A ‘model’ plan

Sovereign risk research impact

In terms of research impact, few economists have made such a respected contribution to sovereign risk issues in Australia as Professor Quiggin, who took a lead role in the Climate Change Authority’s decision to analyse a light vehicle fuel efficiency proposal, and was actively involved in the research process.

The resulting policy document Light vehicle emissions standards for Australia concluded that Australia could reduce greenhouse gas emissions and lower fuel bills for Australian motorists by making light vehicles more efficient.

“Improving the efficiency of light vehicles was shown to be one of the least costly emissions reduction options available to Australia,” Professor Quiggin said.

Professor Quiggin and his group also assessed the agricultural impacts of climate change in the Australian Government’s Garnaut Climate Change Review.

The 2008 review and its 2011 update have so far remained as the key authoritative references for Australian climate change policy. However, Professor Quiggin said there were still many issues that needed to be resolved in the quest to identify the best energy mix for Australia.

“For brand new electricity generation, there’s overwhelming evidence that renewables are more cost-efficient than coal, and in the Australian context more cost-efficient than gas,” he said.

“And that’s reflected worldwide; in the developed countries in particular, nobody is building new coal-fired power stations.

“Some less developed countries have a pipeline of stuff that’s still rolling on, but essentially all the countries that have stable or steadily growing demand…no one is building new coal-fired power stations.”

National energy policy process in disarray

According to Professor Quiggin, the great many unresolved energy issues and a lack of willpower to make internal combustion engines more efficient have left the national energy policy process in disarray.

“The big problems are to do with government climate policy, which is a mess," he said.

"But there's also the fact that the national electricity market, although its existence has more or less coincided with recognition of the climate change problem, has been designed with no attention to this whatsoever.

“Once you have a carbon price – which we clearly should have – as that price rises, coal-fired power stations become uneconomic to operate.”

He said that anyone who invests in a coal-fired power station will find that it’s the classic definition of a stranded asset, to the extent that those assets have to be written off.

“That’s particularly relevant in the context of new investment,” Professor Quiggin said.

“If you’re developing a new coal mine or a railway line or a new power station, you’re making a bet that coal-fired power is still going to be around in forty years’ time.

“It is more a matter of getting the reasoning right than complex modelling techniques.

“The kind of issues that matter a lot are, for example, how much you discount the future.

“In the quest to identify the best energy mix for Australia – as we move towards a low-carbon future – it’s clear that the impacts of policy research evolve over long periods of time.”