It won’t be easy to knock off the carbon tax

Tony Abbott may be determined to kill the carbon price scheme, but it’s a good bet that the system will beat him. [3 July 2012 | Peter Boyer]

It took scores of deaths at sea to make it happen, but last week our parliament was forced to confront the human cost borne by boat travellers seeking refuge in Australia.

First impressions were that the parliamentary debates were an abject failure. Media carried a story of shame: the disgrace of the parliament, leaders bickering amongst themselves, members putting party before principle and going home for a break while people drowned in the ocean.

The aggressive headlines are understandable. Parliament didn’t produce a legislative outcome that would discourage people from getting into unseaworthy vessels, and for that it deserves some stick.

But for the first time since Paul Keating’s government decided all those years ago that we had to lock up boat people while processing their claims, parliament made a genuine effort to look at the experience of being a refugee.

Before, driven by incendiary slogans, the issue was protecting our borders. Now it’s been raised several notches to what we might do to minimise the suffering of displaced people while finding them a safe, permanent refuge in our own or another country. To me, that looks like progress.

It’s now the task of government and parliament to produce a legislated outcome that all can live with — including those who advocate passionately for refugee rights. It’s sad that it took multiple deaths to get us to this stage, but at least we raised ourselves above the level of the demagogue.

Australia’s other issue of the moment is our two-day-old carbon pricing scheme. Like the boat people, carbon pricing has been the butt of slogans and populist politicking which continue to threaten its future. Like the boat people, it’s a complex, multi-faceted issue that (despite the government’s sales pitch) resists being neatly packaged into a “clean energy future”.

What’s the fuss about? Basically, the pricing scheme addresses Australia’s commitment to cut carbon emissions by 5 per cent by 2020, or by 47 per cent calculated per dollar of GDP (emissions intensity). Labor has also pledged further cuts up to a total of 25 per cent (58 per cent cut in emissions intensity) in the event of major new abatement action among trading partners.

[We shouldn’t get too carried away about the legislation’s implications for domestic carbon emissions. A very large slice of Australia’s “emissions reduction” will happen offshore, with businesses buying foreign permits — a provision that substantially reduces pressure to cut emissions here at home.]

A carbon price mechanism is one of four Gillard government climate strategies. Others are a renewable energy target, “carbon farming” (land abatement) and energy efficiency programs.

The scheme covers two-thirds of Australian emissions. There’s no price penalty for emissions from farming, light on-road vehicles or fuel usage in agriculture, forestry and fisheries.

More than half the tax revenue will go to households, while large additional amounts will support emissions-intensive and/or trade-exposed industries to make the transition to cleaner energy, or manufacturers seeking to investment in clean technology. The first “clean technology” grants were announced earlier this month.

Other instruments of the government’s scheme include support for investing and innovating in renewable energy, including a $10 billion Clean Energy Finance Corporation (underpinned by the renewable energy target of 20 per cent by 2020) and help for homes, communities, businesses and governments to become more energy-efficient.

Treasury has calculated that the scheme will cause the CPI to rise by 0.7 per cent ($9.90 a week) in 2012-13, with most impact on costs of electricity (up by an average of 10 per cent) and gas (9 per cent). The impact on Tasmanian electricity will be lower because most of its power is renewable.

There will be no impact on transport fuel for households and light commercial vehicles, which are outside the scheme.

The three-year tax regime (the government prefers “fixed price emissions trading”) that began on Sunday allows time for training and experience before the scheme takes the market plunge. The fixed price starts at $23 a tonne, well below what it must reach to bite hard into carbon emissions but well above the current European trading price.

Australian and international trading of permits to emit carbon will begin in 2015, but until 2018 it will be kept within a floor price of $15 a tonne (to foster low-carbon investment) and a ceiling $20 a tonne above the international price (to prevent excessive cost to emitters).

Like refugee policy, carbon pricing doesn’t have bipartisan support. Seizing on the fact that the scheme begins as a tax on Australia’s 500 biggest carbon emitters, Tony Abbott is campaigning relentlessly and aggressively for its outright rejection.

This is where things get interesting. On the passing of the carbon pricing bills last October, Abbott gave a “pledge in blood” — “the most definite commitment any politician can give that this tax will go”, saying the repeal process would be top priority after his party took power.

But it’s not just a tax that Abbott will have to deal with. Business is now having to plan for the investment of billions of dollars on the basis of a continuing pricing scheme. The threat of the scheme’s abandonment is making its leaders nervous, to the extent that Coalition politicians are currently being lobbied to reconsider the “pledge in blood”.

There’s many a slip twixt cup and lip. By the time Abbott wins the 2013 election (if he does), completes drafting the complex repeal legislation, twice puts this to a hostile Senate (the Greens and Labor will retain a majority there) to secure a double dissolution election, and wins that election (if he does), a full emissions trading scheme will be all but upon us.

Abbott will then face enormous pressure from business with long-term investment in the scheme. Here’s my tip: he will seek to make face-saving cosmetic changes to the scheme, like a speedier transition to emissions trading, while declaring that he’s thus expunged this “great big tax”.

All of which is to say that, blood-oaths notwithstanding, it’s a pretty good bet that carbon pricing is here to stay.


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