Australia’s greenhouse gas emissions strategy is a policy failure

Warwick McKibbin urges a carbon price to encourage economy-wide benefits for Australia, but prefers a design that does not seek to predict a future carbon price or world demand. It is based on designing futures markets for carbon that enable market forces to produce long run carbon prices that can guide investment decision.

As McKibbon argued in December 2018, “the attempts to avoid the idea of pricing carbon have become so absurd that it now might be possible to start again with a design that is based on science and expertise rather than the nonsense that has passed as political debate driven by political cowardice”.

McKibbon makes a number of important points to support an economic wide carbon price in line with his observation that “international climate action is inevitable, and it is in Australia’s national interest to be part of a cooperative global approach”.

They include Australia’s climate policies already having a carbon price given that “renewable energy targets or subsidies for batteries have an implied carbon price that either consumers, taxpayers or firms will pay”.

That direct subsidies, subsidised batteries and similar other policies, albeit having some impact on carbon emissions, have a higher cost and “low benefits compared to an economic wide carbon price”.

And that any focus on how electricity is generated or used is only relevant to less than one third of Australia’s greenhouse gases and ignores other cheaper carbon reduction options which may be found.

Sweden, which had the highest carbon price in the world at US$139 per ton of carbon dioxide as of 2018, has already shown how a carbon tax can deliver 60% economic growth and reduce carbon emissions by 25% between 1991 and 2018.

With more than 40 governments adopting some sort of price on carbon as of 2019 through direct taxes on fossil fuels or through cap-and-trade programs, it is predicted that global carbon pricing will increase in the future with China due to create the world’s largest carbon market in 2020 to cover 40% of its greenhouse gas emissions, albeit it remains to be seen how credible the market will be and whether its emission trading system becomes “a global marketplace that other countries are able to link into”.

Australia needs to back its potential to deliver and prosper from alternative cleaner energy sources given many new proposals aided by falling renewable prices and growing local and international interest in new technology. 

For example, Sun Cable is bullish about the prospect of providing Singapore with energy in less than a decade through the use of prefabricated solar cells that can deliver electricity via the advent of high-voltage, direct-current submarine cable which would prove very attractive against incumbents (oil and LNG) in the future. Currently, Singapore relies mostly on gas piped from Malaysia and Indonesia and shipped as LNG.

While there is no reason why a competent Australian centre-right government cannot take the lead, as was the case in Canada’s province of British Columbia where all carbon tax revenues go to households and firms, popular support for such an approach is evident in Australia. For example, a 2017 Pew Research poll found that 58% of Australians considered climate change to be a “major threat”, second only to the 59% who considered ISIS a major threat; a 2018 survey from the Australia Institute found that 60% wanted coal-fired power to be phased out within 20 years, with 73% expressing concern about climate change (a five-year high); and a November 2019 Essential poll found that 60% believed Australia should do more to reduce the risks of climate change at a time of major bushfires.

Government leadership in a liberal democracy is vital in line with the latest evidence on a particular issue.