Unfortunately, Tony Abbott can't cancel meetings with the climate

The world of high finance is beginning to apprehend the scale of the climate problem and act accordingly. No wonder Tony Abbott doesn't want to meet the heads of the IMF and World Bank

Simon Sheikh

Tony Abbott, the prime minister, has cancelled his US meetings with the head of the International Monetary Fund, Christine Lagarde, and the president of the World Bank, Jim Yong Kim. Could it be he’s reluctant to have two more meetings with senior figures in the finance world who know climate change is a major economic issue?

The prime minister’s refusal to put climate change on the G20 agenda is yet another sign that he doesn't understand the forces that will shape the next 30 years of global economic dialogue.

Lagarde and Kim have both declared climate change to be amongst the most serious threats to modern prosperity. As Lagarde said, "we are subsidising the very behaviour that is destroying our planet, and on an enormous scale".

Kim has gone even further, calling for nations and individuals to divest from fossil fuels. He recently said, "we can divest and tax that which we don’t want, the carbon that threatens development gains over the last 20 years … It’s simple self-interest. Every company, investor, and bank that screens new and existing investments for climate risk is simply being pragmatic.”

Abbott’s fear of even discussing the impact of climate change on the Australian economy shows his ignorance of the issue. Massive changes are occurring in investment markets in Australia and around the world, missed by a prime minister with his head in the sand.

Medium term economic growth forecasts - the very numbers that underpin the last few years of the federal budget - rely on international demand for Australian coal holding up. But when voters next go to the polls in 2016, we could be on the precipice of peak Chinese demand for Australian coal.

This is a result of China’s policy responses to a combination of environmental, economic, and energy market factors. China is bringing on domestic supplies of coal, while at the same time investing billions in renewable energy and, as confirmed last week, working toward a limit on carbon pollution and a wide-reaching emissions trading scheme.

The mining industry calls this a "China-centric" view that ignores the possibility that India’s rising demand for energy will put the Australian coal sector in good shape. In India, the price of solar has reduced by 65% over the last three years and Narendra Modi, the recently-elected prime minister, is a solar champion. During his time as the chief minister of Gujarat, Modi introduced India's first incentive program for commercial, large-scale solar, leading to an additional 900MW of solar capacity.

Just as countries in Africa are leapfrogging fixed line telephones in favour of mobile phones, India looks set to leapfrog coal in its attempts to combat energy poverty. Modi's party, the BJP, have recently announced their commitment to bring solar power to every home in India over the next five years.

Last week Abbott said Australia’s "destiny" is to bring cheap energy to the world. How is that possible, when the cheapest sources of Australian coal have already been found, dug up and exported? New coal projects in the Galilee Basin, for example, require a coal price of more than $100/tonne to be economically viable. With the current Australian coal price sitting closer to $72/tonne the prospects for the industry are not looking good.

Abbott’s ignorance of the economics of coal and climate change means he isn’t adequately working on the important challenge of diversifying the Australian economy. Instead, his recent budget cut funding for science, research and innovation programs, while further propping up the mining industry via his failure to combat diesel fuel subsidies and his scrapping of the former Labor government’s mining tax. In doing so he is not only risking the future of our nation’s finances, but the retirement savings of superannuants as well.

As the head of the OECD, José Ángel Gurría, recently said, “the looming choice may be either stranding those [fossil fuel] assets or stranding the planet.”

He's right. The global movement toward renewable energy and regulating carbon pollution puts at risk the ability of major Australian companies to continue to dig up and export their fossil fuel reserves. This in turn risks their future cash flows and stock prices.

Titans of the Australian Stock Exchange like BHP and Rio Tinto, and the federal treasury, have the most to lose from a significant decline in the prospects of Australian miners. Almost all Australians who have superannuation hold shares, through their super funds, in these companies.

Abbott would do well to stop avoiding meetings with the head of the IMF and the World Bank. If he won't, he may find himself being schooled in climate change economics by Barack Obama, the US president, in their upcoming discussion.

Perhaps Obama will tell our prime minister what he told Georgetown University students in July last year: “Invest. Divest. Remind folks there’s no contradiction between a sound environment and strong economic growth.”

http://www.theguardian.com/commentisfree/2014/jun/09/unfortunately-tony-abbott-cant-cancel-meetings-with-the-climate