Parliament House Canberra, scene of last week’s horror decision

By Leon Gettler

21 July 2014 – Australia is a case book study of the politics of climate change, and it will reverberate around the world.  The carbon tax has been scrapped but this is just a blip – carbon produced in Australia will eventually have a price, whether people like it or not. A price on carbon is inevitable. In this podcast interview, economist Steven Koukoulas says it will happen in 3 to 5 years’ time.

If that happens, it will be extraordinary after everything we have gone through. After all the Senate shenanigans and Clive Palmer’s bizarre push to have an emissions trading scheme which, it seems, could be unconstitutional, the government finally managed to scrap the carbon tax last Thursday with the Senate voting 39-32 to  repeal Labor’s carbon pricing scheme after securing the support of Palmer United Party senators and other crossbenchers.

The latest opinion polls show that scrapping the carbon tax last week has not arrested the Abbott government’s poll slide, with Labor’s primary support jumping three points, Tony Abbott’s trustworthiness at a record low of 35 per cent and Labor well ahead of the Coalition on two-party preferred terms at 54 per cent to 46 per cent, based on 2013 preference flows.

That amounts to a swing to Labor of 7.5 per cent since September.

Reaction around the globe was devastating.

  • The Financial Times said the move would “threatens to isolate the country amid increasing international efforts to tackle climate change”.
  • Analysis by the The New York Times said the move was a “blow to plans for countries to knit together markets for trading emissions allowances.”

Australia is “one of the world’s largest sources of carbon emissions, and its policies have been watched closely by other nations as they struggle to agree on ways to control global warming,” it said.

“Australia’s system was of particular interest to other countries because it was to have been linked with a similar trading program in Europe and might have served as a pilot for China and California.

“It is quite a setback to the global discussion of linking schemes and moving toward a global carbon market,” said Marcus Ferdinand, an analyst at Point Carbon, a research firm based in Oslo.

“The Australian vote also further complicates long-running efforts by the United Nations to forge a global climate change treaty in 2015, aimed at committing the world’s largest economies to making deep cuts in their carbon pollution.

“This fall, at the United Nations General Assembly in New York, government leaders are expected to lay out their proposed domestic commitments for that deal.

“Australia’s vote to gut its signature climate policy is likely to come under severe criticism at the meeting.

 As new carbon-pricing initiatives are emerging all around the world, anti-climate action Thomas J Pyle, president of the American Energy Alliance, which receives financing from lead sceptics Koch Industries predicted that “other nations with carbon-pricing policies would follow Australia.

“Europe is going to be the next one to do wholesale reversals of these policies,” Pyle said. “It’s like salmon heading upstream.”

  • Our international reputation has been damaged all round, with Lord Deben, a former head of Britain’s Conservative Party who served under Margaret Thatcher and who is now head of the UK Committee on Climate Change, issuing a statement saying that the Abbott government “appears to be more concerned with advancing its own short term political interests” than dealing with global warming. “Australia is changing Britain’s climate as we are changing yours. We are all in this together and Mr Abbott is recklessly endangering our future, as he is Australia’s.”

Reaction at home

As Bernard Keane writes in Crikey, it’s not the end of the story.  “The longer we delay the process of decarbonising our economy – and one day, we will need to decarbonise it, like it or not – the higher the costs,’’ Kean writes.

“Or at least, that’s the view of environazis like the Federal Treasury and the International Energy Agency. And to the extent that we undermine genuine international action on climate change, they’ll pay a far greater price in terms of the higher costs, poorer health and lower economic growth that will result from Australia’s exposure to climate change impacts. The cost to the economy of a carbon price between now and 2050 will be trivial compared to the cost inflicted on Australia by climate change.”

As Lenore Taylor writes in The Guardian, what happened last week amounts to a catastrophic failure of the political system and takes us back to the days when Howard had pledged to introduce an emissions trading scheme.

