Carbon trading is not the only answer

If you're new here, you may want to subscribe to our or .

| Sourced From |

THE surest sign a policy is flawed is when a government declines to debate it, in or out of its own party room. In shutting down a parliamentary inquiry into the Carbon Pollution Reduction Scheme, which would have been dominated by Labor MPs, Kevin Rudd is demonstrating he will brook no dissent to an immensely complex plan he intends to make law by the middle of the year. Under the CPRS, the Government will set a cap on greenhouse gas emissions and auction or give to industry permits to pollute. Permits will be sold by businesses who can cut their emissions and will be bought by those who want to increase them. It sounds a pain-free way to help save the planet and straightforward for business, but it is not. As industry, environmentalists and economists study the scheme, we are learning the detail is diabolical. Industry warns that the allocation of permits will increase costs and make exporters uncompetitive against international rivals who do not pay a carbon price of this kind. Environmentalists argue there is insufficient incentive for the entire nation to cut overall emissions. And many economists suggest a tax is a more efficient way of cutting gasses than this scheme.

The problem for the Government is that this debate is not being driven by climate change sceptics, who question whether we need to reduce greenhouse gas, but by people who want to reduce emissions. The Government has a plan, the Opposition supports reducing emissions, although it is a little hazy on how to do it, and public opinion wants something done about climate change. But that is where the consensus ends, with the CPRS being criticised by environmentalists, industry leaders, economists and unionists. Criticisms of the trading scheme model cover practical and policy matters. The Minerals Council of Australia warns that emissions-intensive exporters will have to buy anything up to 40 per cent of their permits by the middle of next year. In contrast, some of their European competitors will not have to purchase permits until 2020, and there is no reason to expect India or China, where emissions are increasing fastest, will require payment by polluters in the foreseeable future. With the economy apparently approaching recession, this is a difficult time to increase costs for some Australian industries. The global recession is also undercutting the principle of putting a price on permits. In the past month, the carbon price on the European market has fallen from E30 ($58.80) to E10. And while the scheme may reduce carbon emissions in Australia, it will not necessarily have a global impact. Union leader Paul Howes points out that manufacturing a tonne of aluminium in Australia pumps out 50 per cent fewer emissions than the same amount made in China.

In the absence of a synchronised global approach to a permit system, the competitiveness of early adopters is undermined. A carbon trading scheme is also open to manipulation by the financial engineers whose derivative trading packages came close to crippling the world banking system last year. Certainly, the Government’s system provides opportunities to invest in green technology, but equally it allows exotic investments for companies to gamble on the price of carbon. The system also subsidises the producers who receive carbon credits, in effect giving the Government the power to pick winners, with all the risk of political manipulation this brings. And as Richard Denniss from the Australia Institute argues, a permit system does nothing to reduce the overall output of greenhouse gas. He has a point. Individual abatement efforts make no difference to emission levels in any given year. The carbon saved by a family installing a solar water heater could be used by the neighbour with a new air-conditioner. Critics of the permit scheme additionally argue that a straightforward tax, uniformly applied, would be easy to administer and harder to manipulate. A carbon tax would also give all emitters an incentive to reduce their pollution. And with new US Energy Secretary Steven Chu floating the idea of a carbon emissions tax, there is an obvious risk of Australia saddling itself with a minority model.

But it appears the Government is not interested in debate. According to Climate Change Minister Penny Wong, the CPRS will be introduced by the middle of next year, no ifs, no buts. After investing political capital in global warming and intellectual energy in the emissions trading scheme, it seems the Government is determined to defend its green credentials. But we know the Prime Minister will change policy direction when circumstances require, demonstrated by this former economic conservative’s $42 billion stimulus plan. The CPRS is not the only option to reduce greenhouse emissions and people who argue against it deserve a hearing — in and out of the Labor Party.