Kevin Rudd and Penny Wong’s Green Paper is out. The starting point for Australia’s response to the fundamental transformation of economy — indeed, of the very climate we all live in — it’s a long, abstruse and politically calibrated document that seeks to keep everybody happy. Well, everyone except the Coalition, the Greens, the States and Australia’s climate scientists.
We’ll get to the potential political problems for the Government later. Before that, let’s examine what the Green Paper contains.
The Carbon Pollution Reduction Scheme Green Paper is the Australian Government’s first formal policy response to the issue of a possible Emissions Trading Scheme — the mechanism that Kevin Rudd, Wayne Swan and Penny Wong want to employ to try and cut Australia’s greenhouse gas emissions by 60 per cent of 2000 levels by 2050. Coming in the wake of the Garnaut Review’s Draft Report, it explains how the Government proposes to implement an Emissions Trading Scheme and actually bring carbon emissions down.
60 per cent? Therein lies the rub. The 60 per cent reduction was Labor’s election promise, and to their credit Labor has so far been a stickler for keeping election promises. Kevin Rudd, we might remember, chose the 60 per cent target because, and I quote here, that’s what "the science is telling us."
Unfortunately, that’s no longer what "the science" is telling us, not by a long shot. Things have gotten worse — much worse — since many of those projections were modelled. China, in particular, is emitting way more carbon than anyone expected. And leading climate scientists scientists have done more research to suggest that the world is much more sensitive to changes in CO2 concentrations than even the alarmists had previously feared. As we have discussed previously, the latest research is very scary indeed.
In a nutshell, a 60 per cent reduction is not nearly enough. 90 per cent looks closer to the mark. In fact, if we’re really serious about climate stabilisation (remember that large-scale climate change is already with us) we’re probably going to have to find ways to actually reduce the amount of carbon in the atmosphere — for which there are currently no remotely feasible engineering solutions. Maybe we need to ask Mr Burns for the plans to that giant device that blocked out the sun.
Zooming back from the dizzying doomsday scenarios, what can we say about this Green Paper as a technical document?
Well, it’s certainly not as bad as the malevolent spin-meisters at The Australian are making it out to be. Nearly all major sources of emissions are going to be included, except for agriculture which will be brought in by 2015. Petrol is in by the skin of its teeth, with a fuel excise offset that will see federal petrol taxes replaced by the price effect of carbon permits. The mechanisms for issuing and trading carbon look to be workable and the tax provisions seem straightforward (though it’s worth noting that the ATO will probably have to establish case law in order to fine-tune the details of things like the deductability of carbon permit purchases).
But it could be a whole lot better. The fuel excise offset means no net pain for marginal-seat motorists, but also no price signal to help Australia adjust to the coming world of peak oil. Yet again The Greens’ Christine Milne had the most sensible comment, pointing out that oil would cost $200 a barrel soon anyway and arguing that the Government should have "used the fuel excise to roll out public transport around Australia so that low income earners genuinely have an alternative".
There are plenty of other handouts in the Green Paper. Giving away free carbon permits to polluting industries just because they happen to export makes no sense for the planet, even if might keep a few thousand jobs in the country. Australian coal, iron ore and other mineral resources are a huge input to China’s greenhouse gas emissions. To pretend that we don’t share some responsibility for the carbon emitted from their steel works, power stations and aluminium smelters is dishonest. It also ignores the controlling position Australia has in the global coal marketplace.
Queensland Premier Anna Bligh doesn’t seem too worried, judging by the amazing timing of her decision to open up a gigantic new coal mine in Queensland’s central west. Her own website is trumpeting "the first new Australian coal port in 25 years" under a "trifecta of proposals which could deliver a 40 per cent coal export increase for the State." Oh great! Just what the world needs. More coal.
Including greenhouse exports would also have been a logical decision in light of the increasing dominance of resources in Australia’s economy. Politicians, miners and their cheer-leaders in the business press can’t ever see the mining boom as a bad thing – but as economists have long pointed out, a mining boom can often become a "resource curse".
A mining boom the size of Australia’s distorts local economies, artificially inflates the dollar, pushes up the price of WA real estate and labour and generally makes the rest of the country’s industries less competitive. Just ask the local councils in WA’s north-west, who are struggling to deal with the planning and infrastructure issues of the massive growth of towns like Port Hedland and Karratha. In the 1970s the discovery of North Sea oil did the same to the Dutch economy — which is why this effect is often called "the Dutch disease".
At least making big carbon exporters pay permits would distribute some of their vast wealth back to the public. Instead we’re actually subsidising them. As Christine Milne phrased it, "the polluter gets paid".
Let’s now examine what economic journalist Peter Martin calls "the most dodgy part" of the Green Paper: its proposal to give oodles of cash away to coal-fired power stations.
Why? Good question. The Green Paper says it is because "if the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia’s electricity market as a riskier investment proposition".
As Martin rightly points out, this analysis is a joke. First, the costs are already sunk. Secondly, those very same investors were completely unconcerned by the risk of global climate change and the obvious likelihood of some form of carbon price – a risk they should have known about for the past 15 years, if their CFOs bothered to read the scientific literature, or even turn on the TV. Now taxpayers are going to reward them for their short-sightedness. "This is a handout resulting from lobbying," Martin concludes. He’s right.
Should Kevin Rudd and Penny Wong’s Green Paper really be named after one of George W Bush’s favourite policies? Is it a "faith-based initiative"? Absolutely, if your belief system is carbon capture and sequestration. Or would you prefer "No Polluter Left Behind." It’s that too.
It’s going to be a long way to a sensible climate change policy. But at least we’ve taken the first steps.
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