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Wake up Australia

By Chris Lewis - posted Thursday, 10 July 2008


The ultimate strength of a successful liberal democracy is indeed the willingness of its people to extensively debate important issues so that sophisticated policy solutions can emerge to meet a variety of economic, social and environmental needs.

Australia’s record over the past 50 years has proven that progressive policies are possible, as indicated by widespread public support for less industry protection and a more multi-ethnic population, notwithstanding some ongoing concern about freer trade and the ability of different cultures to integrate.

But Australia may struggle to achieve a balance between economic and environmental considerations, arguably the most important issue of the 21st century.

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In recent weeks, whether petrol prices or energy intensive industries should be subject to the carbon trading scheme has become a potential source of difference between Labor and the Coalition: although Malcolm Turnbull stated in 2007 the need for transport fuels to be included so that “consumers will be given greater incentive to improve the energy efficiency of their transport choices”. On July 7, Brendan Nelson stated that Australia should not commence emissions trading until other countries had a start date, despite the Howard government supporting the introduction of such a scheme from 2012.

Once again, it appears that short-term political gain is the immediate goal of the Coalition as it exploits concerns about higher petrol prices to boost electoral fortunes: although its stance does represent diverse opinion about the issue and will help expose the weaknesses of any policy approach seeking to balance economic and environmental concerns.

Though a July 1 Newspoll indicated a 61-25 per cent support-opposition ratio for an emissions trading scheme, 42 per cent supported petrol being excluded although 46 per cent wanted petrol included even if higher prices resulted in other energy sectors.

But the debate needs to be honest to inform the public over the next few months. After all, the US National Oceanic and Atmospheric Administration notes that carbon dioxide in the atmosphere has reached 387 parts per million (ppm) in 2008, with the level increasing by an average 2.1 ppm since 2000 compared to 1.5 ppm between 1970 and 2000.

And while Andrew Bolt argued in the Herald Sun (June 27, 2008) that there was no point to a carbon trading scheme that penalises pollutors - because some studies suggest that ocean levels are falling and global warming is not occurring - while arguing that Australia cannot make a difference because it produces just 1.5 per cent of global carbon dioxide emissions, can we really afford to ignore the issue?

Even both US presidential candidates now accept majority scientific opinion urging action to minimise the possibility of rising sea levels threatening nations; declining ice sheets; warmer oceans; fewer forest areas reducing the earth’s capacity to soak up excess carbon dioxide; and higher temperatures hindering the ability of some nations to produce enough food for a growing world population (including Australia).

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In any case, can Australia afford to miss the growing importance of carbon trading given that the global carbon market more than doubled to $64 billion in 2007, with the European Union Emission Trading Scheme worth about $50 billion?

Though there are many issues to deal with - such as the possibility that some companies will exaggerate their emissions and pressure governments to set a higher cap so they can easily meet targets without actually cutting pollution, and that too many permits may lead to a carbon price collapse (as evident in Europe in 2006) - a carbon trading scheme may in time challenge the value of markets for oil, natural gas, electricity and coal.

Australians should consider the German example where both economic and environmental gains have been achieved, although there will certainly be higher prices for consumers from renewable energy, especially in the short-term.

While it is estimated that 134,000 jobs created in Germany’s renewable energy sector by 2007 were the result of its renewable energy law, which gave a big stimulus to investment, total employment in that sector has increased from 160,500 in 2004 to 249,300 in 2007. This included biomass employment from 56,800 to 96,100; wind power from 63,000 to 84,300 with exports in that sector reaching $US8.9 billion in 2007 (up 6 per cent from 2006); solar from 25,100 to 38,600; and the geothermal sector from 1,800 in 2004 to 4,200, although hydropower remained steady at 9,400 after being 9,500 in 2004. As a result, renewable energy provided 8.5 per cent of Germany’s total energy consumption and 14.2 per cent of gross electricity consumption in 2007, and lowered carbon dioxide emissions by 114 million tons.

But in Australia, by late June 2008, while Nelson advocated a 5 cents cut in excise per litre of fuel and Rudd promoted a FuelWatch program which may deliver a 2 cents per litre price at best, the petrol debate had complicated any bid to tax energy emissions and encourage renewable energy. No wonder Rudd now warned his Labor colleagues to expect a tough fight ahead in regard to the implementation of the carbon emissions trading scheme from 2010.

