Prof. Ross GarnautThe bar for national climate policy just inched up again.

In April of last year Australia’s State and Territory Governments commissioned a comprehensive independent study from economics professor Ross Garnaut. The Garnaut Climate Change Review is meant to be Australia’s version of the U.K.’s influential Stern Review: it will examine the economic impacts of climate change and recommend policy responses.

The final report isn’t due until September — right in the heated final days of the U.S. presidential election — but a preliminary interim report [PDF] was released today, and it’s ambitious.

Three aspects jump out: 100 percent auctioning of permits under cap-and-trade, heavy gov’t investment in CCS, and four planning scenarios of increasing ambition rather than just one. Details below the fold.

Garnaut Climate Review 1. The big news is that Garnaut has come out strongly behind 100 percent auctioning of permits, refusing the power companies’ requests for a period of free allocation. Naturally power producers are squawking about the coming economic apocalypse. As for the auction revenue:

All revenues from auctioning permits — up to $20 billion a year, according to the Climate Institute — be earmarked to compensate low-income households, to invest in low-emissions technology all the way from the lab to commercial viability, and to invest in public transport and in coal regions where jobs are at risk.

2. Garnaut puts a huge amount of emphasis on carbon capture and sequestration (CCS), and recommends substantial gov’t investment. According to him, CCS could mean the difference between economic revitalization or serious economic disruption for coal-heavy areas of the country. This is from the report:

It would be consistent with Australian policy traditions, and with sound principle, to make substantial commitments to support private research, development and commercialisation activities related to carbon capture and storage by established coal- based electricity producers.

This would be in addition to any general support for innovation in the low-emissions energy industries, for which investments in development and commercialisation of CCS would qualify. This would encourage the timely exploration of the one development — carbon capture and storage — that could generate an expanding future for the coal- based power-generating regions, with large opportunities for established firms in the coal-based domestic energy industries.

3. Finally, rather than developing one target and one plan to reach it, Garnaut recommends mapping out policies for four separate scenarios, the first merely hitting Australia’s Kyoto targets and the next three ramping up in ambition:

The Review is exploring closely the risks associated with climate change in three cases of mitigation, for comparison with "business as usual". One case is continuation, and probably steady intensification, of the partial, ad hoc approach to mitigation that characterises current international discussion. A second is firm, effective global mitigation, around an objective of holding emissions concentrations to 550 ppm CO2-e. A third is ambitious, effective global mitigation, around an objective of stabilisation at 450 ppm CO2-e, inevitably with overshooting.

The expected costs of climate change would be widely different in the four cases. The differences are currently the subject of close analysis. It is not clear at this stage whether the data will support strong, quantitative analysis of the differences, or whether our judgements will need to be built around qualitative assessments.

The idea is that as the U.S. and then developing nations sign on to emissions trading schemes, Australia will bump up its commitment. Said Garnaut, "Australia should be ready to go beyond its stated 60 per cent reduction target by 2050 in an effective global agreement that includes developing nations."

It will be interesting to see whether the September release of this report has any discernible effect on U.S. politics. Or, come to think of it, Australian politics.