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March 2013

Yesterday, I attended the Australia-China Climate Change Forum held at the UNSW.
The keynotes were Greg Combet, the Federal Minister for Climate Change and Xie Zhenhua, Vice-Chairman of the National Reform and Development Commission, PRC. Many of the key people surrounding climate change science, economics and policy both in Australia and in China were there.

It was reassuring to hear that China is thinking very seriously about implementing policies to reduce carbon intensity of their industry, and reduce GHG emissions. In fact, they have moved beyond thinking, and are introducing pilot emission trading scheme programs in seven provinces including Beijing, Shanghai, and Shenzhen. These will start running from 2013, and are envisaged to transform into a national ETS by 2020. There are many things around these pilots and a future national scheme that need to be further worked out and implemented, but this a start. It seems that some form of carbon pricing will find its way in the Chinese economy in the next 7-8 years or so. This will inevitably mean that the associated costs will be transmitted throughout the economy, and are likely to affect consumers in several key areas including electricity and transportation. So, prices of certain goods and services are going to rise, and there are still many, many people in China who need affordable access to these goods and services.

The key question that follows from this is what is the public support in China for implementation of stringent carbon emission reduction policies? Even though a different political system, the importance of public support is no less significant in China than it is in Australia. If many people, especially within the rapidly growing Chinese middle class see climate change policies as threatening the continuing rise of their economic prosperity, the Chinese government is going to have a very hard sell on these policies. We are likely to see caps on emissions that are too high, generous allocations of grandfathered permits, and consequently minimal actual carbon prices. The Chinese government will have to be very careful in how they progress with climate change policies so as to avoid the public backlash that the current Labor government in Australia has experienced.

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Yesterday I was at the official opening of my Faculty’s new Centre for Carbon, Water and Food. It was a marvelous occasion, with the Prime Minister of Australia doing the honors, accompanied by couple of ministers and MPs, the Chinese Ambassador to Australia, and delegations from our Faculty’s partner institutions in China, as well as the full suite of University’s leadership .

The Centre itself is an excellent, state of the art facility, where world class research on many scientific aspects of carbon and water cycles and their essential linkages to the agricultural production will be investigated. This will no doubt lead to greater understanding of the complex environmental questions that we are facing today.

However, better knowledge of water and carbon cycles, their bio-physical and chemical characteristics, their spatial and temporal dynamics will not, in its own right be sufficient to lead to better long term environmental and natural resource management and improved environmental quality. To achieve this, we also need improved understanding of how people and their economic system interact with these important natural cycles, and how are they likely to respond when circumstances change. Perhaps most of all we need to understand how to facilitate change in the way people govern the environment and natural resources, i.e. how to foster timely institutional innovation in this area. This is very complex (perhaps more complex than the science of water and carbon cycles), and cannot be answered in the usual simple way: ‘government needs to do something about it’. We only need to look at the Minerals Resource Rent Tax to see that even when government does something, nothing much changes if the understanding of how the economic system will respond is missing.

Only a sustained, significant and substantial research effort in understating economic drivers and human institutions that shape carbon and water cycles would enable the translation of scientific advances in understanding these complex natural cycles to better environmental and natural resource management outcomes. Unfortunately, I could not see evidence of commitment to this type of research in the new Centre. Even less fortunately, I couldn’t even say that I am really surprised!

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