“After climate policy helped dispatch three prime ministers and two opposition leaders, and dominated three election campaigns and eight years of polarising political debate, it has come to this: we have no national climate policy,’’ Taylor writes. “We know more than ever before that global warming requires urgent international action, and we still know that a market mechanism is the most efficient way to respond. But we appear to be politically incapable of doing anything about it, other than watch people yell at each other… The government did win an election promising to ‘axe the tax’. But did the voters who backed the slogan really intend that Australia be left with no climate change policy at all?”

Economics writer Jessica Irvine says the government has abolished the lowest-cost solution to climate changes.  “Australia’s substantial legal framework around emissions trading was almost a decade in the making, soaking up a lot of time and resources to put in place. It should have been allowed to remain in place, albeit with a reduction in the carbon price from a fixed price of around $25 a tonne of carbon to the floating international price, which is more like $7. Sure, after today, big polluters will pay less thanks to the tax’s repeal.

“Households – who forget they were already fully compensated for rises in electricity costs through tax cuts and welfare payments – will enjoy a double dividend if the government is successful in getting companies to refund the cost of the tax too. But Australia will be left without a market-based policy designed to re-engineer our economy towards a lower carbon path. We will come to regret this day.”

John Howard, the former PM who championed an emissions trading scheme. So did Tony Abbott

What now?

Significantly, Opposition leader Bill Shorten has pledged to campaign for an emissions trading scheme, which means carbon will again be a battle ground in the next election. Shorten has pledged to sell the ETS better next time around.

He would be aware that one of the big problems with the carbon tax was that it was an unpopular tax introduced by an unpopular prime minister. And the other problem was that it was a local tax for a global issue. He knows they’ll have to do a better job next time around. Significantly, Shorten said the carbon tax, which is a fixed price compared to an ETS, was the second best option that the Gillard government had adopted. He also noted Labor was wrong to have implemented the policy without a mandate and would seek one next time.

Still, we have come a long way from that seminal speech an Australian leader gave about reducing carbon emissions in 1997 by one-third. “We would support emissions trading on the basis of a satisfactory initial allocation of emission entitlements and a practical resolution of the administrative difficulties involved.”

Who was that visionary? Actually it was former Coalition prime minister John Howard. 

Of course, environment minister Greg Hunt, had previously written an undergraduate honours thesis on the benefits of pricing pollution. At the time, he wrote:  “Ultimately it is by harnessing the natural economic forces which drive society that the pollution tax offers us an opportunity to exert greater control over our environment.” And it was only five years ago that communications minister Malcolm Turnbull described Abbott’s climate change policies as “bullshit”. You won’t hear him say that now but then, that’s politics.

Then again, even Tony Abbott  suggested a carbon pricing system remarkably similar to Australia’s current system back in 2009 (when Turnbull was leader). “If you want to put a price on carbon why not just do it with a simple tax… And then at the end of the year you can take your invoices to the tax office and get a rebate for the carbon tax you paid.”

And then Tony Abbott latched on to the “axe the tax” mantra when he saw it could win him power. So much for political integrity.

While the rest of the world moves on

The scrapping of the carbon tax puts Australia at loggerheads with the rest of the world.

The US

In America, president Barack Obama has called for a carbon price. As he explains in this interview with Thomas Friedman in the New York Times, it’s “the way we’ve solved previous problems, like acid rain…we said: ‘We’re going to charge you if you’re releasing this stuff into the atmosphere, but we’re going to let you figure out — with the marketplace and with the technology’ ” how best to mitigate it. But “you can’t keep dumping it out in the atmosphere and making everybody else pay for it.

