Carbon pricing: a poor excuse for doing nothing?

Will Australia’s much-heralded carbon pricing scheme turn out to be an excuse to turn our backs on much-needed complementary measures? [17 April 2012 | Peter Boyer]

Clearfelled forest in Indonesia. Australia's carbon pricing scheme aims to limit our own abatement by paying for abatement measures in other countries, such as “avoided deforestation” in Indonesia. PHOTO CHINA DAILY

Clearfelled forest in Indonesia. Australia's carbon pricing scheme aims to limit our own abatement by paying for abatement measures in other countries, such as “avoided deforestation” in Indonesia. PHOTO CHINA DAILY

Five months ago many Australians, including me, gave qualified applause to the passage of the Gillard government’s carbon pricing legislation, due to enter into force on July 1.

We applauded as much in relief as anything else that a majority in our Parliament had the gumption, in the face of much dissent, to declare that we faced a climate emergency. We welcomed their assertion that carbon emission reduction was a national priority.

But the applause was qualified because most of us knew this was a dish yet to be tasted. The declarations that day by Labor, Green and independent politicians fitted the euphoria of a memorable occasion, but in the end they were just words. We have yet to taste the results.

There was good reason to be reserved about the 18 “Clean Energy Future” bills, not least being the government’s description of them as a “package”, implying a complete deal. Pure spin.

Equally illusory is the notion that it will make a serious dent in domestic emissions, which Treasury modelling shows would reduce by just two per cent by 2050, making a mockery of our official targets of 5 to 25 per cent by 2020 and 80 per cent by 2050.

It’s an illusion that many seem prepared to accept. “Dreaming happy” is how Tasmanian economist Phil Harrington has described our overseas abatement measures in a landmark article on the carbon pricing mechanism in Sustainable Australia 2012 (Black Hawk Publishing).

For Australia to reach its targets, says Harrington, “someone else’s emissions will have to fall much further, so that we can buy that abatement, and re-emit it here!” Those countries’ domestic targets will have to be achieved without the “sold” abatement, forcing them to cut emissions still further.

But Harrington points to studies showing most internationally-sourced “abatement” is concocted deception. He describes how a scam can unfold when a developing country declares an intention to build a coal-fired power station:

“I’ll say, I’ll sell you a gas-fired one instead! You say, thanks very much, and here’s your offsets from the notional difference between my would-be coal emissions and my actual gas emissions. And I say, thank you very much; now I can go home to Australia and emit to my heart’s content.

“So, my emissions will stay the same as they were before, while yours go up, because you’re now running that gas-fired power station I sold you and that you weren’t running before.” Despite this negative result, everyone’s happy.

If nothing else, Harrington’s pithy critique points up the impossibility of policing this fundamental plank in our long-term carbon abatement plan. But he does a lot more than that, which brings me to the less obvious, but equally serious flaws in the government’s pricing plan.

Two things about the plan have become crystal clear in recent months. One is that the economic fundamentals on which Treasury modelling was based may not be as secure as first thought. The other is that a national pricing scheme is being used as an excuse by state governments — and by the Gillard government itself — to abandon complementary measures and abatement targets.

Last month, when she advised Australian audiences to prepare over the next few years for the bursting of the biggest financial bubble in history, financial analyst Nicole Foss warned that markets are inefficient and irrational, driven not by any underlying logic but by hope and fear.

Similarly, Harrington warned of the dangerous illusion underlying all government economic thinking: that free-market agents, armed with high-quality information and able to make deals without government interference, will resolve all economic problems through price-based transactions.

The idea of the “efficient markets hypothesis” is that all problems, no matter how real and even threatening, can be turned into a financial abstraction to be bought and sold. This same theory, Harrington reminds his readers, brought us free trade, competition policy — and the Global Financial Crisis.

Yet this “zombie economics”, as Australian academic John Quiggin has described it, has been the foundation of national economic policy for a generation. From July 1 it will be the basis of our carbon pricing scheme.

If this isn’t enough to undermine the scheme, the Gillard government’s quest for savings to secure that magical, mystical budget surplus, along with various state premiers looking for any excuse to abandon greenhouse abatement programs, have now come into play.

Until a couple of weeks ago, Victoria’s legislated 20 per cent emissions reduction target of 20 per cent by 2020 looked set in concrete, supported by the Baillieu government, but the government has now abandoned it, saying it would put too much stress on the Victorian taxpayer.

At the same time it also abandoned strict limits on emissions from new coal-fired power stations. Now the only limiting factor on emissions will be the national carbon price — and that will attract generous compensation paid out of carbon tax revenue.

Using similar arguments about duplicating federal measures, other states are also stepping back from commitments. In withdrawing Queensland funding for the Chinchilla “Solar Dawn” power project, premier Campbell Newman said this was part of his plan to dismantle all of Queensland’s carbon reduction schemes.

Having let it be known that the Climate Change department is to be culled, how far will the Gillard government’s cost-cutting eat into complementary measures? How committed is it to making its promise of a Clean Energy Future a reality?

And will carbon pricing spell the end of state climate policy? Will Tasmania be next to declare it all too hard? Watch this space.

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