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playing politics « Previous | |Next »
August 10, 2009

The Government's popular renewable energy scheme has been linked to its controversial emissions trading scheme (CPRS), which faces defeat in the Senate on Thursday. The two schemes were linked by the Rudd Government in May of this year in order to put pressure on the Liberal Opposition in the Senate to pass the emissions trading scheme. Though the CPRS scheme already provides massive support for the big polluters, the Coalition is calling for even more support to save jobs. Turnbull wants electricity generators to buy permits only for extra greenhouse gas emissions above a “best practice” baseline, rather than for all their emissions. So much for Labor's political pressure.

Now the Coalition does support the renewable energy scheme, which merges the state renewable energy schemes into a national scheme that will seek to produce 20% of our energy from renewable energy. Both the Greens and the Coalition support the passage of this legislation and want it passed as stand alone legislation. Senator Wong refuses and calls on Turnbull to pass the CPRS legislation. However, Turnbull shows little interest in doing that, as he hasn't even proposed any amendments to the legislation. So much for the wedge.

The inference? The Rudd Government is engaged in playing politics at the expense of policy reform, despite Australia’s large, but under-utilised renewable energy potential---- wind, geothermal, concentrated solar and biofuels as being crucial technologies. Or despite the biggest gap in Australia’s current policy setting being the absence of a strong, well coordinated and well financed strategy for research, development and deployment of renewable energy. This short-term political tactics at the expense of long-term strategy has the effect of procrastination.

The Rudd Government appears to be not that interested in actually making the shift to a low carbon economy, or in facilitating the emergence of green manufacturing and jobs. They appear to reckon that the clean energy powered industrial revolution is around the corner and over the horizon, and they give the appearance of being unconcerned that it is the absence of a long-term low-carbon policy framework or coherent set of policies that acts as a major impediment to the development and deployment of low-carbon technology.

This Breakthrough on Technology: Perspectives from Australia report from the Climate Change Institute says that there is a need for a mix of technologies (including carbon capture and storage (CCS) technologies) to be developed and deployed to meet Australia’s abatement challenge over the coming decade. There is also a need to ensure the rapid and ongoing improvements in energy efficiency across new buildings and appliances, as well as improved policies and incentives to make efficiency gains in existing commercial buildings and industrial facilities.

Australia has the potential to contribute to the development of new technologies, because of its highly skilled work-force, established research base and comparative advantage in certain technologies. But Rudd’s economic stimulus infrastructure package, which would have been a great opportunity to encourage a move to renewables, through direct grants and improved infrastructure, went to upgrading roads, rail and ports to facilitate the export of coal to fuel the power stations of Indian and China.

Rudd & Co have no intention of reducing the power companies’ reliance of coal and oil as quickly as possible. They would probably even spin any investment in new coal fired power stations as job creation in regional Australia. If the fundamental reason for bringing in an emissions trading scheme is to make polluters pay for the pollution they cause, and to send a signal to investors and the community to move in a new direction, then the CPRS sends a signal to polluters that they can continue to pollute regardless. The Green's name for Rudd + Wong's CPRS -- the Continue Polluting Regardless Scheme--is apt. What they do have right is the economics in that it is better to get price of carbon right and then to soften the income issues with compensation.

The Rudd Government's CPRS (cape and trade scheme) is shaping up to be a dud because it gives too much leeway to dirty industries. Rather than auctioning the carbon allowances, the bill that recently passed the House of Representatives would give most of them away to powerful special interests. Companies do not have to bid on the right to emit carbon into the atmosphere. This was the mistake the Europeans made in setting up a cap-and-trade system,

The economic modelling of Frontier Economics scheme taken up by the Liberals is based on electricity generators, including coal-fired electricity, being given free permits based on a ''baseline''.

In the reworking of their submission to the Commonwealth Department of Climate Change on the emissions trading scheme Green Paper, electricity generators would receive a certain amount of free credits based on a government-determined ''industry standard'' of carbon emissions. If generators exceed that level they have to buy more permits, if they fall below they can keep the permits and sell them into the carbon market for a profit.The permits are international one.

So two issues are raised. The amount and form of compensation to electricity generators and the level of international trade in permits.

| Posted by Gary Sauer-Thompson at 9:28 AM | | Comments (11)


After the emissions trading scheme legislation is defeated in the Senate on Thursday who are Kevin Rudd and Penny Wong going to start talking to, if they honestly believe that it's critical to have this legislation passed by year's end? The Coalition? They sure won't be talking to the Greens or the Nationals will they, as the government has been tagged as the extremists. The legislation comes back in November. What then? A repeat of what happens on Thursday?

So round and round we go. Is the Government's view that it's critical to have the legislation passed by year's end just more domestic political pressure? That the domestic legislation has nothing much to do with Copenhagen at all.

And the Coalition? What do they hope to gain from blocking the reforms that are close to the proposals they took to the last election? They are boxing themselves into a corner. So they must appear to be doing something--hence their design break from the Frontier Economics plan-- twice as much reduction in carbon emissions for a third less cost. Whoopee.

I feel that Rudd and Wong's credibility on climate change depends on them making the renewable energy scheme, which seeks to ensure that 20% of our energy comes from renewable energy is stand alone legislation and is passed quickly. It is in their hands.

