Gillard's Carbon Credentials Are Fading


Like so many aspects of the Gillard Government, the shine is stating to fade on its carbon credentials.

This week, Climate Change Minister Greg Combet was forced to announce that the Government would be abandoning some of its carbon price compensation, in the form of tax cuts that were to have kicked in after mid-2015. The budget's well-publicised revenue hole means that tax cuts are a luxury even a pre-election government can't afford, so they have been abandoned.

“Because there will be no additional anticipated increase in costs to households in 2015-16, with a lower carbon price forecast, the budget will defer an anticipated further round of additional related tax cuts,” Combet explained.

The Opposition had a different take, rubbishing the Government's backflip. Opposition environment spokesman Greg Hunt told journalists that, “Australians are going to pay the price of carbon chaos.”

How did it come to this?

The passage of the Clean Energy Future legislation in 2011 was a landmark. For the first time, carbon emissions in this country (well, most of them) were capped. Australia committed to a slow but steady decarbonisation of most aspects of our domestic economy, via a price on carbon emissions. The price would start at a fixed rate until 2015, and then move to a floating price on the open market, linked to international schemes like Europe's.

Money raised by the carbon tax would be channelled to industry and low-income earners to help compensate for slightly higher prices.

The problem for Greg Combet and Julia Gillard is that the carbon price won't bring in nearly as much money as first thought.

The reason is straightforward: carbon prices are going to be much lower than forecast. Blame Europe. The Government's decision to link Australia's emissions trading system to the older, larger but cheaper system in Europe means that the price of carbon permits here will head rapidly south as soon as the two schemes start to cross-trade after 2015.

Why is the European carbon price so low? Two reasons: the GFC, and politics. Europe's economies are in a deep downturn brought on by collapsing banks, high levels of government debt and misguided austerity policies. As a result, there just isn't a lot of growth in Europe's polluting industries.

Matters have been made worse by the huge give-away of free permits that has distorted the European scheme from its very beginning. (Not to be outdone, Australia has also given away plenty of free pollution permits.) Lots of supply and not much demand means a price crash in most markets, and that's exactly what's happened there. And now that Australia is joining the European scheme, Australian polluters will get access to those dirt-cheap permits, which will in turn depress the carbon price here.

That means that a future government will have far less tax revenue to compensate consumers with. Not that they'll need it: the current carbon price of $23 a tonne has had a very modest impact on prices, so a lower price will hardly be noticeable at all.

If you're a free-market economist, you might think it's a good result. The carbon cap ensures Australia will keep reducing emissions, and the falling price makes the pain fleeting and mild. And the current policy is indeed reducing emissions: the comprehensive National Greenhouse Gas Inventory says emissions fell 0.2 per cent between 2011 and 2012. Emissions from the energy sector are down an impressive 11 per cent from 2008-09.

The problem, of course, is that Australia's carbon price is not the whole story. In fact, it's only a tiny part.

The main driver of Australia's falling emissions is not the carbon price at all: it's the Renewable Energy Target, which mandates that around a fifth of Australia's electricity generation must be renewable by 2020. The effect of the RET is to slowly price coal out of the market, where it is being replaced by solar and wind.

And there's a bigger problem. None of Australia's climate policies apply to fossil fuels mined here, and then sent overseas. In recent years, state and federal governments have approved a massive expansion of the nation's coal and gas industries, industries that will see millions of tonnes of hydrocarbons sucked out of the ground and sold for export. When that coal and gas gets to China and its other destinations, it will be burned. Coal exports already account for more greenhouse gases than Australia's entire domestic economy. But, with the enthusiastic approval of the same government that brought you the carbon tax, thermal coal exports are set to nearly double in the next five years.

Meanwhile, little noticed by the Australian media or political elites, scientists announced this week that the world's atmospheric concentration of greenhouse gases are at their highest levels for 800,000 years. The air we breathe is about to pass a critical milestone of 400 parts per million of carbon dioxide, up from around 280 parts per million before the industrial revolution. While Australian politicians quibble over tax cuts, the world is throwing on extra blankets of warming gases caused by human pollution.

And the truth is that, despite our noteworthy efforts to rein in local emissions, we're actually making things worse for the world at large. Australia is supplying the world's factory with fossil fuels. We are, in effect, fuelling the engines of a much warmer world.

This is the reason that Greenpeace is beginning a major campaign against coal exports from Queensland. The long-term impact of burning all that carbon could spell the rapid demise of the world's efforts to keep global temperature increases below 2 degrees. As the world heats up, we may see entire ecosystems like the Murray-Darling Basin and the Great Barrier Reef collapse.

Few in our country seem to have noticed. The reaction to Labor's backflip this week illustrates the scale of the political denial gripping Australia on climate. Discussions of the carbon tax generally focus on its unpopularity, and the shambolic nature of the Coalition's “direct action” policy that will come into play should Labor lose the election. In fact, as conservative governments in the eastern states have demonstrated, an incoming Coalition government will likely dismantle most of the policies and institutions Labor has created to try and prepare our country for the coming climate challenges. For environmentalists and those worried about the future of their children, it's discouraging, to say the least.

Perhaps the worst aspect of the headlong rush to coal exports is the vulnerability it sets up for Australia's future economy, which is beginning to look more like an oil-dependent state like Saudi Arabia. As prominent eocnomist Sir Nicholas Stern recently warned, much of the coal still in the ground may soon become “unburnable”, as governments finally realise the scale of the climate crisis and move rapidly away from the most polluting fuels. Instead of tooling up for a cleaner and greener future, Australia is rushing headlong into the fire. By refashioning our economy around dirty exports that may suddenly collapse, we're storing ourselves up for huge economic dislocation down the track. 

So when Greg Hunt claims that “Australians are going to pay the price of carbon chaos,” he's ironically correct. Unfortunately, the irony is on all of us. Australians will pay a price all right, but it won't come from the government abandoning a tax cut. The chaos we will see will be economic and social, as ecosystems collapse in future decades, taking out whole industries that depend on them.

Ben Eltham is New Matilda's National Affairs Correspondent.