We need tougher targets than the world is yet ready to accept, so in the meantime Australia should set course to cut emissions by 2020 to 10% below 2000 levels, says Ross Garnaut's long-awaited report on targets and trajectories.

Garnaut says the Government should also aim to reduce emissions to 80% below 2000 levels by 2050.

His supplementary report recommends the 10% and 80% targets in the context of an effective international agreement designed to stabilise global concentrations of greenhouse gases at 550ppm by 2050 and resting on equal per capita emission entitlements.

Garnaut also warns the costs of unmitigated climate change would be far higher than previously thought, involving a 10% fall in GNP and a 12% reduction in wages by 2100.

But tackling climate change will mean only about a 0.1% reduction in Australia's rate of annual economic growth, he says.

Stabilisation at a lower level preferable

Garnaut says a tougher global objective of stabilising greenhouse gases at 450ppm would "better suit Australian interests".

"However, the review has reluctantly concluded that international agreement on a global goal of 450ppm is not possible at this time," the report says.

"As such, the details of the targets and trajectories that the Review is recommending will not be the best for all time. They are the best available to us now."

A global goal of stabilising emissions at 450ppm would require Australia to reduce its emissions to 25% below 2000 levels by 2020 and 90% below by 2050, Garnaut says.

Much higher costs if no action taken

Garnaut, in conjunction with Treasury, modelled three mitigation strategies – no mitigation; cooperative global action delivering stabilisation at 550ppm; and cooperative action stabilising at 450ppm.

If no concerted global action is taken to rein in climate change, then Australia's GNP would fall about 10% and wages would be 12% lower relative to the reference case by 2100, the modelling predicts.

These results do not take into account some costs that could not be incorporated into the economic modelling, the report points out.

These estimates are "much higher" than Stern's estimates of global costs because Stern has under-estimated the growth in emissions that is likely to occur without effective global action, the report says.

Modest mitigation costs, followed by GNP boost

In contrast, a strategy involving stabilisation at 550ppm is likely to involve an initial reduction in the GNP growth rate of about 0.8% (spread over several years), with annual GNP growth after that until 2050 being only 0.1% below growth levels without mitigation costs.

Soon after 2050, GNP growth would be higher than it would otherwise have been because of avoided new climate change damage.

The results show the overall cost to the Australian economy from tackling climate change "is manageable and in the order of one-tenth of 1% of annual economic growth", the report says.

Going for 450ppm would cost little more

Garnaut says the increase in costs to Australia associated with mitigation at 450ppm rather than 550 ppm would be "negligible" and justified.

The modelling estimates that the net present value of the additional cost of mitigation associated with stabilisation at 450ppm, compared to stabilisation 550ppm, would range from 0.7% to 0.9% of GNP, depending on the discount rate selected.

The review says it would be worth paying "less than 1% of GNP" over the course of the century as a premium for the 450ppm stabilisation strategy, in part because it would reduce the risk of catastrophic consequences for the natural environment.

"But Australia alone is not in a position to achieve 450ppm," it says.

"The review recommends that Australia commit itself to a goal of stabilising emissions at 450ppm, and express its willingness to play its proportionate part in an effective global agreement to achieve this outcome."

"At the same time, Australia should work purposefully towards the difficult but immediately achievable goal of 550ppm, again making it clear that it is willing to make its proportionate contribution to an effective global agreement."

The Garnaut modelling will be followed by the Rudd Government's release in October of Treasury modelling of the impact of various emissions reduction trajectories.

Fix the carbon price until 2013

Garnaut says that from 2010 until the end of 2012 (the end of the Kyoto Protocol's first commitment period), the carbon price should be fixed. This would prevent an "unproductive interaction" between the trading scheme in its early years and international negotiations.

It would also provide "a less anxious environment" for implementing strategies to deal with trade-exposed, emissions-intensive industries.

