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Can Copenhagen cut climate costs?

By Geoff Carmody - posted Wednesday, 25 February 2009


Political and business developments on Australian climate policy are diverging.

The Government’s House of Representatives inquiry into its policy (the Carbon Pollution Reduction Sheme or CPRS) was dropped a week later. Malcolm Turnbull rejected Andrew Robb’s carbon tax idea instead of an emissions trading system (ETS). Now, with an “open mind”, he’s pushing for a Senate review in place of the Reps Inquiry.

Those supporting current policy tried to stifle debate last week. But the Centre for Independent Studies and the Australia Institute (a broad church?) suggested a carbon tax instead of an ETS.

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There’s been a rising tide against the CPRS.

Don Argus has suggested a carbon tax. Don Voelte has opposed the CPRS. Mitch Hooke (Minerals Council) has argued the debate isn’t over. Kate Carnell (Food and Grocery Council) asked why import competing businesses should face costs not borne by their import competitors. OneSteel is against the CPRS. The strongest Government supporter, Heather Ridout (Australian Industry Group), has done a U-turn, arguing for a “Clayton’s CPRS” until other countries act. The Business Council and the Australian Chamber of Commerce and Industry now want a “dry run”. The finance sector wants to make a margin on the trading of permits under the ETS, whether or not emissions are reduced. Below the radar, the import-competing story is a slow-burning fuse with potentially concentrated political consequences.

Overseas, a shift is on. New Zealand has a Parliamentary inquiry into its ETS. The Obama administration is looking at a carbon tax. Similar questions are being asked in Canada. China has signalled “no deal” for Copenhagen. Sweden’s U-turned on nuclear policy. The EU “20-20-20” Poznan agreement has more back doors than dunnies at a Grand Final.

Australia could be wrong-footed on climate policy. Instead of “staying ahead of the curve”, it may end up behind the 8-ball.

I didn’t understand the Government’s Reps inquiry. Its U-turn is more comprehensible. Turnbull’s stifling of Robb reminds me of Costello’s reaction to Turnbull canvassing tax reforms. Confusion reigns.

The broad forces driving this shifting on climate change policy are understandable.

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The global economic situation is bad, expected to worsen, and forecasts are being revised down. Job losses could be large. Trade protectionism is up (dairy in Europe, steel in America, and cars everywhere).

Australia’s CPRS doesn’t fit. Preserving jobs and the CPRS are incompatible. Minister Penny tries to have it both ways. She says an ETS is superior because it delivers emissions reduction certainty. She says more ambitious targets will lose jobs and emissions overseas. Both can’t be right. Emissions reduction certainty needs a trade-neutral consumption based model. Jobs and carbon leakage come from a production model (the CPRS) - unless we have an ineffective policy (“Emissions Watch”).

There’s a nasty virus in the CPRS. It will white-ant any global deal on climate policy.

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First published n the Australian Financial Review on February 24, 2009.



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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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