The atmosphere, oceans, ice sheets and the terrestrial biosphere are major components of the climate system. This paper focuses on climate models and climate processes associated with the terrestrial biosphere and its interaction with the lower atmosphere. Studies using atmospheric climate models have demonstrated the importance of the terrestrial biosphere, particularly with respect to the sensitivity of climate to changes in albedo, roughness and soil moisture availability. Comparisons of climate model simulations with observations have also revealed deficiencies in the land surface radiation and energy budgets as simulated in these models. These deficiencies are manifest as (i) significant model biases in annual net radiation and individual radiation components; (ii) a large range of variation in monthly and annual evaporation and sensible heat flux. Such deficiencies reflect a lack of understanding in four areas (i) surface radiation and energy budgets and the lack of long-term observations; (ii) soil hydrology where there is an inability to quantify soil water-holding capacity and difficulties with averaging over heterogeneous landscapes; (iii) vegetation, and the need for closer links between the stomatal conductance, and its control of evaporation, and photosynthetic carbon uptake; (iv) surface heterogeneity. New regional experiments on land-surface interactions and long-term observations of surface fluxes would provide additional constraints on model behaviour and progressively improve their performance.

Long climate records from deep sea sediments and polar ice caps show that the last few million years have been dominated by quasi-regular glacial-interglacial cycles. These cycles are ultimately regulated by fluctuations in high latitude, northern hemisphere, seasonal solar radiation caused by orbital perturbations. Trace gas records from ice cores reveal variations in atmospheric carbon dioxide and methane concentrations that parallel climate fluctuations. The sensitivity of global temperatures to increasing greenhouse gases (approximately 2°C for a doubling of carbon dioxide concentrations), as estimated from palaeoclimate records, is close to that derived from numerical modelling of future greenhouse warming. Comparison of records of past climate states with numerical climatic model simulations show that previous versions of general circulation models (GCMs) have not performed well in Oceania, possibly because of inaccurate sea surface temperatures, a lack of an interactive ocean, and coarse resolution. More recent GCM versions perform better with present climates, and give indications of better performance in modelling past climates.

While palaeorecords of climate change can provide no close parallel to greenhouse warming as the primary forcing and its spatial distribution differs, they do indicate how biotic and physical systems react to climate change. The most recent warming events comparable in size to those expected in the near future led to major biotic changes. Vegetation assemblages during the last prolonged episode (8000 to 6000 BP), when temperatures were warmer (O.S-l.S°C) than present, were markedly different from those of today.

The current climatic regime that established between 3000 and 2000 years ago is highly variable. High resolution records show some decades and centuries have had higher or lower than average numbers of warmer or wetter years, but there have been no sustained periods of highly deviant climate. The much publicised Medieval Warm Period (9th to the 14th century) and the Little Ice Age (17th to mid 19th century) do not appear as discrete events in these records from the Australia-New Zealand region. The warming of recent decades is an unusual event as shown by the long-term perspective of these records.

Palaeorecords show the Antarctic region to be highly sensitive to warming and, with future warming, sea ice extent could be dramatically reduced. On a much longer timescale, the unstable West Antarctic Ice Sheet could be vulnerable to collapse because of the effects of rising sea levels.

Despite an increase in detailed palaeoenvironmental records from all parts of Oceania, extraction of unequivocal climatic parameters remains an elusive goal. The interaction of climate and complex biophysical and geophysical settings is still poorly understood.

The oceans store and transport vast quantities of heat, water and carbon. As a consequence, the rate and regional distribution of climate change on time scales longer than months is dominated by ocean processes. Of particular importance is the rate of exchange between surface, intermediate and deep waters. On time scales of several decades to millenia, climate variability is strongly controlled by the thermohaline circulation, a system of ocean currents driven by sinking of dense water at high latitudes balanced by upwelling elsewhere. The volume (and residence time) of the near-surface and intermediate-depth reservoirs is smaller than that of the deep sea, so exchange between them is important for heat and carbon storage on time scales of years to decades.

