Understanding the Climate Change Debate: Why The Coalition Mindset Is Outdated and Bad for Australia
Climate change is firmly on the national agenda. Or at the very least, policies to limit Australia’s carbon emissions and the cost of doing so are being debated widely in the media.
Overall I think this is a great thing.
Too often the news agenda in Australia is preoccupied with personalities, confected outrage over the comments made by a politician at a press conference, the latest poll results or whatever an over-caffeinated radio shock jock in Sydney has said that morning.
As things currently stand, the Abbott Government is intent on scrapping what it calls a “toxic carbon tax”. A little over a fortnight ago, the Prime Minister released draft laws to abolish the price on carbon and warned that Labor needed to “repent” in its support for this policy. Exposure draft legislation was released and much of the media’s focus has been on how new Opposition leader Bill Shorten and Shadow Minister for the Environment Mark Butler will respond.
The Coalition has continued to go on the attack. The new Member for Bass Andrew Nikolic has frequently attacked my stance on this issue, claiming that the carbon tax must go for the sake of jobs and growth. As I pointed out last week, carbon pricing and its association benefits for renewable energy actually have the potential to enhance Tasmania’s future economic prospects. But on a broader point, Mr Nikolic’s comments are symptomatic of a conservative mindset that doesn’t fully understand why using market mechanisms to restrict carbon emissions is so important.
What the Coalition forget is that prior to the federal election then Prime Minister Kevin Rudd announced a plan to fast-track Australia’s transition from a fixed price on carbon, which is what we currently have, to an emissions trading scheme. An emissions trading scheme is an example of a flexible price trading system on carbon emissions and is being used in numerous countries around the world today.
Whilst many commentators have claimed that Labor is confused about how to respond to the Coalition’s draft legislation, Mark Butler actually clarified Labor’s position recently in an interview with ABC’s Lyndal Curtis. He noted that:
“We took to the election a commitment to terminate the carbon tax, as it happens on the same date that Tony Abbott intends to terminate the carbon tax on the 1st of July next year. But we also took a very strong commitment that in place of the carbon tax we would put an emissions trading scheme, a scheme that has legal limit on carbon pollution and then lets business work out the cheapest and most effective way to operate.”
This interview and numerous other statements from senior Labor leaders were of course ignored by the Coalition, which has relied on the simplistic mantra of the price on carbon being a “great big new tax” to characterise its preference for “direct action” on climate change (more on that in a minute).
Throughout his reign as Opposition leader and now Prime Minister, Tony Abbott has consistently stunned observers with his ignorant comments concerning climate change policy. The most notable example occurred in July this year when he told open-mouthed reporters in Sydney that carbon pricing policy generally was not a “true market”. In fact, he went a step further and clarified his statement as follows: "It's a market, a so-called market, in the non-delivery of an invisible substance to no one."
Few comments from the leader of a major Australian political party have been more misguided or ignorant in living memory. The reaction by commentators in the media was at first stunned silence, followed by a quick shake of the head and then a comprehensive examination of just how nonsensical these remarks really were. Giles Parkinson summed up the thoughts of many best when he opined in The Guardian that:
“Abbott’s comments, parroted or not, suggests firstly that this Rhodes scholar who studied for an economics degree does not understand financial markets. They are full of commodities traded in their trillions but never actually delivered, be they invisible substances such as natural gas, or very visible products such as cattle and pigs.”
It’s little wonder that an emissions trading scheme isn’t Coalition policy with a leader like this in charge. At first I assumed that Mr Abbott had dreamed up these observations in the shower that morning, but now it turns out that he may have actually been trying to tap into the type of language that has often been used on the climate change denialist blogosphere. I don’t make it a habit of mine to surf around sites such as the Galileo Movement most evenings, but apparently they frequently refer to carbon emissions being “colourless and invisible” and therefore, they seem to suggest, kind of harmless.
I’ll leave you to form our own conclusions about the merits of such beliefs that can be found on the Internet.
What we instead need to do is focus on are the relative merits of the Labor and Coalition policies and determine which party has the ideas and insight to achieve the objective of meeting vital emissions reduction targets.
