Pox on both of your climate change policies

The Australian
March 13, 2012

DEBATE about climate change policy has dominated national politics for at least five years and will continue to do so at least through the next election cycle.

Yet, as today’s reporting by Sid Maher demonstrates, we are not being presented with clear, effective policies by either of the major parties.

At one level the Labor government and the Coalition opposition are on the same page because they are committed to the same emissions reduction target of 5 per cent (from 2000 levels) by 2020. But from this position of apparent consensus both sides of politics are attempting to maximise their differences. Labor accuses the Coalition of denying the problem and failing to act; the Coalition says Labor is over-reacting in a way that will destroy the economy. Neither has a monopoly on virtue. And, as it stands, neither of them is offering a sensible policy prescription, much less articulating it with sufficient clarity and honesty.

The Australian, as we have often reminded our readers, supports a market mechanism as the most effective means to reduce carbon emissions in order to minimise human impact on climate change. It is from that perspective that we have always had difficulties with the policy espoused by the Coalition after Tony Abbott seized the leadership. His “direct action” plan is, to be brutally frank, little more than a fig leaf. Having renounced an emissions trading scheme, the Coalition needed to defend itself against the charge of denial by proposing an alternative environmental plan, and propose a defendable method of meeting the pledged 5 per cent reduction. The direct action plan, so far, has barely satisfied these objectives. The latest CSIRO research will further undermine its credibility by demonstrating that attempts to sequester 85 million tonnes of carbon in soil-carbon initiatives will fall short by more than 75 per cent. This raises questions about the ability of the Coalition’s scheme to achieve its targets and leaves open the cost per tonne for the abatement it can achieve, funded, as it will be, directly by taxpayers through budget expenditure.

The government’s carbon tax scheme is exposed by the economic analysis conducted on behalf of the Minerals Council of Australia. By fixing the price at $23 a tonne, more than double the current European price, and then moving to a trading scheme with a $15 floor price, the carbon tax will hit the economy harder than an emissions trading scheme linked directly to international markets. The Centre for International Economics report quantifies this additional reduction in our national economic output as an extra $30 billion across six years, taking the overall impact of the carbon tax on GDP close to $50bn by 2018.

This study underscores the economic consequences of Australia acting unilaterally ahead of the rest of the world, something many economists have long warned about. Advocates of emissions trading accept that co-ordinated international action is central, both to ensure we do not put our economy at a competitive disadvantage and to ensure global environmental effectiveness. It is for these reasons that we have advocated serious consideration be given to delaying the introduction of the carbon tax, lowering its price and/or moving more promptly to a trading model.