The emissions trading scheme in Australia, the Carbon Pollution Reduction Scheme (CPRS), has been postponed until 2013 by Prime Minister Kevin Rudd citing difficulties with getting it through the Senate. There has been a backing away from approaches that could have cut through the Senate deadlock, such as using it as a trigger for a double dissolution election, or negotiating a deal with the Australian Green Party to introduce an interim carbon tax.
There are similarities in both the United States and Australian carbon pricing approaches, in that a number of concessions were made to emissions intensive industries in order to attempt to get their support.
But the Australian experience demonstrates that there is an incentive for polluters to attempt to get more concessions, such as free permit allocations, from the government even though some concessions had already been granted. The expected benefits from trying to get additional concessions were deemed to be worth the investment in lobbying. A well used tactic by lobbyists was to exaggerate the costs and impacts of the emissions trading scheme, with the CEO of the Minerals Council of Australia, Mitch Hooke, suggesting that it would take a ‘baseball bat to the Australian economy’. Not surprisingly, in such an environment, getting political support for an emissions trading scheme became difficult.
In the US, there are also crucial differences from the circumstance in Australia.
The Environment Protection Agency is tasked with regulating greenhouse gas emissions, due to a decision by the Supreme Court. Unlike the Australian situation, if climate legislation is not passed, firms would be regulated anyway, and therefore costs would be bourne by emitters.
Furthermore, many US states are reducing greenhouse gas emissions, with several states already engaging in a cap-and-trade scheme known as the Regional Greenhouse Gas Initiative. It may also be possible to pass climate change legislation if there is reform of the filibuster process, which presently requires 60 out of 100 Senate votes to pass legislation.
In Australia there was no Plan B. Many industries had nothing to lose from legislation not being passed. But Australia had at one stage been exploring a state-based emissions trading scheme of its own.
In 2006, the state governments’ set up a National Emissions Trading Taskforce, which was tasked with implementing an emissions trading scheme by 2010—under the proviso that the Australian Federal Government had not put in place a carbon pricing scheme. In December 2007, after the Rudd Government was elected, the National Emissions Trading Taskforce gave up on this objective, and its report on emissions trading scheme design became an input into the Federal Government emission trading scheme design process. But the first crucial piece of carbon pricing legislation had already been passed by the previous government. The previous Environment Minister, Malcolm Turnbull, passed the National Greenhouse and Energy Reporting (NGER) Act, and this act introduced the measuring and reporting framework for accounting for greenhouse gas emissions—a necessary part of any carbon pricing scheme.
The postponement of the CPRS presents an additional problem for the Australian Government. It has made international commitments for different percentage emission reductions by 2020, dependent on the emission reductions of other countries. The conditions for a 15 per cent reduction on 1990 levels by 2020 have largely been met, but this target will be difficult to implement without a carbon price. And if a carbon price is introduced at a later date, the total cost of meeting a given target will be greater than if it was introduced at an earlier date.
What possible ways are there to implement a carbon price on greenhouse gas emissions in Australia for the near future?
One possibility was for the government to implement an interim carbon price with the Greens, but the Rudd Government seems to have backed away from that. The NSW Minister for Environment and Climate Change, Frank Sartor, has suggested that the possibility of re-engaging on a state based scheme should now be reconsidered. This might not be a realistic option, but could still work as a ‘threat’ in the case that other possibilities are blocked. Another approach could be to amend the NGER act, so that when firms report how many greenhouse gas emissions they are responsible for, they pay a tax for each ton of greenhouse gases emitted. There would be some complexities in avoiding double counting, but this would be a relatively simple way to introduce a carbon price.
The US experience teaches us that if there are several options for pricing greenhouse gas emissions on the table, it may then be easier to garner enough support for at least one of them.
Peter J. Wood is a Postdoctoral Fellow at the Crawford School of Economics and Government at the Australian National University, and also maintains a blog on climate policy and mathematics at climatedilemma.com.
Although it is extremely unlikely that the Australian states will do it given the changed circumstances, but were the Australian States to restart their process of introducing an emissions reduction scheme, it will show the ultimate failure of the Australian government in its emissions reduction policy at the national level.
Wood’s idea of imposing a carbon tax when companies’ reporting their emissions, though worth considering, but has been ruled out by the Rudd government. So from present to 2013 it is unlikely for both main political parties to have any carbon pricing or tax in place or introduced in Australia.
The difficulties with many emissions trading schemes are due to their fundamental flaws in not letting the public to decide the issue. They have been politically driven and highly politically manipulated so that the public don’t see the costs and benefits of such schemes and left the main interest groups engaging in self interests seeking and distorting the policy, costs and benefits of any proposed schemes.
A much fairer and easier scheme is to provide no or little free permits to emitters, but distribute the carbon revenue to the public on equal per capita basis. In this way the costs of emissions will passed onto consumers and they will choose emission products like power based on prices. Energy producers will choose the most appropriate emission technologies to reflect the costs of emissions.
Of course, main political parties in industrialised countries don’t like such an idea, because firstly it will leave political parties largely out of their power to manipulate to seek their own interests in the process, and secondly it will have international implications that industrialised countries don’t want to have.
They have always been very skilful in hiding the easy, fair way and most cost effective way of reducing emissions and tend to blame others for any failures, either domestically or internationally.
That is the main reason why it has been so difficult to reach an international agreement on emissions reductions, because industrialised countries, the high emitters on per capita basis have been reluctant to embrace the just and fair principle in paying the prices for their high emissions.
It everyone is fair dinkum, it should be much easier to have an international agreement and to act on climate change globally.
This is a good story. The ETS was always flawed by being presented as the only option for reducing emissions. The whole process should have gone through the Productivity Commission inquiry process. The carbon tax is a clearly superior way of achieving the same outcome, especially with all the complicated exemptions and compensations that accompanied the proposed ETS. OK, a carbon tax may also have some political challenges but there are more ways than one to implement it. For example, a tax credit could be given for enterprises that reduce carbon emissions. Or if it’s a carbon consumption tax (the preferred way) than it would have an inbuilt exemption.