So, first, let’s examine the Coalition’s “direct action” climate change policy. For those who haven’t delved into this scheme in any great detail, I’ll save you the suspense - it isn’t great. In fact it’s far from great because it would not only be quite ineffectual in practice but also promises to be quite expensive, which is rarely a combination that policy wonks reach for when devising a substantial and sophisticated policy blueprint.
The policy basically involves encouraging businesses to cut emission via competitive government grants – it is focussed on buying emissions reduction. As part of this, emissions targets would actually be entirely voluntary. By voluntary I mean that all Australian polluters will be free to completely free to ignore the voluntary direct action emissions reduction fund and there will be no penalties for doing so. As a result, there wouldn’t really a strong incentive for businesses to eliminate carbon based emissions beyond their perceived value of the government grants.
It will not cap Australia’s carbon emissions and no credits will be traded on a market. Instead, polluters will basically be paid to hopefully pollute less than they otherwise would.
Indeed, one of the more widely discussed flaws inherent in this scheme is that the “direct action” policy will not really be orientated towards any particular baseline. Environment Minister Greg Hunt has indicated that targets will be measured from a baseline calculated according to a polluter’s emissions over the previous five years (sourced from the National Greenhouse and Energy Reporting scheme). But as Lenore Taylor noted in The Guardian earlier this year, the policy will be available to many polluters that don’t report to NGER and therefore have no available data.
There is also the not so insignificant matter of cost. A key component of the scheme involves a giant fund to pay for companies and landowners to institute measures like soil carbon capture and coal mine gas projects. The problem is that it will take an extraordinary amount of money, over $2.5 billion dollars in fact, for such a subsidisation to achieve the objective of reducing emission by 160 million tonnes from 2000 levels (i.e. to meet the agreed upon target of a five per cent cut in greenhouse emissions by the end of this decade).
The closer one looks at the fine print of this scheme, the worse it looks.
So let’s compare that policy with a fixed price on carbon transitioning into a full emissions trading scheme that features a flexible market mechanism. This holds several distinct advantages. It fundamentally alters how businesses consume energy, because there is a direct incentive (i.e. cost) for them to change their ways. A price on carbon, whether fixed or flexible as part of a broader trading scheme, uses the competitive forces of the marketplace itself to reorientate the economy and make it less reliant on carbon emissions.
This is not necessarily because private enterprises have undergone a philosophical transformation about what impact they are having on the planet, rather the pure calculus of how to meet their energy needs has been superficially adjusted in favour of new forms of non-carbon intensive consumption, like renewable energy. Because of course this is what pricing carbon is designed to achieve – a transition from a reliance on carbon emissions to greater utilisation of newer, cleaner technologies. Without carbon pricing many fear that there won’t be the same investment in renewable energies and projects won’t reach their full potential. Australia will fall behind as other countries take advantage of innovations in renewable energy that will define energy consumption in the 21st century.
In a sense mechanisms like an emissions trading scheme actually involve less government intervention than a “direct action” policy because the government is not subsidising the scheme or directing where resources should be dedicated. Rather, businesses will have a distinct incentive to do this themselves – it is fundamentally reliant on of the most basic economic principles. Yet this is something that seems to have eluded a vast chunk of conservative commentators and Coalition political heavyweights (and I use the term loosely).
Pricing carbon has come under considerable criticism, but it is important to remember that comprehensive reforms that tackle long standing problems are never easy. In his much admired book Adapt: Why Success Always Starts with Failure Tim Harford explains just how the very process of innovating to combat complex problems such as climate change can be bogged down in complexity, suffocated by bureaucracy and even ignored whilst bad ideas and practices continue to exist in an imperfect market. But as Harford himself later remarked when reflecting on the response to his book:
“….a carbon price has to be the centrepiece of any policy on climate change. A price on carbon acts in more subtle ways than any regulator will be able to, encouraging a switch away from coal and towards nuclear energy and renewables, encouraging energy efficiency in every choice we make, and in the last resort, encouraging us to do without products, services and activities where the energy cost is just too high.”
It is an incentive that guides decisions through the most effective of deterrents - cost.
I think Tony Abbott and his Coalition colleagues must carefully consider whether they really want to scrap carbon pricing and implement a policy that is at best very expensive and mildly ineffectual and at worst completely ill-suited to developing an economy which can reduce carbon emissions in the long term.
Climate change policy matters and I certainly hope that some senior members in the Coalition Party Room are reconsidering the party’s position.
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