Changes in ocean circulation can have a strong impact on regional climate. Sea surface temperature variations in the Pacific and Indian oceans, for example, are correlated with Australian rainfall. Sea surface temperature is, in turn, sensitive to changes in ocean circulation, such as the flow from the Pacific to the Indian Ocean through the Indonesian Archipelago. Similarly, the severe winter experienced in New Zealand in 1992 can be related to anomalous currents removing heat from the Tasman Sea, thereby reducing sea surface temperature.

Recent improvements in the correction of tide gauge observations for land motion has resulted in a consistent record of historical sea-level rise. Forecasts of future sea-level rise due to thermal expansion of the ocean have been improved by taking into account the fact that heat enters the ocean primarily by advection rather than diffusion. While substantial progress in observing and modelling the ocean has been made in the last decade, reliable forecasts of future climate will require a more complete understanding of the global ocean circulation and its interaction with other components of the climate system .

Many organisational levels from international institutions to the farmer must be involved in adapting agriculture to anthropogenic climate change. Each level has a different role to play. Governments should consider long-term scenarios and the implications for such things as population and land tenure policy, and policies that influence bank lending arrangements. Individual farmers cannot plan for highly uncertain specific scenarios eventuating decades ahead, given other faster-acting external factors influencing them. They can, however, strive for flexibility and keep good farm climate and management records to allow faster reactive responses. In the highly variable climate of Australia, this approach, combined with informed use of seasonal weather forecasts based on the Southern Oscillation Index; should permit automatic reactive adaptation to anthropogenic climate change as a spin-off from routine proactive and opportunistic responses to natural climatic variability.

At the level of agricultural research, there are anticipatory adaptive options that can be investigated and developed. Examples are genetic modification of plant and animal species by breeding, and changes in the management of individual crop and pasture systems. For New Zealand, a strategy is proposed for iteratively relating forage species improvement and evaluation to the implications of scenarios of atmospheric and climatic change. To some extent, the yield of annual temperate crops, such as Australian wheats, may largely self-adapt to earlier springs where development is controlled mostly by the passage of thermal time. Thus breeding would need only to fine tune to the change. There are also modifications that can be made in the management of whole farm systems. However, situations may arise where it is more appropriate to alter land use than to adapt the existing land use. Hence, strategic approaches to the development of policies, institutions and infrastructure are required that can allow regional adaptation of agriculture over longer time-scales.

This paper outlines potential emission-reduction strategies for ruminant methane. The simple option for lowering ruminant methane emissions by substantially reducing livestock numbers is economically unacceptable as New Zealand and Australia depend upon ruminant products for income. Ruminant methane production in both countries and the digestive processes in the rumen leading to methane formation are outlined and two possible approaches for reducing methane emissions are presented. These approaches focus on dietary and microbiological factors to take into account the fact that the problem is a microbial one as well as an animal one. One option is to increase the efficiency of both feed utilisation and production by forage-fed animals in order to reduce the amount of methane produced per unit of product. This approach involves reducing animal numbers but maintaining production levels. The other option, which does not require a reduction in animal numbers, is to target directly the microbial processes which lead to methane formation in the rumen.

This paper is principally concerned with Australia’s largest energy-supply industries: electricity and petroleum. The fuels supplied by these industries were responsible for 31% and 23%, respectively, of Australia’s carbon dioxide emissions in 1990. Both these industries, and particularly the electricity industry, are currently the subject of intense and active policy discussion and are undergoing major changes, in the context of micro-economic reform.

If Australia is to stabilise, let alone reduce, its emissions of greenhouse gases, these industries will have to undergo radical changes, probably involving great increases in the efficiency of use, and reductions in total demand. There will also have to be major changes in the mix of fuels used for electricity generation, and probably also for transport. There has been considerable policy research and debate about these changes. Astonishingly, the two policy debates- on micro-economic reform and on greenhouse- are being conducted in almost total isolation from each other. Where the two do come together, it is mainly in the form of inadequately substantiated claims about the positive benefits of micro-economic reform for reducing greenhouse gas emissions.

