Populism and procrastination reign in Australian climate policy, and what new policy proposals there are, on both sides of politics, consist largely of spending taxpayer dollars for little gain.
Labor’s “cleaner car rebate” is a particularly striking example. A year after the US and European countries finished up their cash-for-clunkers programs, Labor proposes that Australia start one. The European and American cash-for-clunkers schemes were squarely aimed at helping the car industry through the recession, but in Australia it is dressed up as climate policy.
The proposal boils down to this. Government would spend $400 million of taxpayers’ money to buy older cars from people who are well enough off to afford new cars. Any car better than the existing fleet-wide average qualifies, so the great majority of new cars would be eligible, not just the most efficient ones. Many of the older cars that attract the subsidy would probably be scrapped soon anyway. The money would be diverted from other climate programs, in particular advanced solar power.
By Labor’s reckoning, the car program would cut carbon dioxide emissions by one million tonnes, presumably stretched over several years. Australia’s total emissions in just one year are 500 times that. The fiscal cost per tonne avoided would be $400. By comparison, a carbon price of just $20 per tonne would drive widespread change in the power and industry sectors. Even relatively high cost renewable energy options, such as the ones supported by government programs that are to be cut back to pay for cars, are estimated to come in at about $50. So the car subsidy policy would backfire in terms of emissions, because money is drawn away from options that would have delivered a much bigger and long-lasting effect.
The tendency with policies such as this is to lead to a maze of expensive subsidies and cumbersome regulation, with plenty of bureaucratic churn and political interference. It will be expensive, and fall short of even the lower end of the 5%-25% reduction range that both parties have signed on to.
The Coalition, meanwhile, promises to pay emitters for reducing carbon, rather than imposing a price on emissions. By necessity, it would need to use highly uncertain estimations of the reductions achieved, compared to some hypothetical baseline. The Kyoto Protocol’s clean development mechanism relies on this principle. It has managed to draw money into clean investments, but in a very patchy fashion, with huge bureaucratic overheads, and with uncertain environmental benefit.
What is more, the Coalition claims as an advantage that prices of energy and goods will not rise. But as always the money will have to come from somewhere, in this case from taxpayers. And if power prices do not go up, then extra incentives need to be created for end users to save energy, through extra government interventions and more subsidies. Achieving any kind of meaningful reduction would rack up an enormous tax bill.
The underlying problem is that neither of the main parties can summon up the courage to go with the policy that is so obviously the key to an effective and efficient climate policy: putting a price on carbon, through emissions trading or a carbon tax. Business is calling for it to put an end to crippling investment uncertainty. The Howard government prepared for emissions trading already in 1999 and made it its policy in 2006. And Australia would by no means be out in front: Europe has had emissions trading for five years, and despite setbacks in the US Senate, schemes for carbon pricing are in place in many American states. Even China is set to introduce emissions trading of the next five years.
Julia Gillard has stated that she is committed to carbon pricing, but not just yet. Her citizens’ assembly seems little more than an excuse for further delay. It would not bring new insight on an issue that has been so well researched and so widely debated as climate change. The science of climate change is crystal clear, the case for action has been made convincingly, and consensus among the expert community in economics and business is that carbon pricing is the right policy choice. Climate change has been in the centre of public debate for years now, and attitudes among the Australian public have been surveyed and re-surveyed dozens of times.
Another year or more of policy uncertainty will cost Australia dearly in terms of delayed or suboptimal investment decisions especially in the energy sector. More worrying still, the PM’s climate speech seemed to leave open the possibility that her government might abandon the quest for “transformational change” altogether if her citizens panel does not warm to the idea of action on climate change. It would be the ultimate abdication of political leadership.
Right now the only party in Australia with an economically sensible climate policy are the Greens, with their call for a quick start to carbon pricing building on the emissions trading architecture — starting emissions trading with a fixed price on permits, largely equivalent to a carbon tax but leaving the door open to shift to full emissions trading later. The general idea of launching into emissions trading with a fixed price has been advocated in the literature including by Warwick McKibbin. As a specific policy proposal for transition to a full emissions trading in Australia, it was proposed by Ross Garnaut, and it featured as a transitional measure in the government’s policy at one stage during 2009.
Perhaps, if re-elected, a Labor government might again come around to that position. Of course, everything may be different after the election, and there lies the hope for sensible policy. Perhaps tellingly, in the election debate Julia Gillard did not refute Tony Abbott’s claim that “we will get a carbon tax if this government is re-elected, as sure as night follows day”. The Greens are likely to hold the balance of power in the new Senate, and are advocating a fast start carbon tax — or technically, starting emissions trading with a fixed permit price. This would give some investment certainty and send a signal that policy will indeed support a transition to a lower carbon economy.
Bring on a carbon price, and it will show that putting a price on carbon will not upset the apple cart of the Australian economy — and that it beats populist policies such as throwing cash at buyers of new cars.
Frank Jotzo is fellow at the Australian National University Crawford School of Economics and Government and deputy director of the ANU Climate Change Institute. He was economic adviser to the Garnaut Climate Change Review.
Gillard’s Citizens’ Assembly is so obviously a delaying tactic. Anything to put off making a decision tells me all about her government and as for Abbott, don’t make me laugh.
Bob Brown, despite those stupid moronic polls, will get my vote.
Cash for Clunkers as a Gillard policy proves how feeble her talents are in regard to innovation and renewable energy research and development. Both she and Abbott are wearing blinkers on environmental matters.
Good comment: ‘Government would spend $400 million of taxpayers’ money to buy older cars from people who are well enough off to afford new cars.’ That’s the way I see it, too. I will NEVER be able to afford a new car. So I’ll just keep running the current old one (20+ y o) as long as it keeps going, and when it finally dies (hopefully not soon) I’ll just buy a newer old car. Well at least mine isn’t one of those size-of-a-small-bus SUVs I have to try and squeeze between in the carpark outside the local supermarket, and I certainly don’t rack up many kms. But … you have to reflect that, as so often, this is a Government handout aimed at the ‘well-enough-off’, as you so aptly put it. Good for the car workers in Adelaide, and the corporations that employ them, but not really benefiting the environment OR the owners of really old crappy cars. (Ideally I’d like to drive a Prius but they’re even more expensive than a ‘normal’ new car!)
We all know that the ‘cash for clunkers’ initiative in USA was an economic stimulus package aimed at keeping the big car companies alive and saving jobs. The USA Govt was honest about that.
We desperately need a REAL climate change policy, but neither of the major parties seems brave enough to risk offering us one.
If I could be prime minister for a day and get anything I want done I would bring in a carbon tax. It is the single greatest thing that any government could do to reduce greenhouse gas emissions.
If I were PM for a day I’d go after the state governments who are running amok with impunity, desecrating the environment with runaway emissions of CO2 and hazardous waste which makes a mockery of the legislated Environmental Protection Acts.
Look no further than the state of WA where the megalomaniac in charge denies climate change, overrides EPA environmental impact assessments and is handing over hundreds of thousands of square kilometres of pristine land to the hit and run diggers and crooked dealers to dirty things up. Next stop, a coal mine for the Margaret River surrounds despite the protests? And some 20 open cut uranium projects for the north eastern Goldfields of WA, to render massive tracts of land unfit for human or animal habitation.
So Rome burns while Neroine and her subjects fiddle. Dummkopfs!
Where are you Bobby Brown? You’d better shake a leg pal!