Can China change the Copenhagen consultations?

The production path causes what Ross Garnaut calls the “prisoners’ dilemma”. This (not that accurate) theoretical label is better expressed as: “I’ll cut my emissions after you cut yours.” Obviously, on this basis, nothing gets done.

That pretty much summarises the results of the Kyoto Protocol to date. If we continue with the failed production model pursued over the last couple of decades, it also indicates the likely outcome of the Copenhagen meeting in December 2009: “I’ll cut my emissions after you cut yours.”

Garnaut’s so-called “prisoners’ dilemma” is almost entirely due to governments choosing a production-based climate policy model. If they switch to a consumption-based model, the “dilemma” largely disappears. The roadblock to a global climate policy deal is eliminated.

Isn’t this a radical change in the policy approach? Not at all. The European emissions trading scheme and Australia’s CPRS already modify the production approach by “carving out” large sections of emissions production in the “trade exposed sector”. As a result, they - badly - attempt to steer away from a production model to a consumption model.

Why address the “trade exposed sector” problem badly when we could do the job properly?

Garnaut suggests a “principled approach” to the treatment of the “trade exposed” sector is needed. I agree.

A “principled approach” is to exempt exports (which are then subject to the carbon price in the importing country) and ensure imports attract the same carbon cost as locally produced substitutes.

We have a model to guide us. Indeed, we can use the Tax Invoice system already operating under this existing model to “tweak” the CPRS to get to the right result. It’s our GST system. I find it ironic that the three blocs or countries trying to implement a production-based climate policy already have in place a system allowing them to implement a far superior consumption based policy.

Europe already has a Value-Added Tax (VAT). Australia and New Zealand have their antipodean counterparts: the GST.

China’s given the rest of the world a lead. Will we take it? We should. It leads to the same emissions end-point, but is much more likely to get us there.