“So if there’s one thing I would like to see, it’d be for us to be able to price the cost of carbon emissions. … We’ve obviously seen resistance from the Republican side of the aisle on that. And out of fairness, there’s some Democrats who’ve been concerned about it as well, because regionally they’re very reliant on heavy industry and old-power plants. … I still believe, though, that the more we can show the price of inaction — that billions and potentially trillions of dollars are going to be lost because we do not do something about it — ultimately leads us to be able to say, ‘Let’s go ahead and help the marketplace discourage this kind of activity.’ ”

Barack Obama is now using the Environmental Protection Agency to impose a limit on pollution from all energy companies. The aim is to greatly reduce the level of greenhouse gas emissions from the United States.

California

California has brought in the Global Warming Solutions Act of 2006 (AB32) to reduce greenhouse gas emissions this year. It’s a cap and trade program with the goal of returning California emissions to 1990 levels by 2020. Basically, it’s a carbon tax that will push up the price of petrol, which is going to change the driving habits of Californians.

British Columbia

Over in Canada, British Columbia has its own carbon tax.  The BC government levies a fee, $C30 for every metric ton of carbon dioxide equivalent emissions resulting from the burning of various fuels, including gasoline, diesel, natural gas, and, of course, coal. That amount is then included in the price people pay at the pump—for gasoline, it’s 6.67 cents per litre (about 25 cents per gallon)—or on your home heating bill, or wherever else the tax applies. The tax has changed the way people use energy in cities like Vancouver. There has been a corresponding decline in greenhouse gas emissions, and there’s been no negative impact on the BC economy.

South Korea

South Korea plans to have the world’s second biggest carbon trading scheme after the European Union, reinforcing Asia’s emerging role as a hub for carbon trading.

China

China could also be heading towards a carbon price and has rolled out seven carbon markets. China is piloting emissions trading and has yet to decide whether it will pursue a national cap and trade scheme, where alternatives include a carbon tax or pollution limits. All seven provinces with the exception of Beijing and Shenzhen have an absolute cap on emissions, suggesting that the country’s National Development and Reform Commission may be leaning towards a fixed carbon cap under a national scheme.

The European Union

The European Union’s Parliament is looking to increase carbon dioxide prices and keep them high. The EU Parliament has backed a 40 per cent emissions-reduction goal, 40 per cent energy-efficiency target and an objective to boost the share of renewable energy by 2030 in a non-binding resolution earlier this year. The 28-nations bloc’s leaders aim to reach a political deal by October about the framework for the next decade. Member states are divided on the strategy.

New Zealand

And then, let’s not forget about New Zealand emissions trading scheme which is the world’s second Kyoto-based scheme (after Europe) and the only scheme to attempt a comprehensive coverage of all Kyoto gases in industry sectors.

The NZETS covers all sectors and gases covered by the Kyoto Protocol. These being the forestry sector, liquid fossil fuels, transport, stationery energy sector (coal, natural gas, etc.), industrial process sector (manufacturing processes that result in direct emissions such as aluminium smelting), agricultural sector and the waste sector.

So where does that leave Australia, the first country to abolish the carbon price? In a globalised economy, can it remain without a carbon price and emissions trading scheme when the rest of the world is heading the other way?

Our top trading partners

Australia’s top five trading partners–China, Japan, the United States (US), the Republic of Korea and Singapore–and another eight of our top 20 trading partners (New Zealand, the UK, Germany, Italy, France, the Netherlands, Switzerland and Canada) have implemented or are piloting carbon trading or taxation schemes at national, state or the city level. Many countries have renewable energy targets, including 15 of Australia’s top 20 trading partners.

This is why Australia will eventually go back to a carbon price.

For sure, getting rid of the carbon tax was the key plank for Tony Abbott when he was elected in September 2013.  But with the latest Lowy Poll showing Australians are more concerned about climate change than they were last year, and the latest opinion polls showing a coalition wipe-out at the next election, we should remember that governments come and go

And of course, the carbon price has left some ashes of Labor’s climate change policy: the Climate Change Authority, Clean Energy Finance Corporation, the Australian Renewable Energy Agency and the Renewable Energy Target.

It’s not over yet. Politics is like that.

– With staff reporters