The Government’s Carbon Pollution Reduction Scheme should be rejected by the Senate. It is structurally flawed and unlikely to drive Australia’s transition to a low carbon economy.
True, it will provide billions in handouts to our biggest polluters, in effect giving them a competitive advantage over industries and businesses with low emissions. It is based on targets that accept a significant and highly-damaging rise in global temperatures. It is accompanied by a risible scheme to con the community into thinking they can play a direct role in reducing emissions.
But each of those factors, on their own, is not sufficient to reject the significant step of establishing a framework that aims to reduce our emissions over the long term — a step that, for 12 years under the Coalition, Australia refused to take. Those factors are reasons to dislike the scheme and criticise those who have formulated it, but not to reject it.
Instead, the CPRS should be rejected for the simple reason that the compensation provided to big polluters will never be removed, preventing the scheme from ever functioning effectively.
First, on compensation: by giving our biggest polluters nearly all of their permits for free, while requiring industries with lower emissions to pay the full cost of their emissions, the scheme in effect privileges big polluters. It continues the carbon protectionism built into our existing economy, under which sectors can externalise the long-term costs of their activity to the rest of the planet. Moreover, they directly undermine the purpose of the scheme in a way that other forms of compensation — say, the same value of permits delivered as a tax rebate — would not.
However, compensation arrangements are only intended to be temporary. They will only apply to emissions-intensive, trade-exposed industries (except coal mining, which has been singled out for the full emissions trading treatment), and ostensibly only until an international agreement comes into force that removes the problem of Australia’s polluters competing with foreign polluters who face no charges for their emissions.
The point is both to protect Australian jobs and prevent “carbon leakage”.
Carbon leakage is an economic argument without, as yet, a skerrick of evidence that it will ever occur. It assumes minimal relocation costs, that there are no exchange rate fluctuations and that companies can be confident the jurisdictions to which they are moving will not impose their own carbon abatement measures or present other forms of sovereign risk.
In fact even the most apocalyptic modelling from rentseeking bodies such as the Minerals Council of Australia acknowledges continued growth in affected sectors, with jobs “leakage” occurring from future growth, not from existing employment.
It also ignores the lower costs and first-mover advantages of commencing a transition to a low-carbon economy as soon as possible, which may eventually be far greater than initial costs. Further, experience with other emissions trading schemes such as the US Acid Rain Program, and other major economic reforms such as the GST, suggests the costs of major reforms tend to be overstated in advance of implementation.
Nevertheless, temporary protection until an international agreement comes into operation can justified on the basis that, if there is no international agreement, it matters little what Australia does or how it compensates its polluters; the planet will cook, and we’ll be among the first to feel it.
And governments routinely make similar decisions to benefit some sectors at the expense of others. Australia’s unviable car industry continues to be protected by punitive tariffs on foreign-made vehicles are gifted billions in handouts from taxpayers. Cheaper, better, foreign ethanol is similarly subjected to punitive tariffs while motorists in some states are compelled to buy the version produced by local agribusiness companies.
In fact the Australian economy is rife with oligopolies and rorts that governments have permitted to flourish, at the expense of consumers. A few billion in CPRS handouts to transnational companies, however outrageous, won’t make a great deal of difference in the scheme of things.
On targets, the chances of there being an international agreement on a more ambitious objective than that on which the Government has based its 25% commitment is remote. In the event one is reached, the Rudd Government will come under significant international pressure to increase its target beyond 25%, which will in any event be a solid start in the long-term project of moving to a low-carbon economy. In short, 5-25% is not good enough, but it’s not a reason to reject the scheme entirely.
As for the Carbon Trust, intended to enable householders to contribute directly to reducing emissions by establishing a vehicle to purchase and retire permits, while that demonstrates the lengths to which this Government will go to spin its way out of a problem, it doesn’t bear directly on the scheme itself.
The threshold issue for the scheme is whether it will work. If it will work, than the handouts to rentseekers, the poor targets and the Carbon Trust figleaf, are of secondary importance.
But the CPRS won’t work. The problem lies in the mechanism to end compensation. Under the legislation and regulations establishing the Scheme, an independent panel will review compensation arrangements, and the status of international agreements that may remove the need for them, in 2014 and every five years thereafter. Alternatively, the Climate Change Minister can order a review. The independent panel — appointed by the Minister — will report back to the Minister, but a decision about whether to remove compensation will be one for Government.
Normally the principle of electoral accountability suggests that it is elected officials who should make key economic decisions, rather than unelected officials, who do not have to answer to voters for the consequences of their actions.
In this case, however, based on what has occurred over the last 12 months, as rentseekers have convinced politicians to extend them more and more largesse, does anyone seriously think that major party politicians can be trusted with the task of deciding to withdraw that largesse?
Particularly as that largesse will have grown into the tens of billions of dollars by late next decade, as big-polluting industries expand and soak up more and more free permits.
Particularly when most of the recipients are generous donors to the major political parties.
You know what will happen. More garbage modelling will be produced by Big Carbon showing the need for continued compensation. News Ltd will run stories about rorting in other countries’ trading schemes and argue Australia should not “go it alone”. Thousands of jobs will be threatened. Ministers will get nervous, with an eye on the next election, and figure a more detailed review is needed, or put the decision off for several years.