The main implications for the oil industry of the changes required to achieve greenhouse gas emission reductions may include:

• a stabilisation or fall in demand for petroleum products, putting pressure on the financial viability of the oil refining and marketing industry;

• the large-scale entry of new fuels and new competitors into the transport energy market;

• changes in the taxation and the pump price of petrol and diesel.

The main implications for the electricity industry are that the introduction of a competitive market will introduce greater uncertainties and instabilities in relation to the balance between supply and demand. These will be exacerbated by the likely market response to the existence of substantial excess generating capacity in New South Wales and Victoria. This will make it more difficult for new, independent generators using gas or renewable energy sources to enter the market. The claimed benefits of more cost reflective pricing of electricity to consumers, as an incentive for energy efficiency and renewable energy, will apply only to the relatively small number of consumers located in remote rural areas, and have in any case been undermined by the decision of the Victorian and Queensland governments to continue cross-subsidising the price of electricity in country areas of their respective states.

Electricity distributors may have incentives to help their customers use electricity more efficiently by means of demand-management programs, but this will occur only if they are provided with the right kind of regulatory framework. There has so far been extraordinarily little discussion of the form of regulation that will be used to protect customers, most of whom will still have no practical choice between competing suppliers of electricity. Victoria and Queensland have already said that they intend to regulate electricity distributors in a way which will give distributors strong incentives to maximise sales of electricity, and no incentive to pursue demand-management alternatives. On balance, therefore, it is probable that implementation of the competitive national market in electricity, in the form presently envisaged, will make it more difficult for Australia to reduce greenhouse gas emissions.

In response to concerns about global warming, there is increasing interest in the potential for using renewable sources of energy to meet the world’s energy needs. This paper reviews the present use of renewable energy in Australia and New Zealand and examines the potential resources available to meet the future energy needs of both countries. Resources considered include hydro, biomass, solar, geothermal, wind, tidal and wave energy.

Consideration is given to a variety of factors which are likely to determine the extent to which renewable energy options are used. These factors include the availability and cost of non-renewable resources, advances in renewable and other energy technologies and the severity of environmental problems (greenhouse and non-greenhouse related).

Two future scenarios for the use of renewable energy in Australia and New Zealand are considered. One scenario assumes a continuation of recent trends relating to micro- economic reform in the energy sector and the implementation of greenhouse-related response measures which incur no net cost to the economy. The other scenario assumes that a concerted international effort will be undertaken towards stabilisation of atmospheric levels of greenhouse gases.

Five or six decades of town planning has built many Australian, New Zealand and US suburbs on the assumption of ever-growing car use. In historical terms, this Car City era is only a short period but it has extraordinary environmental and social implications, especially in terms of energy use and greenhouse gas emissions. Many European and Asian cities, by contrast, are more compact and efficient in transport and energy terms. Town planning is now looking to incorporate more of these features, which have their roots in the Walking City (up to 1850 in Europe) and the Transit City (1850-1940). The Australian city data show some positive trends, particularly in comparison to US cities, but the major progressive policies and actions continue to be found in many European and Asian cities. The principles of a ’low greenhouse gas emissions’ Future City vision include a balance of walking/cycling, public transport and ’calmed’ car usage, urban villages, and their associated land use. The role of 21st century technology in facilitating such a city is suggested, not only in transport but in the energy efficient management of water, waste, community services, communications and industry. In practice, the development of the Future City is rapidly occurring in Australian cities. In Perth, the most car dependent of Australian cities, the transport sector showed the smallest increase, next to agriculture, in greenhouse gas production between the first and second WA greenhouse gas audits. This result may well reflect the effects of urban consolidation processes and the northern suburbs railway line.

