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May 31, 2011
In his final report ---Garnaut Review 2011--- Ross Garnaut says that an historic choice confronts Australia in its goal to reduce greenhouse gas emissions. So what domestic policy response should we take? It's an important question because Australia's trajectory to 2020 is now for its emissions to grow to 24 per cent beyond 2000 levels.
Unfortunately, the political debate in Canberra has not been about this as it has been built around a populist scare campaign by vested business interests backed by the Coalition. Garnaut says that there are two basic approaches to achieving the required emissions reduction: a market-based approach, built around putting a price on carbon emissions; and a regulatory approach, or direct action.
In the market-based approach, carbon can be priced in two ways. Fixed-price schemes, or carbon taxes, set the price and the market decides how much it will reduce the quantity of emissions. Floating price schemes set the quantity of emissions and permits to emit are issued up to that amount. The permits are tradeable between businesses and so the market sets the price. There are various hybrid approaches that combine fixed prices for a period with floating later on, and floating prices at some price levels with a price floor or a price ceiling or both.In the alternative route, regulation or direct action, there are many ways that government can intervene to direct firms and households to go about their business and their lives.
Garnaut argues for a three-year fixed carbon price followed by a carbon trading scheme with a floating price. This is Australia's best path forward towards full and effective participation in the efforts by the world of nations to reduce the dangers of climate change without damaging Australian prosperity.
Garnaut adds that:
As soon as the parameters of the scheme are settled, business will focus on making money within the new rules, rather than on securing rules that make them money. That makes it essential that the rules really are settled. The governance arrangements proposed for the carbon pricing scheme are the key to establishing settled rules: the independent carbon bank to regulate the scheme; the independent climate committee to advise on targets and the transition to a floating price regime; and the independent agency to advise on assistance to trade-exposed industries
This governance advice takes the issue out of the hands of the politicians. That makes it more difficult for the lobbying from those in the old political culture, such as the brown-coal generators and trade exposed industries who demand ever bigger handouts and protection as Australia’s biggest emitters continue with their virulent scare-mongering; from the free riding mining industry and the Business Council of Australia that is deeply opposed to structural reform.
This is a political culture that is unwilling to adapt to a world of climate change. You can see this in the way the Gillard Government has made it clear that its preferred starting point is the compensation arrangements proposed to accompany the Carbon Pollution Reduction Scheme (CPRS).
As Richard Denniss from the Australia Institute points out the the final version of the CPRS also included generous compensation to:
Emission intensive trade exposed industries (EITEs) who would receive up to 94.5 per cent of the pollution permits they required for free
Coal-fired power stations with particularly high levels of emissions were to be eligible for the Electricity Sector Assistance Scheme (ESAS) which would have provided an estimated $7.3 billion worth of free permits to Australia's dirtiest coal-fired power stations
Coal mines with particularly high levels of methane emissions were to be eligible for the Coal Sector Assistance Scheme (CSAS) worth $1.5 billion
Medium and large manufacturing and mining firms were eligible for $1.1 billion through the Transitional Electricity Cost Assistance Program.
This was a low point in public policy making. It indicates that the corporations that have it over a barrel and it gave rise to a a sense of deep frustration with a state that it could not solve this political/economic/environmental problem.
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If you listen to the radio shock jocks and Opposition politicians, you'll likely believe that Australians, already suffering runaway inflation, will be crippled by the additional price impact of a carbon tax.They will be ruined.