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Sunday Agenda

Access Economics, Dr. Ric Simes

15th November, 2009

Interview with Access Economics Director, Dr. Ric Simes
Sunday Agenda program, 15th November 2009

Helen Dalley: Aside from the environmental rationale behind the emissions trading
scheme, does it make sense economically? Joining me now to discuss this is Dr. Ric
Simes, a director of Access Economics, who’s an expert in this field.
Ric Simes, thanks very much for joining us.

Ric Simes: Thank you.

Helen Dalley: Now let’s go back to basics, because you’ve done extensive analysis on
the economic modelling I guess, not that we want to use that word modelling, but does it
add up for Australia or any country to have an ETS in place, a trading scheme, and to
put a cost on carbon emissions?

Ric Simes: It certainly does. Given that manmade climate change is a real event and
it’s happening today and it’s going to happen indefinitely, the most efficient way and
most effective way of addressing that is to put a price on those emissions and put that
price on as many emissions as possible, so do it as comprehensively as possible.

Helen Dalley: Well just on that score, there’s word today that perhaps Penny Wong will
back down and agriculture will be permanently excluded. Do you have a view on that?

Ric Simes: Ideally agriculture should be in. It’s a practical issue though, it’s very difficult
to work out how you implement that, both in Australia and overseas. And so as I see it,
the decision today is being driven by practical considerations rather than overall
economic efficiency.

Helen Dalley: So agriculture should be in, as far as you’re concerned?

Ric Simes: If you could implement it. We couldn’t implement agriculture today or
impose an ETS on agriculture today . . .

Helen Dalley: . . . But it was supposed to come in after 2015, wasn’t it?

Ric Simes: Yes, and 2015 might have been too soon also, but at some stage in the
future it may have become possible, and in those circumstances it should have been in.

Helen Dalley: Alright, so given that you and your analysis has accepted the science,
should a trading scheme come in sooner rather than later?

Sunday Agenda 15th November, 2009 Dr. Ric Simes

e. . to people who are going to invest in massive infrastructure in some cases in terms of power stations and things like that. to do that you need to have a price on carbon forever. so the price on carbon eventually should make people change their behaviour and move to alternative forms of technology? Ric Simes: That’s right. and we’re trying to also bring developing countries onboard. won’t make any difference at all. and so ideally as soon as possible. to do that though. 2009 Dr. it won’t make much difference.2 percent a year. Because if we try to impose very tight targets early on and we don’t have all the new technologies coming on-stream or there’s some sort of lag in the investment adjustment. Helen Dalley: It’s not a huge impact on the economy. we might be growing at 3.5 percent on average. and peoples’ dependence on activities that are related to emitting carbon. to give certainty to business. Helen Dalley: So again. and what Australia is looking at doing is comparable with what other developed countries are doing.4 or 3. .Ric Simes: It’s important to get the price signals in there fairly soon. But we’re part of a global community. is it your view that really an ETS must only be in a sense a short term solution? The idea is to get people to change their behaviour and to cut their dependence on emitting carbon? Ric Simes: That’s the ultimate goal. And so it is a long term policy. that’s up to the politicians to work out how to bring it together. to get people to change how they produce or how the economy produces. the real issue isn’t so much the long term impact. the transition. but we shouldn’t hope to get large reductions in emissions happening very quickly. .1. no. But some on the national side of politics say that our scheme. Helen Dalley: And how much or how adversely is that going to impact on our economy? Ric Simes: If there’s sufficient time to turn over the capital stock and make these investments. And that takes quite a while to have the capital stock in the country adopt less emissions intensive technologies. is it? Ric Simes: No. Is that true? Ric Simes: Well if no one else around the world has similar schemes. i. Ric Simes: . That’s right. What this is all about is getting price signals in there. in how we build our buildings or what motor vehicles we drive or whatever. instead of growing at 3. So just how that all comes together. so that we can make important decisions in terms of investment in new technologies. well then to meet those targets basically we need to slow the Sunday Agenda 15th November. it should not have a large impact. an Australian scheme. Helen Dalley: So the short term solution . No. The real issue is how we get there. Helen Dalley: From your analysis. . Helen Dalley: Alright. The best estimates suggest that we can have quite deep cuts in emissions by 2050 and effect gross domestic product by around . And so that’s not very big.3 percent. . Ric Simes . But it’s important that all countries do take part in this effort.