Reducing coal-based greenhouse emissions from electricity generation could make a significant contribution towards meeting any Australian national greenhouse commitment. In this paper two issues are addressed: the costs and adjustments which would be imposed upon the Australian energy sector by a range of targets and timetables to reduce energy sector carbon dioxide emissions; and the scope for different electricity generation technologies, such as advanced coal combustion technologies, renewables and nuclear power to make a cost effective contribution to reducing carbon dioxide emissions under different scenarios. The implications for the use of fossil fuels, and particularly coal, within the Australian energy sector are examined. These issues are analysed using Australian Bureau of Agricultural and Resource Economics’s MENSA model, which is a large multi-period linear program-ming model of the Australian energy system.

It is shown that substantial substitution away from the domestic combustion of coal for energy generation and into natural gas and renewable sources of energy is required to meet increasingly stringent emissions reduction targets. Under relatively mild constraints there is a role for new and advanced coal technologies such as integrated coal gasification combined cycle (IGCC). As constraints tighten and the implicit cost of carbon increases, however, even advanced coal technologies are forced out of the conversion sector. The introduction of a nuclear power option changes the optimal configuration of the conversion sector substantially. In particular, the availability of a large, cost effective source of baseload capacity that does not produce carbon dioxide emissions allows the model to use a mix of fuels that includes coal at substantially reduced costs.

The standard framework for analysing the economic impact of carbon emtsszon abatement is the cost-benefit approach, which estimates the cost of abatement and compares it with the benefits (avoided damage) over a range of abatement options. Recognised problems with this methodology include the treatment of uncertainty, the use of a positive discount rate, and the difficulty of evaluating dynamic processes such as technological change. A major advantage of cost-benefit is its ability to utilise the quantitative results from economy-wide computable general equilibrium models.

Results from a series of such model experiments simulating the economic effect of carbon taxes in New Zealand are compared, with particular attention paid to modelling work commissioned by the Ministry for the Environment in 1993. The results suggest that New Zealand could impose a unilateral carbon tax without causing any clear-cut damage to either its international competitiveness or the level of G D P, provided that the overall fiscal package is appropriately structured. In contrast to Australian findings, the carbon tax emerges as a more powerful instrument than an energy tax in the New Zealand case. The low, possibly negative, abatement costs estimated for New Zealand overlap with parallel studies in the USA, though most computable general-equilibrium (CGE) abatement cost estimates for the US economy are positive.

This paper is based on a report by the authors to the House of Representatives Standing Committee on Environment, Recreation and the Arts (Common and Hamilton, 1994). After considering Australia’s current situation with respect to emissions and inter- national greenhouse obligations, the alternative policy instruments that could be used to reduce carbon dioxide emissions are examined. The nature of carbon dioxide taxation is discussed and the advantages and disadvantages of a carbon tax are reviewed. Based on some modelling work on the effects of introducing a carbon tax in Australia, including projections of impacts on carbon emissions, economic growth and employment, it is concluded that, with appropriate use of carbon tax revenues, there is a prima facie case for the unilateral introduction of carbon taxation in Australia.

Uncertainty about the process of climate change and the ability to learn more about the process over time means that there is a sequential decision problem. A key dilemma is the optimal timing of mitigation action. Even if there was agreement about the form of the possible states of the world and their probabilities of occurring, countries and individuals may still disagree on the timing and extent of costly action. Such differences would stem from differences in attitudes toward risk and the willingness to trade off the welfare of the current against future generations.

Uncertainty means that it would be optimal to adopt a portfolio of policies. In this paper the concern is solely with mitigation policies. There is wide agreement that ’no regrets’ options should be adopted first. However, there is much dispute about the scope for ’no regrets’ options in developed economies.

For costly mitigation policies, it is argued that there are efficiency gains from market- based policies over a regulatory approach. The major choice is between taxes and tradable quotas. There are a number of issues on which an attempt can be made to discriminate between taxes and quotas. It is argued that no firm conclusions can be drawn in favour of one instrument or the other on all but one of these issues in the current state of knowledge. The one issue in which quotas appear to have a distinct advantage is their potential to be developed as a risk management tool.