Flawed and misleading rhetoric claim critics

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Senior civil servants and more than one hundred economists in Australia are severely criticising their government's negative stance on greenhouse gas emissions. This, they say, is based on flawed economic models and is a deliberate attempt to mislead the public. The accusation is levelled at the country's Conservative government by The Australia Institute, a public policy think tank.

In the run up to the next round of global talks on C02 abatement, to be held in December at Kyoto in Japan, the Australian government continues to call for special treatment. It is advocating a system of different targets for each country -- the so-called "differentiation model" -- basing its arguments on economic models prepared by its own in-house energy forecaster, the Bureau of Agriculture and Resource Economics (ABARE).

These models have been developed with partial funding from a consortium of resource companies, particularly the coal industry. ABARE has developed the MEGABARE and now GIGABARE models to determine the economic impacts of meeting greenhouse targets. The latest GIGABARE model concludes that meeting the targets proposed by the European Union and United States will cost every Australian $9000 by 2020 if emissions are reduced 10% below 1990 levels.

It is this and other claims which are being challenged by The Australia Institute in a report released in April and authored anonymously by senior bureaucrats with a close knowledge of how the government position was developed. Executive director of the institute, Clive Hamilton, says the ABARE presentation of results was designed to provoke maximum concern and was "an extraordinary and misleading statement." He describes the ABARE result as "hardly discernible," given the uncertainty of forecasting economic growth. Hamilton's concern was matched by a statement signed by 130 senior economists who also criticised the government's stance.

The latest GIGABARE predictions also contradict work by US researcher John Hoffman and by Australian researchers Alan Pears and George Wilkenfeld, according to the institute. Visiting Australia last year, Hoffman told policy makers he had adapted the US National Energy Modelling System, developed by the Energy Information Administration (EIA), to reflect "a more realistic world" in which various public and private actions foster institutional change to allow a more efficient operation of markets.

"Our results indicate that inefficiencies in the current energy economy create an opportunity for substantially reducing greenhouse gas emissions in the energy sector while simultaneously improving the US economic performance," said Hoffman. Producing a number of scenarios with the model, Hoffman found a "dramatic success" scenario that produced a 21% reduction in emissions from 1990 levels with a 0.5% improved GDP by 2015 compared to the EIA baseline estimates. Even in the "moderate success" scenario, emissions reduced 13% with a GDP improvement of 0.3%.

Describing Australia's position as "MEGABARE nonsense on stilts," former Australian climate change negotiator and current Griffith University professor Ian Lowe says the ABARE results are based on "dubious economic modelling" and "assumptions that are clearly false." Lowe notes two fatal flaws in ABARE models -- the assumption that behaviour can only be changed through price mechanisms and the exclusion from the models of the benefits from of measures such as energy efficiency.

Australia's top atmospheric scientist, Graeme Pearman, has also stepped into the debate, saying the government's economic models are immature and given "a degree of respect that doesn't reflect the degree of simplicity" compared to the more sophisticated and rigorous scientific models of the physical climate. By contrast, he adds, the physical models of climate can, and have been, tested for variations using real data over a much longer period of time. "Further, the current climate models are the result of an international community working strongly together to validate each other's work," says Pearman, noting that the government's economic models do not display this type of rigour and are not tested against the past.

The models also use assumptions that depend on the strong functioning of a market economy which cannot, as yet, account for the fact that market forces do not always drive behaviour. Community perceptions and political decisions, says Pearman, are just two factors that can create chaotic feedback loops that may dramatically affect an economy.

Closed eyes

Director of the Institute for Sustainable Futures at the Sydney University of Technology, Mark Diesendorf, also criticises the underlying assumptions of "top down" models such as GIGABARE and MEGABARE that examine the aggregate behaviour of the whole economy, but fail to consider the enormous economic benefits of using energy more efficiently.

The ABARE models assume the markets for energy and energy services are perfect and do not include measures for C02 reduction that are cost effective in their own right (so-called "no regrets" options) he says. Ignoring "no regrets" actions mean the top down models tend to overestimate the costs of greenhouse response and underestimate the benefits, says Diesendorf.

"The modellers "close their eyes to substantial distortions in the market such as energy price subsidies and incentives received by certain large consumers, including aluminium smelters, as well as the market advantages that the few large centralised energy producers have over the smaller operators," he says referring to a study by the federal environment department. It shows that environmental subsidies to the coal industry amount to more than $2 billion a year.

ABARE's dire predictions also seem to contradict one of its own earlier studies. When analysts George Wilkenfeld and Alan Pears adjusted data inputs for the residential sector in the ABARE MENSA model -- a different type of "bottom up" model that can account for technologies used in energy production and use -- the result was a stabilisation or reduction in polluting emissions with billions of dollars of economic benefits. What's more, Pears and Wilkenfeld believe they have demonstrated that if those models are adjusted to more accurately reflect technology and social change, Australia can benefit economically from reducing emissions.

Critics of ABARE's modelling also say Australia has one of the worst records for improving energy efficiency in the OECD countries. This means the country has a greater potential to cost effectively improve its energy efficiency than other countries. But that potential will be even more difficult to achieve after the government recently axed a number of energy efficiency programmes as well as the Energy Research and Development Corporation -- the fedral body charged with developing new and cleaner forms of energy.

ABARE's Vivek Tulpule defends the MEGABARE and GIGABARE models saying they show a high level of agreement with results from models developed in other countries. Although he agrees that the results are very sensitive to the choice of inputs and assumptions -- and did not as yet include the cost of environmental damage caused by climate change -- ABARE has done "a lot of work to establish good data sets and work up decent equations." He also disputes the statement that the models do not display the same type of rigour as models of the physical climate.

He agrees, however, that there is heavy and appropriate debate among economic modellers, particularly with issues such as the effect of "recycling" the revenue of carbon taxes to reduce payroll and other taxes. ABARE, he adds, was happy to participate in any meaningful debate about its models.

That debate, however, may be eventually overshadowed by a political push to establish a uniform target to start the process of reducing emissions. The American and EU delegates to the forthcoming United Nations convention in Kyoto may be happy to have targets because the agony of differing emission levels would destroy the purpose and aims of the global get together.

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