Garnaut proposes that the scheme start in 2010 with a permit price of $20 per tonne, rising 4% a year plus CPI.

"This is more or less the price path that the modelling suggests would be followed if there were effective global agreement directed towards stabilisation of global greenhouse gas concentrations at 550ppm," it says.

"If a post-Kyoto agreement were struck around 550ppm, the fixed price is likely to allow relatively seamless transition to a floating price regime," it says.

Australia's task in the absence of a global agreement

If no comprehensive global agreement emerges, then Australia should commit to reducing emissions from 2000 levels by 5% by 2020, Garnaut says.

This would be consistent with a linear trajectory towards the Government's current target of a 60% cut below 2000 levels by 2050 but would be an "unhappy conclusion", Garnaut says.

"Opportunities to hold risks of dangerous climate change to acceptable levels diminish rapidly after 2013 if no major developing economies are accepting constraints to hold emissions significantly below business-as-usual levels by this time.

In the unlikely event that UN climate talks fail completely, Australia should continue to operate a fixed price scheme until 2020 or an international deal is reached, he says.

Garnaut also warns that the costs of reducing emissions by 5% by 2020 in an "ad hoc world" without a global agreement would be just as great as the costs of achieving a 10% reduction in the context of a comprehensive global agreement.

Don't fight justified contraction in some industries, Garnaut warns

A world in which a carbon price is factored into production costs could well see the competitiveness of Australian aluminium production – using coal-based electricity – decline compared to production in countries using hydro- or gas-based electricity, Garnaut says.

"This would involve economically and environmentally efficient contraction of Australian production. Any attempt to slow its natural progress would increase the cost of Australian emissions reduction," he warns.

On the other hand, Australia's sheep and cattle producers are likely to gain an increased advantage over producers in other countries facing emissions costs associated with barn heating and winter grain feeding.

Garnaut's timeframe

Garnaut issued his interim report in February (see related article) and his draft report in July (see related article).

He will submit his final report by the end of this month.

The Garnaut modelling will be followed by the Rudd Government's release in October of Treasury modelling of the impact of various emissions reduction trajectories.

The back story – who's said what on targets

At December's UN climate change talks in Bali, Australia and parties that had ratified the Kyoto Protocol (a group not including the U.S.) agreed their future work would be guided by scientific findings indicating developed countries would jointly need to make 2020 cuts of 25% to 40%.

That outcome was only possible after Australia threw its weight firmly behind it, telling fellow Kyoto delegates it "strongly supports" the version of the document containing the reference (see related article).

The Bali wording – which acknowledges the need for cuts of this magnitude without binding parties to them – was in a form that shadow Climate Change Minister Greg Hunt had indicated during the talks would be acceptable to the Opposition (see related article).

The Rudd Government went into last year's election with a commitment to putting Australia on track to reduce emissions to 60% below 2000 levels by 2050. The Government will announce its medium-term targets by year's end.

In a speech to the National Press Club in July, Greens Leader Bob Brown said his party would seek to amend the Government emissions trading legislation if it fails to Australia on course to cut emissions to 40% below 1990 levels by 2020 (see related article).

Releasing his interim report in February, Garnaut said Australia might have to contemplate cutting emissions to 90% below 2000 levels by 2050 through domestic action and emissions trading as part of global action to stabilise greenhouse gases in the atmosphere at low levels.

Garnaut said it was in Australia's interests to push for an ambitious stabilisation target for levels of greenhouse gases in the atmosphere (see related article).

The Business Council of Australia, in its report on the analysis of the green paper proposals issued last month, said reducing emissions to 10% below 2000 levels by 2020 would equate to a 34% reduction below business-as-usual projections and "a more moderate target" might be necessary (see related article).

The Australian Conservation Foundation says Australia needs to reduce emissions "by at least a third by 2020" and should increase its commitment to 40% if other developed countries are willing to do the same, if it is serious about participating in global efforts to avoid catastrophic climate change.