what that’s going to do is encourage the adoption of a lot of technologies that are ready to go today. 20 percent at most of the total generation. we should be having quite a different electricity generation sector. because it’s not consistent and too much wind would tend to cause problems with the overall electricity system with transmission and the like. And the main one in terms of electricity generation. will take some time. it’s very difficult to see much action on those in the next decade. The oil and gas industry has been good at transporting the gases and it’s technically feasible to store that carbon in saline aquifers under the ground or in past Sunday Agenda 15th November. Helen Dalley: Why is that? The government’s brought in the legislation about 20 percent renewable. but as I understand. what we should be looking at is how quickly we are being able to bring new technologies on. Helen Dalley: . or geothermal or solar or whatever. is wind. Helen Dalley: Away from coal fired. Instead. to meet these changes by say the 2030s. or if coal fired is going to be used. And so to get that complemented. Carbon capture storage technology. Helen Dalley: . Helen Dalley: So have you picked a target that works for you in terms of not being too steep to have a really strong adverse impact on the economy? Or perhaps I should ask you another way. or get other technologies to play that larger role . And so it’s the adjustment process towards that long term that’s really the important thing. I’m not an expert on all the technologies. each element in that is technically feasible. For example. . Ric Simes: Either that. do you think the carbon capture and storage for coal is going to be a real viable option? Ric Simes: Look. . it’s going to be accompanied by being to capture the gas . . yes. It’s very difficult to see with any of those new technologies that will provide the potential to have baseload electricity being provided. Ric Simes: That’s right. Ric Simes: Yes. . . The issue here in my mind is that having an interim target based on the level of emissions might be the wrong way to look at it. 2009 Dr. do you mean? Ric Simes: Well either away from coal fired. and when you look at the incentives behind that. Now wind should play a useful part in the long term solution. but only maybe 15. Ric Simes . We’re not sure which one of those technologies is going to be most commercial longer term. . . what do you think of the minimum target that the government has set of five percent reduction? Ric Simes: We don’t know whether that’s going to be good or bad because there are so many uncertainties going forward. Helen Dalley: Alright. . The other 85 percent. So it’s technically feasible and people are already capturing it. or transform the economy.economy down more. but we need to make sure that we’ve had the investments and we’ve got all of that up and running.

replacing some of the coal fired generation to gas. Early on.reservoirs or whatever. and over time the new technologies will become more commercial. the biggest changes are going to be getting a bit more efficiency. Ric Simes . and that’s going to take at least one decade and probably two or three decades to get right. the cost of producing them as we understand the technology better will come down. The big question is. Ric Simes: Thank you. and so it will take time. bringing on a bit of renewables. but to get a technology to make it cleaner in terms of its carbon emissions. complemented by these other technologies. Helen Dalley: So what is the solution? You’re saying it needs to be across all those. 2009 Dr. is it going to be commercial to do this at scale? And that requires a lot of work. basically if we can end with an agreement where we get a price on carbon happening fairly soon so people start to adjust and act on that. thanks so much for giving us that update. Some of the details will be negotiated. and so over time it will occur. that’s the goal. Helen Dalley: Okay. which is available today. then moving. Sunday Agenda 15th November. Helen Dalley: Dr. so the next two weeks are really quite crucial in terms of the debate in the parliament? Ric Simes: The next two weeks. but the goal is to get that price on carbon early. So it’s technically feasible. a lot of effort to get that right. But you’re saying all of those new things are still a long way off? Ric Simes: Yes. or having fewer emissions for the same level of energy being produced out of the existing operators. that’s when we end up with the risk that we might miss those early targets. Ric Simes. The problem is when we say we want so much on a particular date. The current technology we have which is essentially coal fired. we’ll leave it there.