Climate change and the export environment

Ever since Prime Minister Kevin Rudd signed the Kyoto Protocol and appointed a Minister for Climate Change, the issue of climate change has been a hot topic for business. So, what is climate change and how will it affect exporters?

Imagine Australia’s oldest wine growing regions too hot to produce grapes, dwindling agricultural exports and prime tourist attractions like the Great Barrier Reef crumbling and you get an inkling of the dramatic impact climate change could have on this country and its economy.

Professor Ross Garnaut, who was commissioned by the Australian government to review the economic impact of climate change and recommend policy options, notes that climate change will be “associated with a decline in international demand for Australia’s mineral and energy resources and agricultural products”.

In The Garnaut Climate Change Review he says climate change will affect the supply of imports to Australia and demand for Australia’s exports and, consequently, Australia’s terms of trade:  “The Review’s modelling indicates that Australia’s terms of trade are affected much more adversely than any other developed country by climate change.”

So what is climate change and why is the prognosis so grim? The United Nations Framework Convention on Climate Change distinguishes between ‘climate variability’, which is a natural fluctuation of the climate, and ‘climate change’, caused by people.

It defines climate change as “A change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods”.

In the past 10,000 years, the earth’s atmosphere has remained relatively stable, providing people, crops and animals with optimal conditions in which to thrive. A thin layer of naturally occurring greenhouse gases, which acts like a protective skin around the planet, is critical in maintaining this equitable climate. At the right concentrations, greenhouse gases shield the environment from the high-energy radiation of the sun. They allow sunlight to come in but trap some of the heat that is re-radiated from the earth back into space, keeping the temperature just right.

Since the industrial age, however, people burning carbon-rich fossil fuels, destroying forests and building polluting industries, factories and farms, have spewed increasing amounts of carbon dioxide and other greenhouse gases into the atmosphere. The higher concentration of greenhouse gases trap more of the heat that is re-radiated from the earth, resulting in global warming and climate change. It is akin to the atmospheric ‘skin’ being covered with a stifling layer of fur that prevents infrared radiation from escaping.

The major culprit is carbon dioxide, which now exceeds the natural range of the last 2 million years by 25 percent, according to the Intergovernmental Panel on Climate Change. Without concerted international action to cut greenhouse gas emissions, carbon dioxide levels could reach a catastrophic 1,500ppm (parts per million) by the end of this century. This could herald a new Dark Age, with unendurable temperatures, the sea largely dead, massive droughts and much of the planet uninhabitable.

The new Australian government has signed the Kyoto Protocol and stated its commitment to a 60 percent reduction in carbon emissions by 2050. Australia is introducing a cap and trade emissions scheme, to be implemented in 2010. The government will announce details of this Carbon Pollution Reduction Scheme, including interim targets for 2020, later this year.

Garnaut has recommended that Australia should support setting an international target for stabilisation of greenhouse gases at 450ppm, which gives a 50 percent chance of limiting the global mean temperature increase to two degrees celsius above pre-industrial levels.

If the world does not agree to this target, Garnaut says Australia should play its part in stabilisation at 550ppm. He remarks: “What the rest of the world notices most about Australian emissions is that ours are the highest per capita in the OECD.”

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