CEDA's 2012 Sir Douglas Copland Lecture has told event attendees.

Potsdam Institute for Climate Impact Research Deputy Director and Chief Economist and Intergovernmental Panel on Climate Change (IPCC), Working Group 3, Co-Chair, Professor Ottmar Edenhofer, said during his speech on Transitioning to a Low Emissions Future, that the renaissance of coal meant carbon capture and storage technology is necessary to achieve any meaningful climate policy.

He said coal's abundance, global distribution, low cost as an energy source and use by countries such as China, India and the US, meant that it would continue to be used and any global climate policy must take this into consideration.

Professor Edenhofer also discussed the need for stronger risk management tools to ensure better climate policy decisions and the need to examine trade sanctions against climate policy free-riders.

"When we talk about climate change we have to frame this in a framework of risk management. Risk management means we have a look not only at the average outcomes but also the worst case scenarios. And it seems to me that we, as human beings, are not good at risk management," he said.

"Assume that you ask the majority of economists in 2003: How likely is a financial crisis? Most of the economists would respond the likelihood is below one per cent.

"But if you ask the same economists what would be the impact of a financial crisis, they would argue the impact of a financial crisis on our economic systems would be severe.

"So in that sense our conventional risk management tools are not really adapted to deal with low probability, high impact events and the climate change issue is one of the cases where we have to develop such tools if we are to make rational and precise decisions."

He said climate policy should be seen as insurance against catastrophic risk. While he said this would have dramatic economic implications, the good news is reaching a two degrees target is still possible at a relatively low cost.

On the issue of reaching a global agreement on climate policy he said there was no silver bullet and we need a toolbox of options.

"Most countries would agree that if human kind as a whole can co-operate on the climate change issue it would be globally optimum. It would be good if we can avoid dangerous climate change. It would be beneficial for human kind as a whole," he said.

"However, every single country is better off if only the other countries mitigate. So there is a strong incentive to behave as a free-rider."

The problem with this is if all countries behave as free-riders and there is no global agreement, then it could have catastrophic consequences for the planet as a whole, he said.

He said policy design needed to disincentivise acting as a free-rider, suggesting options that should be considered include linking climate co-operation with research and develop co-operation and trade sanctions against free-riders.

Return to the news