It remains to be seen what policy outcomes will emerge in regard to balancing the economy and the environment. The debate can go either way. Australia may support higher taxes (even on petrol) if they can be convinced that lower income earners and families will be compensated (a majority), and reform can lead to lower greenhouse gas emissions. Or they may demand no rise in petrol prices in any carbon trading scheme, thus increasing costs on household and business energy use.

But the public should be wary of any approach that seeks to exclude petrol or any industry from any carbon scheme, as argued by the recent Garnaut climate change report (July 4) which urged the broadest possible coverage, a view previously expressed by a report for the Howard government by the former head of Prime Minister and Cabinet Peter Shergold.

With petrol alone responsible for about 10 per cent of Australia’s greenhouse gas emissions, its exemption from any emissions trading system is likely to see prices on other energy source increase by a further 10 per cent.

As argued by Anatole Kaletsky in The Times on May 29, 2008, while British Labor may be wise to defer higher taxation in the short term for political and economic reasons, although “freezing energy taxes would have negligible impact in the face of a doubling in oil prices”, a higher tax on petrol does encourage industry sectors and consumers to change their lifestyles to find new ways to promote energy conservation.

Of course, there are indeed two sides to every story as argued by Tony Abbott on The Australian online site (May 20, 2008) when he defended the Coalition’s bid to cut excise by 5 cents per litre, while highlighting why petrol prices would be nearly 17 cents per litre higher if the Howard government had not ended excise indexation in line with inflation from 2001. Abbott argues that if it was right for the Keating government to increase excise by 5 cents per litre in 1993 to meet a huge deficit, petrol prices can be reduced given the recent budget surplus of $22 billion.

The Coalition may also argue that Australia and the world will lose out if high-energy intensive industries (such as steel and aluminium) move offshore. This is because developing nations (such as China) use less efficient technological practices causing more carbon to be emitted per dollar of economic output.

But the public needs to be wary of such arguments, although the Coalition’s final stance on a carbon emissions trading scheme is yet to be finalised. If we neither increase taxes for petrol or high-energy intensive industries, just which industries or consumption patterns can be taxed to reduce Australia’s fossil energy use?

Australians should have the courage to embrace the need for change given obvious environmental degradation, despite the many problems that lie ahead in regard to transforming the economy, Australia’s skill base, and even promoting better public transport given the ongoing sprawl of Australian cities.

While there will be many that will oppose a carbon trading scheme, and will highlight the fact that Europe's emissions overall fell by just 0.3 per cent last year (Bolt), such a concept can work as has been shown in the US where sulphur trading has reduced related emissions by more than 50 per cent in the past 10 years.

What matters is how the scheme is funded and what compensation will be given to those most affected. A recent Climate Institute report on energy affordability and emissions trading has noted that higher energy price rises could be offset through the auction of carbon permits which could easily raise $10 billion (1 per cent of GDP). With the average Australian family spending around 9 per cent of its budget on energy, although the impact ranged from 15 per cent for low-income singles to 5 per cent for high-income families, the report noted that Labor will establish “a multi-year, multi-billion dollar financial package to offset price increase impacts in low income groups”. With Treasurer Wayne Swan indicating that every dollar raised by the introduction of a permit scheme should be delivered back to households and businesses, Garnaut also suggested that about half of revenue be returned to households in some form.

Australia may end up losing high-energy intensive industries to developing nations, although domestic industries may improve their technologies and find ways to offset their emissions by funding tree farms or renewable energy projects here or in poorer nations. Hopefully, people in developing nations will demand that their governments also adopt appropriate reform to minimise industry pollution levels.

For the Rudd Government, anxious to play an international leadership role, addressing Australia’s greenhouse gas emissions offers a real political opportunity to make a difference and to differentiate itself from the Howard government. Hence, it needs to get on with selling its message and convincing Australians of the need for change.

For ordinary Australians, finding a better balance between economic and environmental considerations provides the ultimate test of our liberal democracy to uphold our ability to promote progressive policies. Let us not allow the debate to wither away to allow petrol prices or large industry sectors to be immune from environmental taxation.

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About the Author

Chris Lewis, who completed a First Class Honours degree and PhD (Commonwealth scholarship) at Monash University, has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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