Clive Palmer has got his sleeping ETS, but will it be awakened?

It is somewhat puzzling that the government agreed with the Palmer United Party to have the Climate Change Authority investigate the operation of “emissions trading schemes or equivalent schemes” overseas and whether Australia should enact its own.

The government has ruled out an emissions trading scheme or ‘ETS', so what's the point?

But it's all part of a longer-term game. There was an interesting exchange between Senator Nick Xenophon and Waleed Aly on ABC Radio National on Wednesday that reveals that the carbon trading scheme may not be dead but, rather, just sleeping. Essentially Clive Palmer's dormant ETS has now been agreed to.

Xenophon explained that he had managed to persuade the government to accept an amendment to its emissions purchasing scheme that would require a firm that exceeded an emissions baseline to pay a penalty or buy offsetting emission reduction credits from someone else.

Aly responded: “This is a de facto carbon price, isn't it?”

Xenophon: “Well ... you know ... (laughter) ... I don't want to characterise it as that.”

The pauses and the laughter gave it away. Xenophon may not want to label it as such, but that's precisely what he has in mind. Indeed it's what every informed participant in the whole Emissions Reduction Fund charade, including Environment Minister Greg Hunt, knows is the logical end game.  

In trying to dodge the question, Xenophon pointed out quite rightly to Aly that all he was doing with his amendment was giving legislative force to something that was already government policy. The government's Direct Action election platform says quite clearly that firms' emissions would be prevented from growing by having to comply with an emissions baseline set in line with their historical emission levels.

It's all a bit ridiculous, really. If you as the government are really serious about achieving an emissions reduction target, why wouldn't you let private sector firms themselves decide via market trade how best to achieve the target?

If some firms have strong financial incentives to increase production and emissions, then why shouldn't they be allowed to do it if they can manage to offset this emissions growth by paying some other firm to reduce their emissions who could do this with less financial sacrifice?

Isn't this what Adam Smith pointed out over two centuries ago when he described the pin factory? Specialisation, focus on what you're best at, and then trade with others to get the other things you need.

The one thing standing between Direct Action becoming an emissions trading scheme is how stringent the emission baselines applying to polluting facilities are set and the inclusion of electricity generation in the system of baselines. At present the government is saying the baselines will be set so weakly such that it is highly unlikely many facilities will ever exceed their baselines.

But this is not a one-shot game.

Once the legislative and regulatory framework for baselines is in place they can be readily tightened.

At present the government's preferred position for baselines is to base them on a production plant or facility's absolute emissions, rather than emissions per unit of production. This makes administration vastly simpler.

It also means the scheme can be reasonably easily transferred into an emissions cap and trade scheme. Just like the scheme Abbott just abolished.

The hope amongst ETS enthusiasts is that two things will happen that facilitate an ETS via this two step process:

-- Australia comes under international pressure from the US and China in conjunction with Europe in the lead-up to the UN climate treaty negotiations in Paris in December next year.

-- Public sentiment shifts to place higher priority on global warming, and the Coalition feels sufficiently political vulnerable on the issue leading into the 2016 election that they need to act.

Yet the enthusiasts are absolutely dreaming if they think that somehow they can pull this off by stealth through simply avoiding using the phrase emissions trading or carbon price to describe it. Those within the Coalition who see climate change as the Trojan horse for socialism are well onto this. And if they aren't, polluter lobbyists will soon ensure they are.  

It is not branding which is the barrier to an ETS, it is brute politics.

When Bob Day (who left the Liberal Party in a preselection hissy fit) urged against passage of the Emissions Reduction Fund last night by telling the Government not to be “scientific girly-men”, he was echoing the views of a powerful section of Coalition MPs. They think global warming is a greenie-socialist plot. Tony Abbott's business adviser, Maurice Newman provides a superb insight into the degree of their illogical paranoia when he wrote earlier this week, “The IPCC is an advocacy group dedicated to wealth redistribution.” The fact that the carbon price was introduced with a rescaling of income tax rates has only acted to reinforce their paranoia, even though the Howard Government did a similar thing in introducing the GST.

Until such time as the Coalition feel political vulnerable on climate change, the social conservatives within the Coalition government will ensure this ETS remains in deep hibernation.