Lucky Last: Carbon Pricing Is Left, Right & Centre

Policymakers, economists, industry and environmentalists all broadly agree that Australia needs to move to a lower emissions trajectory, and that the single-most important tool is to put a price on carbon emissions. Australian industry has been factoring in for years that there will eventually be a price on carbon. Most industry players want an end to policy uncertainty. Industry fought hard over the carbon pollution reduction scheme, but just like with the mining tax, the fight is over the rules and over who pays how much, not over the need for reform itself. Frank Jotzo writes in The Age.

Frank Jotzo in The Age (8 July 2010):

Carbon pricing is central to any national strategy to cut emissions.

IF THE government is re-elected, can it deliver a carbon price for Australia? Prime Minister Julia Gillard has flagged that a consensus about climate action needs to be reached first. A broad community consensus of this kind existed about two years ago, then it eroded amid a global campaign against the science of climate change, disappointment about Copenhagen, confusion about emissions trading, and political mud-slinging. But there is a clear way forward.

The temptation for the Gillard government might be to announce some climate projects before the election, and go slow on the issue after the election. But that would fail the country on a long-term issue that simply will not go away, and would guarantee political pain if the Greens hold the balance of power in the Senate, as is highly likely.

Policymakers, economists, industry and environmentalists all broadly agree that Australia needs to move to a lower emissions trajectory, and that the single-most important tool is to put a price on carbon emissions. And there is increasing realisation that our collective Copenhagen hangover stems mostly from overblown expectations and misperceptions. In particular, the mistaken notion that China is not doing anything has been put to rest with an ambitious target to cut the carbon intensity of China’s economy.

US President Barack Obama has been facing an uphill battle on emissions trading, but still it is likely there will be federal US legislation to cut carbon emissions, in addition to the policies already in place in many states. And emissions trading itself is far from dead, with the EU pushing on, New Zealand just having introduced it, and other countries preparing it.

Australian industry has been factoring in for years that there will eventually be a price on carbon. Most industry players want an end to policy uncertainty. Industry fought hard over the carbon pollution reduction scheme, but just like with the mining tax, the fight is over the rules and over who pays how much, not over the need for reform itself.

Amid the wrangling with business, the government failed to explain its scheme to the public, but made ever more concessions to emitters. NGOs, think tanks and universities also missed the mark, spending most of their effort arguing over nuances rather than explaining fundamentals. Add to that the fact that both major parties used climate policy as a political wedge, and it is easy to see why public support for the scheme evaporated.

The next government has the chance to cut through the confusion and complexity of the scheme, and make a start with a simpler way of pricing carbon. There are several ways of doing this, including charging a carbon tax to large emitters, or at the point of production or import of coal, gas and oil. And there is a middle way between the carbon pollution reduction scheme and a carbon tax. It is to use the basic building blocks of the emissions trading system, but bring it online with a predetermined (and rising) carbon price. ”Fixed-price emissions trading” along these lines was proposed by Ross Garnaut as a viable second-best option, and it is now supported by the Greens. It gives certainty about carbon prices in the near term, and allows shifting to a fully market-based system down the track, without the need to then begin a completely new system. And it could be implemented quickly.

The next government will also have the chance to revisit industry assistance, and to allocate more of the revenue to consumers rather than shareholders – which would be in line with Gillard’s emphasis on fairness and economic opportunity for all.

If the Coalition wins the election, then carbon pricing is ostensibly off the agenda. But despite the ”great new tax on everything” rhetoric, it is a fair guess that a Coalition government would not be able to escape the logic of carbon pricing for long. It is worth remembering that the Howard government supported emissions trading during its last year in office.

Both major parties have endorsed a 5 per cent cut in emissions from 2000 to 2020, with the possibility of cuts up to 25 per cent. The emissions targets other countries have put on the table at Copenhagen imply Australia should move to a target of around 15 per cent, according to the government’s criteria submitted to the international community. Achieving those kinds of reductions will mean a bigger effort than many people think, because Australia’s economic and population growth means the underlying carbon trend is up.

A range of policies will be needed to turn around Australia’s emissions trajectory, including support for the development of clean energy and the deployment of renewables, standards for energy efficiency, research and regulation to retain more carbon in forests and soils, and investment in cutting emissions in developing countries such as Indonesia.

But carbon pricing is the central plank of any viable strategy to cut carbon throughout the economy and to do it without unnecessary cost. Consensus on that is all but inevitable. But it will take some political will.

Frank Jotzo is fellow at the Australian National University Crawford School of Economics and Government and deputy director of the ANU Climate Change Institute. He was economic advisor to the Garnaut Climate Change Review.

Source: www.theage.com.au