CLIMATE SPECTATOR: Labor's self-inflicted climate calamities

Climate Spectator

Yesterday in Climate Spectator I explained how Labor's woes stemmed from six critical mistakes when Rudd, Swan and Gillard lost sight of sound policy principles or abandoned rigorous process and failed to stand-up and defend major policy initiatives in spite of their uncomfortable warts. These were:

1) Promising black and blue to deliver a budget surplus when it was highly unlikely to be achieved and not economically advisable.

2) Rushing the introduction of the mining tax and then rushing the subsequent renegotiation of the tax.

3) Abandoning the emissions trading scheme on false pretences in favour of a citizens' assembly.

4) Disowning their emergency stimulus response to the global financial crisis.

5) Lacking the guts to take Abbott to a double dissolution election in February 2010.

6) Wasting their first two years of government using climate change as a political wedge instead of seizing an opportune moment to implement major reform.

In seeking to appease the tabloids, shock jocks, noisy lobbyists, and whatever they were hearing from focus groups they actually made things worse for themselves.

Yesterday I covered off on mistakes one and two above. Today I'll look at the others.

Mistake 3 – Abandoning the emissions trading scheme on false pretences in favour of a citizens' assembly

When Rudd dumped the emissions trading scheme or ‘ETS' (apparently at the urging of Wayne Swan and Julia Gillard and against the advice of Penny Wong and Lindsay Tanner) it had the horrible stench of a politician who had just peed their pants from political cowardice.

Rudd could have dropped the ETS on the basis that he couldn't get it through Parliament but would revisit it once re-elected. But he didn't do that. Instead he accepted Tony Abbott's absolute balderdash of an argument that the lack of an international agreement meant the ETS should be indefinitely put on ice. The argument never stacked up on the basis of detailed economic analysis as illustrated both by the Australian Treasury's detailed economic modelling and facility by facility financial analysis I undertook with John Daley at the Grattan Institute. It was a scare campaign that Rudd should have taken head-on.

Anyone with half a clue about the design of the first iteration of the ETS (the Carbon Pollution Reduction Scheme, or CPRS) knew it had always been designed with a range of default provisions to cater for the lack of an international agreement. The 5 per cent reduction target was adopted as the minimum position assuming no international agreement. The extensive free permits for trade exposed industry was to prevent carbon leakage due to the lack of an international agreement. Heck, even Howard's ETS was predicated on no meaningful international agreement.

Rudd dropped the ETS because of NSW Right polling, pure and simple. Then Gillard converted it into a comedy by proposing a citizens' assembly, swallowing the car lobby's stupid cash for clunkers idea, and then promising an emissions standard for new power stations that was weaker than what industry has already landed upon voluntarily.

Gillard's decision to agree to the Green's carbon price proposal was not seen as betrayal by some swinging voters simply because it was a fixed price that could be readily labelled a tax rather than a trading scheme. It was because it represented yet another backflip that didn't align with prior rhetoric.

Mistake 4 – Disowning their emergency stimulus response to the GFC

Anyone who can remember the early 1990s recession where unemployment exceeded 10 per cent for a sustained period of time knows that if you let a downturn get away from you, the results can be tragic. High unemployment tends to be persistent and difficult to resolve even after the initial cause of the downturn has receded.

The Australian Treasury learnt that lesson well. The problem is a self reinforcing cycle of dropping consumer and business confidence that leads to self-fulfilling expectations of poor economic conditions. The key to stopping this snowball effect is speed, speed and more speed. Once unemployment starts to noticeably climb and orders drop away, purses shut tight and it can be incredibly difficult to get them to open again.

The government's economic stimulus quite rightly put a premium on speed over efficiency. There was waste, and there were programs that should have been rolled out with greater controls. But in the end Australia's economic outcomes were far superior to other nations and we kept employment at levels that prevented a downward spiral in confidence.

Some suggest that it had nothing to do with the stimulus and everything to do with mining – the data just doesn't support that contention for the key danger period of the September 2008 to March 2009 quarters. Mining has been instrumental in Australia's economic buoyancy but it wasn't particularly helping the economy through this dark period.

Yet in spite of Australia's remarkable economic performance relative to other developed nations the government barely campaigned on the value of the stimulus during the 2010 election. The only time I've heard a spirited defence and pride in the economic stimulus package was when Kevin Rudd made his pitch to replace Julia Gillard in 2012.

Mistake 5 – Wasting their first two years of government using climate change as a political wedge instead of seizing an opportune moment to implement major reform

In the 2007 election both sides of politics had a policy of introducing an emissions trading scheme. Indeed the one difference seemed to be the timing with Labor promising its introduction in 2010 and the Coalition suggesting 2012 was more realistic.

When elected the government had a rare and prize opportunity for introducing a major economic reform with bipartisan support and strong general public support for action. The government did not have to wait until five minutes to midnight to negotiate with the Coalition over the design of the scheme. We had already gone through a multi-year consultation process involving the states and the Howard government over the design of an ETS. Repeating this entire process before consulting with the Coalition was simply not necessary.

In addition they certainly didn't have to wait until 2009 to change the numbers of the target in the already existing legislation of the Renewable Energy Act to 45,000 gigawatt-hours.

But as a Labor insider told me, Swan wanted to do the Liberals slowly. Labor chose to drag out the whole process around the ETS and the Renewable Energy Target knowing it would cause infighting and instability within the Coalition between die-hard conservatives who think global warming is a communist plot and the free-market progressives.

And during this period Labor made barely any effort to articulate to the public why an emissions trading scheme was a necessary and entirely manageable economic reform. If you doubt me compare the incredible amount of communications effort that has gone into the release of the Clean Energy Future package relative to the original CPRS. There are videos, case studies, household calculators and Treasury has costed the effect of the carbon price on everything from underpants to Weet-Bix.

Mistake 6 – Lacking the guts to take Abbott to a double dissolution election in February 2010.

The government was elected in 2007 with the commitment to implement an emissions trading scheme by 2010 and on surge of concern from the electorate about climate change. Rudd had said climate change was the greatest moral challenge of our time.

When Abbott took over he made it plainly clear that he would not sign on to an emissions trading scheme.

If this isn't the case for a double dissolution election then what is? Yes, there were risks and, yes, this opens the door to some fringe groups getting into the Senate. But doesn't the greatest moral challenge of our time deserve taking some risks?