Can We Keep Talking About The CPRS?


In the media storm that exploded around Kevin Rudd’s emissions trading scheme backdown, some commentators seem to have forgotten what is at stake: what kind of society and economy do we want in the low carbon future? The politics may be captivating — especially in an election year — but the detail of the policy is far more important. 

Kevin Rudd has had his defenders. Last week in Jason Wilson pointed to the narrowing of Rudd’s options for passing the Carbon Pollution Reduction Scheme due to the current membership of the Senate.

A second defence of Rudd was aired by Crikey‘s Possum Comitatus. Possum argued that if Rudd was to fight and win an election on climate change and pass the legislation as quickly as possible, the proposed 1 July 2011 start date would be too soon. He argued that we need at least 11 months to prepare for ETS implementation or else we’d wreck the economy. Would we?

This 11 month figure appears to have been drawn from experience with the GST. How strong is this analogy? The GST was a massive piece of public policy reform affecting millions of small businesses. The ETS, on the other hand, directly affects only a thousand businesses.

The National Greenhouse and Energy  Reporting Bills that provide the regulatory foundations for emissions trading have been in place since 2007. This means that all the relevant firms know their carbon footprints and if they’re not stupid, they already have plans in place for different carbon prices. Given this has been the case for 24 months, the assertion that the 1 July 2011 start date is too soon looks baseless.

In fact, serious plans for a national carbon emissions trading scheme go all the way back to 1999, two years after the Kyoto Protocol was signed. The then Australian Greenhouse Office published a series of reports on what an emissions trading scheme would involve for Australian businesses and governments. But what with George Dubya and the War on Terror, these plans took a backseat. Fast forward to the 2007 federal election, and both parties had promised to construct an ETS, despite exhortations to develop a carbon tax from some quarters.

If you imagine the implementation of the GST was like planning and building an entire new suburb in public policy city that demanded new roads be built and others demolished, then, implementing the CPRS is more like building a single house. And if we stick with the house analogy, the Government has already staked out and bought the land and poured the slab. It’s important to remember that the Australian public fell for Kevin07 in part because of his promise to launch an ETS. The questions which remain are about what kind of house was going to be built — and who it would accommodate.

As every observer of the debate must acknowledge, the transition to a carbon economy will be a little messy. Problems arose when both parties agreed to give some of the louder trade-exposed hooligans their own furnished rooms rent free for now — which encouraged other parties to hold out for a better deal. Liz Jackson reported on the frenzied rent-seeking which took place between the release of the Green and White Papers on climate change on Four Corners in March 2009.

The reality is that these threats are mostly empty. At the Sydney presentation of the White Paper, the Deputy Secretary of the Department of Climate Change joked that during their consultations, the department had discovered that all firms were "trade-exposed" and needed free permits. The recent Grattan Institute Report argues that this free allocation is only justified for the steel and cement sectors, but even then such formal analysis should only be part of the public discussion.

As Greg Picker and Fergus Green argued in an excellent op-ed last week, we can’t really answer questions about what constitutes a good ETS without first asking broader questions about the point of one in the first place:

"What we need is not a few more rounds on the political merry-go-round — some more cash sprinkled to this or that group, or some incremental policy tinkering here or there — but a fundamental rethink about our role in the world and the future direction of our society and economy in the context of the overwhelming risks we face from climate change.

It is only by grappling with these deeper questions that any political party can hope to divine a more meaningful, principled basis for the climate policies they propose."

In other words, the commentariat’s fixation on the fact that we’re building a house in the first place misses the point. Picker and Green outline two broad approaches we could consider to climate policy in Australia: "cheaper" and "deeper".

The cheaper approach would focus on "[doing]our bit” to reduce global emissions through a mix of quick options — such as promoting energy efficiency, capturing emissions in agricultural soils, planting more trees and importing inexpensive emissions credits from overseas, while leaving Australia’s large polluters relatively untouched". They suggest this would "allow us to claim a real but minimal contribution to a global solution. However, its adoption would mean resigning Australia to the position of a passive follower internationally".

The hope would be that somebody else took the tough decision to build a solid house, despite a clear mandate for us to do it. Their second deeper approach would, if you like, involve building a bold and functional house on the block. According to Green and Picker, "the overall costs to the economy would be minimal (we would continue to grow rapidly but at an ever-so-slightly slower rate), and the benefits and burdens of transformational policies could be distributed justly so that no one gets lost in transition". By demonstrating leadership we’d be projecting an image the neighbourhood could emulate, and could even advance global emissions reduction by advising our neighbours — instead of making money by selling commodities.

The announcement to defer the ETS is still actually far less important than questions of design. The creation of formal property rights to emissions, borrowing provisions, an initial price cap, huge, unlimited use of increasingly questionable international emission reduction credits from the Clean Development Mechanism (CDM), the exclusion of petrol, agriculture and native forest clearing and a voluntary forestry carbon sink provisions are all design elements that are cause for concern.

The fact that the Rudd Government could call a double dissolution is less important than whether these design elements actually constitute good policy. Key questions remain unanswered here.

Firstly: How high should Australia set targets, and to what extent should international offsets be available to Australian businesses. Ross Gittins and others have defended the 5 per cent reduction target on the basis that it’s actually really a huge departure from business as usual. Gittins seems to endorse the cheaper approach. That way, Australian miners will still get to party with the likes of Alcoa and Xstrata for a while longer.

The use of international offsets is still a source of contention. The CPRS allowance for unlimited offset buy-in contravenes the Kyoto Protocol rule that offsets must be supplementary to domestic actions, thereby undermining our negotiating position in international negotiations. Attempts to create an "objective" governing structure to determine what constitutes a tonne of CO2 pollution have led to a labyrinthine bureaucratic structure of checks and balances and an industry of private carbon auditors who have become skilled at telling stories about why a project could not go ahead without carbon finance. Independent assessments have suggested that between half and a quarter of all CDM projects were not "additional" and probably would have gone ahead.

However, uncertainties about the Kyoto Protocol itself and what will take the place of its most public institution, the CDM, has effectively stifled offset supplies. One Indian project developer friend recently told me that "things were bad with regard to CDM in India" — but was hopeful Australian legislation would pass to buoy confidence in the market.

A proposal (pdf) for an "additional action reserve" has recently been put forward by colleagues at the Centre for Energy and Environmental Markets. Briefly, this means that incentives to reduce emissions beyond the price signal supposedly passed through by the ETS could be recognised in another way and ratchet back the overall target. The advantage here is that those polluters who work harder to reduce their emissions are recognised and encouraged.

The final question is whether we should grant certain industries — like liquid gas — free permits in the system. Here, we reach the limits of expert advice. To assess whether certain industries should get special treatment, we could tally up their emissions against their contribution to the common good in a kind of cost-benefit exercise — but these calculations shouldn’t be an end in themselves. These reckonings ultimately turn on what kinds of technological forms of life we prefer — another topic that has been neglected in public debate.

This is why, as the implications of Rudd’s abandonment of the CPRS are debated, we need to keep in mind why it is so vitally important. Modern fossil fuel powered energy systems provide us with speed, comfort and luxury but dangerously imbalanced the climate system. The point of comprehensive climate policy is to prevent further dangerous anthropogenic interference with that system by keeping temperature rises as far below 2 degrees globally as we can manage. The faster and harder we reduce carbon emissions, the more likely ecosystems that provide us with such useful and beautiful things as fish, crops, and not-rising seas will continue to exist for our children.

So Kevin, once you’re done ignoring most of the recommendations of the Henry Review, could you hurry up and build us a solid house?

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.