Hamilton: why we should stick to carbon trading regardless

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We are told that the left and the right have joined forces to oppose the Government’s Carbon Pollution Reduction Scheme. We know why the right opposes it — they don’t believe in global warming, or do so only half-heartedly, and oppose serious measures. But what of the Left? Or at least environmentalists — Martin Ferguson is said to be of the Left and he believes global warming is a crock. Some who take warming seriously seem to have been captivated by a new argument against emissions trading.

Under the CPRS, any efforts by individual householders to reduce their emissions, such as by installing solar panels or ceiling insulation, will have no effect on Australia’s total emissions. Reducing their electricity demand will allow “big polluters” (or just other households) to take up the slack because the Scheme imposes a national cap on total carbon emissions.

Emotionally, one can see why this grates. Noble environmentally conscious householders do the right thing but their efforts are undermined by corporate polluters who don’t care. But that’s no basis for rejecting emissions trading.

Indeed, inducing people to install solar panels is exactly what emissions trading is meant to do, except that the inducement is economic rather than moral. Capping emissions drives up the price of energy and provides an incentive to change behaviour. Where in Australia those emission cuts occur is irrelevant. The objective of emissions trading is to ensure that emission cuts occur wherever they are cheapest, which then makes a tighter emissions cap more feasible.

The essence of the criticism is that emissions trading undermines altruistic behaviour. This is a curious political inversion. The Howard Government and right-wing think tanks for years argued that voluntary actions are the best way to tackle climate change. They did so to head off real, government-mandated efforts to cut emissions. Voluntary action, which can never make a big dent in our emissions, is a substitute for collective action.

Promotion of altruistic measures by concerned individuals only shifts responsibility from government and the big polluters onto the shoulders of individuals. It is the ultimate affirmation of the neoliberal conception of a society of consumers who act individually rather than citizens who act collectively.

Those citizens voted for a Government that promised to introduce mandatory cuts through an emissions trading system so we would all be required to change our behaviour. So it is passing strange that now some environmentalists are using the voluntary actions of altruistic individuals to attack a policy that, for all its flaws, mandates emission cuts.

A case could be made to modify the CPRS so that those who want to do more than respond to higher energy prices can do so. In fact, they can do that already, by clubbing together and buying emission permits that they simply retire so the aluminium smelters can’t get their hands on them.

The politics become even stranger when the promotion of voluntarism is used to call for the CPRS to be replaced with a carbon tax. There is one fundamental difference between emissions trading and a carbon tax that ought to see environmentalists plugging for the former.

Emissions trading fixes the amount of pollution and then allows the market to set the price of an emissions permit. This gives priority to environmental certainty over business certainty. The price will bounce around but businesses are used to managing uncertainty through hedging.

Against this, a carbon tax fixes the price of pollution through the tax rate and leaves it to the market to decide the amount of pollution. Business has certainty but the environment pays for it. If Australia has a legally binding emissions cap, as we now do under the Kyoto Protocol and will have again under a Copenhagen agreement, then the government will be compelled to adjust the tax rate frequently and by large amounts as it tries to hit the target.

Imagine the politics of that, remembering that the GST rate is virtually cast in stone. Politically, it’s infinitely easier to let the price fluctuate in the marketplace, with the peaks and troughs smoothed by business planners.

There are several other powerful reasons for sticking to trading, despite the defects of the CPRS.

Firstly, the trading scheme is flawed because of the Rudd Government’s political cowardice and willingness to cave in to pressure from corporate interests. If a carbon tax had been negotiated it would be just as full of loopholes and concessions as the CPRS. The tax rate would be far too low, petrol would be excluded, the biggest polluters would be exempted or receive concessions, and there would be a stampede from sectional interests to get their hands on the revenue.

Second, climate policy is hard and takes a long time. To argue that years of working towards a trading system in Australia should be ditched for a new approach is to argue for more years of delay. This is why the sceptics in the Coalition have begun to talk about a carbon tax. For those who know it is untenable to call for no action, calling for carbon tax is the next best thing.

Third, at the insistence of the United States and Australia, in 1997 the Kyoto Protocol adopted an international emissions trading system because it was believed to be more market friendly. The world is now firmly on an emissions trading path. The Kyoto Protocol embodies it, the EU is practicing it and the US Congress seems certain to adopt it, following the lead of the 12 north-eastern states.

For Australia to repudiate trading in favour of a carbon tax would isolate us from the global market, and exclude us from an important part of international negotiations.

In short, a respectable case could be made for a carbon tax instead of trading in 1997, but the world is now irrevocably on a different course.

After many years we are perhaps half way towards having an environmentally responsible emissions trading system. Nevertheless, the proposed Carbon Pollution Reduction Scheme is so weak and has so many flaws that a strong case can be made for rejecting it in anything like its current form.

Some argue that environmentalists should not reject it because a flawed scheme is better than no scheme. But that is not the choice. The choice is between a flawed scheme that will lock in a weak target through to 2020 just when the science is saying we must go much further, and no scheme that over the next few years nevertheless keeps open the possibility of a scheme that responds adequately to the science.