Business pulls out the carbon fiddle

The submissions on the government’s Emission Reduction Fund are now starting to flow out into the public domain. They show a group of business stakeholders highly aware that this abatement auction purchasing process will be rather more complex than eBay. Slogans will not cut it anymore.

Both the Australian Industry Group and the Business Council of Australia are, in their own polite way, pushing the government to go back to the drawing board altogether, via the Productivity Commission.

As Climate Spectator has noted, it seems unlikely the government can implement a soundly functioning auction scheme by July 1 next year, with the government already several months behind schedule. AiG noted:

The current consultation and development process for the ERF is short for such an ambitious policy and does not appear to provide an opportunity for careful consideration of fundamental policy parameters and plausible outcomes.

Instead of barrelling ahead, the BCA told the government:

As an initial step in developing the Direct Action policy, a referral should be given to the Productivity Commission to identify the design parameters for Direct Action which ensures the policy can meet Australia’s 2020 emissions reduction target at lowest cost.

Such a review will provide business and the community with confidence the policy can work and make recommendations on how best to design it.

And AiG noted:

Climate policy is inextricably an economic problem and should be developed using open, independent and economically rigorous advice. Given the proposed abolition of the Climate Change Authority, Ai Group joins the Business Council of Australia in proposing that the Productivity Commission be given a referral to identify the design parameters for the ERF that can ensure targets are achieved at least cost and without impacting the competitiveness of trade exposed industry.

Well guys, I can save you all the time of another review because, way back in 1997, the predecessor of the Productivity Commission already concluded:

Previous work by the Industry Commission suggests that the economic costs of reducing GHG emissions would be lower if a system of tradable permits existed instead of a regional or activity-specific reduction target.

If you think the commission might have changed its mind in the intervening decade-and-a-half, here’s what the Productivity Commission said in March, 2011:

The most direct and, consequently, most efficient way of implementing the ‘relative price’ change required to discourage consumption of high-emission products in favour of low-emission ones, is through a global, broadly-based carbon tax or quota scheme ... Because these adjustments can be made entirely on the basis of consumer and producer assessments of relative costs and benefits to them, any given amount of abatement will be achieved at least cost.

Interestingly, given the BCA’s urging for Labor to repeal the carbon price lest the sky might fall in, their submission on the Emission Reduction Fund states:

...given the repeal of the current carbon pricing mechanism looks unlikely to take effect before 1 July 2014, there is sufficient time to conduct such a review.

Well, actually there isn’t sufficient time. Sorry to give you project management lesson 101 but there’s this thing called 'implementation' which comes after the Productivity Commission does its review.

For the purposes of improving our own creativity, let’s imagine Environment Minister Greg Hunt bats off the ‘John Tyndall was a closet socialist’ ideologues in his own party, and commissions the commission to undertake a review starting in January. If it's to consult properly with stakeholders the review would at best be finished by July 1 next year.

Now to push our creativity to the limit, let’s imagine again that the PC recommends something entirely different to what it's said in the past, and decided Direct Action is great. Okay, now the government has to legislate it and then put in the institutions, people, abatement activity methodologies and measurement and auditing processes, plus the IT systems, to operate it.

If everything went exceedingly well we might have something ready to go by July, 2015.

But because the BCA’s Jennifer Westacott thinks the ETS is destroying competitiveness and urging Labor to repeal immediately (which seems hard to reconcile with her telling a room of people in December 2, 2009 that the Senate’s rejection of Labor’s extremely similar ETS was a failure of leadership), this would mean no progress towards our 2020 targets for 1.5 of the remaining six years left.

Here’s an idea: maybe the government and all the assorted industry lobby talking heads should take a deep breath and hold back on beheading the emissions trading scheme until we’ve worked out what will replace it.