As for the Coalition they are so deeply divided that they have become paralytic. They block the legislation whilst saying that are for an emissions trading scheme. They only talk about old jobs lost not the new jobs created, despite their adherence to the creative destruction process of the self-adjusting market. They talk about the jobs lost in the coal industry, but they ignore the loss of jobs in the tourism industry from the bleaching of the Great Barrier Reef from climate change.

Not moving and pretending otherwise is all they can do. Or, if they do take a step forward on this, they then take two steps back. Now they are proposing compensation to the coal industry, which defeats the whole point about price signals driving the investment shift into renewable energy.

Despite this, their electoral survival probably depends on passing Rudd’s scheme.The rag tag Liberal party must be close to panic mode from the ever increasing threat of electoral wipeout. They cannot afford to fight a double dissolution election on climate change after the fallout from the Grech affair. A majority of the electorate wants action because they recognize that global warming is a clear and present danger which requires an urgent and decisive response.

Wong is right to say that both pieces of legislation are connected. In general low-emission technologies, particularly in the stationary energy sector, are not market competitive unless there is a price placed on carbon. The lack of a strong price-signal means limited investment in risky renewable energy.

A strong price signal comes from the emissions trading scheme (CPRS).

Global warming for Rudd+ Co is just another item on the electoral agenda, rather than a clear and present danger which demands an urgent and decisive response. Both the Government and Opposition are complicit in artificially protecting the coal sector, and both are pretending to coal workers that they can be insulated from a transition to a zero carbon economy. The media is not calling them on the pretence either.

People are saying this will be an interesting week in politics, and that's probably right. It's not likely to be an interesting week in policy.

It sure won't be policy, as you point out. Coal is King.The King says that what has to be avoided at all costs is reducing our greenhouse emissions. The economic incentives desired by the market to shift to a low carbon economy push each country to do as little as possible, and to rely on others to make the cuts. What has to be avoided at all costs is Australia's big polluting industries reducing their emissions.

Thus we have two ALP premiers, John Brumby from Victoria and Mike Rann from SA acting as spokespeople for the brown coal generation industry's concerns that the ETS, as proposed, will send them to the wall. Both Premiers have pushed to employing consultants Morgan Stanley to run an independent review of these concerns and the Rudd Government has caved into the pressure.

In the Frontier Economics scheme pushed by The Coalition the reduction in Australia's emissions, whether it is to 5, 10 or 25 per cent below 1990 levels, would be achieved not be cutting our own emissions, but by buying emission permits from overseas.These permits would mostly be generated by countries promising to halt the forest clearing and burning that now generates more than 20 per cent of global greenhouse emissions.

the gap between the Liberal opposition and Rudd Government on the CPRS legislation is not that great. There is plenty of common ground to negotiate in November in spite of all the politics on the issue.

As you point out the Liberals have boxed themselves into a corner: they are facing the threat of an early or double-dissolution election on climate change or negotiating to pass the CPRS. The Liberals really have little choice, even if the hairy chested Liberal dissenters who oppose cap and trade want to have an early election on it.

Turnbull says that the Frontier Economics report is not Liberal policy. So he is using the report to buy time until November. Presumably, he reckons that Rudd Labor will have to deal then or risk being seen as obstinate. So we will have lots more political squabbling and political arm-wrestling--- probably until after Copenhagen.

Turnbull should pass the legislation asap and let the dissenting Liberal cross the floor. Get the issue out of the way, take credit for acting to pass the enlarged renewable energy target legislation and move onto more favourable territory.

As Greg Mankiw points out in The New York Times the problem with cap and trade schemes arise in how the climate policy interacts with the overall tax system.

The price of carbon permits in the cap and trade scheme will eventually be passed on to consumers in the form of higher prices for carbon-intensive products. That changes our behaviour since people would have an incentive to shift their consumption toward less carbon-intensive products.

But if most of those allowances are handed out rather than auctioned, the government won’t have the resources to cut other taxes and offset that price increase. The result is an increase in the effective tax rates facing most Australians, leading to lower real take-home wages, reduced work incentives and depressed economic activity.

The permits need to be auctioned.

Shaun Carney in The Age says that the major parties have not covered themselves in glory with their desultory, confusing handling of climate change; and that what we're seeing is the failure of the established political parties and the political system itself to generate a discussion.

true-the politicians are way behind the public on this and they are not doing themselves any favours or winning any brownie points. Peter Hartcher, in The Sydney Morning Herald says:

Ultimately, the Coalition will split asunder on the legislation: the Liberal Party will support it, and the National Party will oppose it....But not this week. Turnbull has managed to put off the moment of truth..... Turnbull will play it out to the next act.

When the Senate rejects the bills the second time, it will give the Rudd Government a potential trigger for a double dissolution election. This would be devastating for the Coalition.
To avoid the early election, Turnbull's Liberals will support the legislation in the Senate, while the Nationals will oppose it. The Coalition will have split on the issue and Australia will have an emissions trading scheme.

So why continue to delay? A divided Liberal Party won't let him pass the legislation now.

So once the CPRS bill is defeated, the Coalition will start working on a set of amendments in anticipation that the Government reintroduces the bill in November. Good to know that the Liberals couldn't get their act together.

Meanwhile Senator Fielding is still talking about the science.