Australia must use its brain power to get carbon efficient

For those interested in what is really happening in the carbon restriction arena, it's important to go beyond the frenzied rhetoric of the extreme Greens and watch the technology.

For Australians it's important to understand how the rules are framed and to try and play a role in making the rules friendlier for Australia. We need to learn from China and the US.

Carbon negotiators acting in the national interest do not change their spots, and the latest US-China agreement has remarkable similarities to what happened at Kyoto in 1997.

First, I must emphasise that while the hysterical commentary is astray, this is still a remarkable agreement and does show that the US and China are going to use technology to reduce carbon emissions, and the agreement will accelerate carbon reduction technology around the world.

The essence of the Kyoto rules was that 1990 was chosen as the base carbon level because that was a peak in European emissions, particularly in East Germany. The technology inefficiencies of the old plants meant they had to be replaced anyway -- carbon was a side benefit. It was therefore easy for the Europeans to meet the targets and look good. Japan struggled. Australia, by chance, was in a similar position to Europe because we had been destroying forests in Queensland and other places, so 1990 was a peak. The Queensland government jumped in and stopped the deforestation, so like Europe it was relatively easy for Australia to meet Kyoto targets, albeit that we did not sign the agreement until we had done so.

The Kyoto 1990 base did not suit the US and, so, unlike Europe, it would have cost jobs to reduce carbon, so the US did not sign.

Fast forward to 2014. China and the US have repeated the European strategies at Kyoto and selected a base year, 2005, that suits both countries. China was belching out pollution in 2005 as it raced to produce goods for the US and other markets. Energy efficiency technology was not considered, and breathing in Chinese cities became difficult. The US was nowhere near as bad, but again output was booming in the pre global financial crisis environment and the US was a big inefficient burner of poor-quality coal.

Since 2005 remarkable things have taken place, which makes it much easier for both countries to achieve carbon targets. The US is replacing its poor-quality coal with low-cost gas thanks to a remarkable technology -- fracking. In addition the US has a very active technology industry with strong government and private capital backing which is making considerable strides in more efficient energy practices. The combination of a high emissions base, the replacement of coal with gas and better technology enables the US to believe it can achieve its targets without hitting jobs -- the base requirement of any sensible carbon negotiator.

China has remarkable similarities with the US. It signed a massive agreement to buy low-priced gas from Russia (Putin delivers another vicious blow to Australia; November 12), and it has big LNG contracts with Australia. China is now a world leader in nuclear technology and I suspect it is making big strides in renewables technology. Most significantly, China has a clear policy to shift its economy from an export/manufacturing base to be more consumer driven.

So the US and China carbon reduction agreement will not affect job creation, because both countries were taking the required steps in the national interest for non-carbon reasons.

Both the US and China have seen what happens when badly a structured carbon taxes are introduced, as happened in Australia.

Australia had no role in shaping the US China rules, which have been designed to make it easy for each country to achieve targets.

Our direct action plan makes a lot more sense than the Gillard carbon tax because, like US technology, it combines private and public capital. We will achieve carbon reduction at an affordable price. Whether we achieve sufficient reduction is yet to be determined. Apart from direct action technology promotion, we have done everything else wrong.

We have sold off our low-cost gas and banned both fracking and nuclear technology and we have already pushed our energy costs high via renewables and over-investment in networks. Soon we will have a gas shortage.

We don't have the same room to move that the US and China enjoy.

If we are not very careful we will achieve carbon reduction via massive unemployment -- and that will cause a revolution against the extreme Greens and carbon. We have already voted out a government on the basis of bad carbon taxing.

Australia has to become more like the US and China and use its brains and the technologies they use.