Carbon price gone, but never dead

'Axe the carbon tax' was a good slogan but it won’t outlast sound principles of economics, nor the physics of the atmosphere. You can't kill a good idea - and an emissions trading scheme will become law again.

Barring a complete balls-up Australia’s emissions cap and trade scheme, which required firms to pay a fee to pollute, will soon be gone.

But it is not dead and buried for while you can repeal legislation, you cannot kill an idea.

Nor can you cover-up the scientific reality of global warming.

Axe the carbon tax – it was a good slogan but it won’t outlast sound principles of economics, nor the physics of the atmosphere.

The idea of reducing carbon pollution through creating a market in a constrained number of permits to pollute, which left it to the private sector who should reduce emissions and how, has a reputable multi-decadal history in  the study of economics. 

While large power, coal and oil corporate interests have been quite successful in persuading politicians to listen to them, they haven’t been anywhere near as successful in undermining the process of academic inquiry into the unintended side-effect their products create. 

This has led to steadily accumulating evidence that it is in our children’s best interests that we act now to substantially reduce carbon emissions. In addition, economic researchers have found that when the private sector is given clear and reliable incentives to reduce emissions, they manage to do it in surprising ways that incur much lower costs than anticipated and little noticeable sacrifice.

The problem for the extreme conservative section of politics is that intelligent people from across the political spectrum can’t help but pay heed to this body of evidence. So even though conservative politicians have repeatedly tried to stamp out initiatives to implement an ETS, it is like a persistent weed that simply cannot be eradicated. They might be able to chop off the shoots of growth, but seem spectacularly unsuccessful at pulling out the roots, nor stopping the weed from dispersing seeds.

And so it pops up – again and again.

Back in 1991 the Productivity Commission’s earlier incarnation, the Industry Commission, laid the seeds for Australia to implement a carbon trading scheme, noting in its report Costs and Benefits of Reducing Greenhouse Gas Emissions:

This brief review of the policy measures available to implement an international program to reduce greenhouse gases suggests that market-based measures have distinct advantages over command and control. Tradeable permits in particular have most attraction as, in principle, they combine the best features of taxes and quantitative controls in meeting efficiency and dependability criteria.

The Productivity Commission followed this up in 1997 with the report Framework for Greenhouse Emissions Trading in Australia which outlined a range of issues that needed to be considered in implementing a scheme in Australia.

At this time the then Howard Liberal-National government was a strong advocate of emissions trading. On May 12, 1998 Alexander Downer gave a speech praising the use of emissions trading as a way of “harnessing the market”. He said:

The provision in the [Kyoto] protocol for emissions trading has altered production fundamentals. Greenhouse gas emissions, a by-product of many production processes, will in the future come with a price tag…. Commonsense, as well as business-sense tells us that a transparent, unimpeded market offers the best prospect of delivering low-cost, non-distortionary outcomes.

Then in 1999 the Howard government released several discussion papers providing a series of options for how the government could implement an emissions trading scheme. Thanks most likely to US President George W. Bush dismissive attitude to global warming, the scheme did not progress.

But the idea did not die.

I was picked up again in 2003 by the Environment Minister David Kemp (who was subsequently elected President of the Victorian branch of the Liberal Party in 2007). Departments of Treasury, Environment, and Industry all concurred on the merits of introducing an ETS. But a flurry of last minute lobbying by polluters led Howard to rebuff Kemp days before the matter could be debated in Cabinet.

But again the idea did not die.

In 2005 it was picked up again by a coalition of state governments, championed by public servant and economic dry Roger Wilkins, and supported by a secretariat led by a former staff member of the Productivity Commission, Anthea Harris.

With the states now looking serious, the Business Council of Australia decided to shift position in support of an ETS. With big business now in favour, Prime Minister Howard decided to drop his opposition to a carbon price. He agreed to recommendations for an ETS design set out in a report authored by Martin Parkinson, now the Secretary of the Treasury.

Labor’s Kevin Rudd then progressed an ETS to legislation. But he went to water in the face of a scare campaign from Tony Abbott, dropping the idea mid-2010.

Again the idea did not die and pushed not just by the Greens but also rural independents Tony Windsor and Rob Oakeshott, Labor progressed the scheme to the final step of operational law.

There are good reasons to suggest repeal will not be the end of the matter.

Yesterday Opposition leader Bill Shorten, declared, "any serious policy solution to climate change must, sooner rather than later, include an Emissions Trading Scheme".

The reasons he's probably right is because a range of voices beyond the Greens and Labor are still pushing for an emissions trading scheme, even if the current model is not their preferred choice. 

Former Liberal leader John Hewson is actively campaigning against repeal.

Ex Reserve Bank board member Warwick McKibbin continues to point out that without a durable ETS (of course, exactly matching his own design as is McKibbin’s egotistical style) investment uncertainty in the energy sector will grow and impose higher financing costs.  

Senator Nick Xenophon has voted in favour of repeal. But he wants to replace it with another form of emissions trading along the lines advocated by Danny Price of Frontier Economics.

The DLP’s Senator John Madigan has also voted for repeal. But he’s advocated what he calls a “penalties scheme” which sounds an awful lot like an emissions trading scheme to me, even if Madigan fails to realise it.

And of course we’ve had the about-face from Clive Palmer, who now says he supports the introduction of an ETS, although his current proposal seems next to useless.  

A proposal to legislate an emissions trading will re-emerge. And next time round the community will be inoculated against a scare campaign, knowing that the cost of living barely changed last time round.

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