The decision will also be one for the Parliament, because it will require the amendment of regulations that require the CPRS establishing body to provide permits to eligible EITEs on application according to the relevant formula. A recalcitrant Senate could disallow the regulation amendment removing compensation for EITEs, should a Government decide to take the bold step of doing that.
Moreover, the Government has made it clear that any such decision would not commence for at least five years, to provide certainty for business. This is not entrenched in regulation or legislation, but the independent committee is required to have regard to the need for a five-year wait.
Meaning, in the event an international agreement was struck to commence a global emissions trading scheme in, say, 2015, there would be no review of compensation arrangements until 2019 unless the relevant Minister decides not to wait until the next five year review was due — and then, should there be a Government decision to remove compensation, a five year wait.
Under the most optimistic scenario, Australia’s biggest polluters will be protected most of the way til 2020. And that assumes our politicians ever find the nerve to end compensation.
The CPRS will not ever function effectively without the removal of the five-year compensation overhang and the shift of responsibility for ending compensation from Parliament to an independent body such as the Productivity Commission. Based on their form so far, our politicians cannot be relied on to ever flick the switch to a fully-effective emissions trading scheme, regardless of what happens internationally.
Passage of the CPRS bill will protect and entrench in the economy the very carbon pollution the scheme purports to address. It will establish a framework skewed massively in favour of Australia’s current, high-carbon economy — overseen by politicians too scared, and too well-rewarded, to challenge those who benefit most from our current carbon addiction.
The only sensible vote from any perspective is “No”.
The fundamental reality of the CPRS is that it will do SFA to reduce greenhouse gas emissions in this country because the government has told a giant lie. All significant emitters of carbon dioxide are to be given free get out of jail cards in the form of free permits, and any shortfall in proposed targets will be met by purchasing permits from overseas, presumably from Third World countries where governance processes are virtually non-existent. Consequently fraud will be the order of the day and the benefits to shonky dealers and corrupt politicians will lead to a bigger load of corrupt activity than the recent sub-prime crisis.
Any serious attempt to reduce carbon dioxide output would tax carbon usage at source, and introduce this cost into the supply chain. Market forces would then determine a new equilibrium position. What the lying politicians will not tell you is that any such activity will cut into their support base of unions, businessmen and consumers. Accordingly the spin doctoring will go on, with no serious attempt to implement carbon reduction, because the inevitable outcome would be a significant fall in our standard of living. To reduce consumption of carbon-based fuel prices must rise. The CPRS avoids this undesirable outcome whilst promoting the illusion of activity.
In relation to the political spin doctoring and rhetoric in the run-up to the last election, the unfortunate truth is that the necessary reduction in consumption as a consequence of a reduction in carbon consumption was never explained to the Australian people. Having sold a lie the government must continue to peddle the same crap. The opposition by contrast is no better. Until the Australian electorate realises that the unfortunate consequence of carbon emission reduction is a fall in its standard of living, neither side of politics will reflect this outcome in effective policy. Until this realisation occurs, we will continue to see the devious jockeying for position by politicians of all persuasions (with the possible exception of the Greens), before an indifferent and largely uneducated Australian population which does not understand the reality of the situation.
Finally some sense is coming in to the debate. The blame game had to stop, and the realities faced. A most incisive article BK – in fact excellent!
What I just cannot understand is this Govt’s refusal to split the issues into two bills, one of which would pass on the voices, while this crazy CPRS could wither on the vine. The RET bill is necessary and could proceed to bring certainty to at least one sector of the industry. It is unquestionably cynical politics which Penny Wong just cannot justify if she is serious about the ssues and the solutions
Bernard Keane has agan analysed the situation correctly, politically. Scientifically, the argument is that the Earth needs a plan for rapid carbon emissions reduction to ake effect immediately (no later than 2010) and to produce real reductions of at least 40% by 2020. Even then, Jim Hansen and others have mde it clear that the science predicts a significant chance that tipping points relating to climate and effects relating to ocean current changes, ice melting, glaciers retreating, etc will produce unstoppable sea level rise and freshwater shortages in populous places. The first requirement of any scheme is: will it reduce carbon emissions? Then the task is to make it politically acceptable not the other way round.
BERNARDK A fine piece of informative prose indeed. and as GREG ANGELO’s primal scream “before an indifferent and largely uneducated Australian population which does not understand the reality of the situation.” echos in my ear I am in complete agreement.
I do believe there is a lot of good will, angst, deep concern and plain despair by an electorate which is becoming educated. However, the Blucher Boot Syndrome are the ones who are impossible to convert to reason. And it is just this audience which the nay-declaiming Andrew Bolt lays effective siege to. Then look at the man who employs him to write his garbage. And with friends like these the big polluters haven’t got a thing to worry about.
Sorry, I feel depressed about the whole thing.
Short of the Green’s winning a majority in the House of Reps and Senate I could never envisage a CPRS that would meet Bernard’s high standards….. As such an outcome is highly improbable, if the legislation goes down, we are left with a stalemate…..A flawed scheme must be preferable to nothing at all…..Sometimes you just have to trust the politicians and put your faith in the democratic process…..As the climate science advances, as public opinion shifts with it, one can only hope that politicians step up to mark, adjusting upwards the cost of emissions, at the same time scaling down the handouts to the “rent seekers.”…..I think it incumbent upon those trashing what is on offer, to come with what they consider an ideal scheme, that would survive the gauntlet of opposition in the Senate.