Why everyone hates the idea of an emission trading scheme: Kohler

The depth of opposition to the current official emission trading policy should be deeply worrying to the Government.

But it won’t be. Unlike the Republic proposition, the Carbon Pollution Reduction Scheme is not going to be put to a referendum.

If it was, it would be lost, and for a very similar reason: there is a growing coalition between those who oppose it entirely and those who oppose the way it’s being done.

So let’s face it: a carbon tax “ain’t gonna” happen. The 2010 election will be fought on the economy and unemployment, not carbon trading, and even if climate change were an issue, the Government would win that because the opposition would still be in disarray.

Meanwhile, all of the world’s governments are committed to ineffective and risky carbon trading schemes because there is safety in numbers and also because when the system goes wrong or doesn’t work, they can blame someone else.

A “cap and trade” emissions trading scheme, as proposed by the Rudd Government, is really a carbon tax – it’s just that the level of taxation is set very, very indirectly.

The price of the permits is determined by the number to be issued, which is in turn determined by the carbon emission caps, which are in turn set by the emissions reduction targets announced by the Government, which are in turn part of an international process.

And the main beauty of an ETS, apart from the fact that it’s not called a tax, is that the Government can “back-load” the targets and also make them conditional.

The headline reduction targets are 60% and 25%. Sounds nice and tough, except the big figure is 41 years off, when Kevin Rudd will be 93 and driving nursing staff to distraction instead of bureaucrats, and the smaller figure is conditional on the rest of the world agreeing to keep atmospheric CO2 to 450 parts per million, which won’t happen.

The actual targets that will set the price of the permits in a meaningful timeframe are minimal, so the price will be very low.

The Government seems to think that if it talks Green and quietly acts Brown, it will please everybody: that climate change believers will be happy with the rhetoric and the opponents will be relieved that nothing serious is happening to their income in their lifetimes.

This is clearly a mistake, and the reaction indicates that. The Government will, of course, antagonise everybody.

The simplest way to turn Australia’s ETS into a carbon tax without putting Australia too far out of step with the rest of the world would be for the Government to set the price of the permits rather than leaving it to an auction.

Reserve Bank board member, Warwick McKibbin has proposed this in what he calls a hybrid scheme – in the short-term the Government sets the price of the permits; in the longer term it sets the carbon reduction targets, which turn into the permit price at auction by regulating the supply of them.

But Warwick has been suggesting this for three years or more, and Kevin Rudd and Penny Wong have shown no inclination to take up the idea. Nor has the opposition.

The other, more radical, idea is the one proposed by Professor James Hansen, director of the NASA Goddard Institute for Space Studies.

Hansen’s idea is for what he calls a “fee and dividend” – that is, a carbon tax from which all the money is recycled back to the public on an equal, per capita basis.

That would mean those with a lower than average carbon footprint come out ahead (because they would pay less tax, but get relatively more dividend). It would doubly encourage individuals to lower their own emissions.

He wrote in the Huffington Post last month: “Fee-and-dividend would work hand-in-glove with new building, appliance, and vehicle efficiency standards. A rising carbon fee is the best enforcement mechanism for building standards, and it provides an incentive to move to ever higher energy efficiencies and carbon-free energy sources. As engineering and cultural tipping points are reached, the phase-over to post-fossil energy sources will accelerate. Tar sands and shale would be dead and there would be no need to drill Earth’s pristine extremes for the last drops of oil.”

“The fact is that the climate course set by Waxman-Markey [that’s the US bill, but Hansen’s comment applies equally to Australia’s CPRS] is a disaster course. Their bill is an astoundingly inefficient way to get a tiny reduction of emissions. It’s less than worthless, because it will delay by at least a decade, starting on a path that is fundamentally sound from the standpoints of both economics and climate preservation.”

Of course that will definitely never happen. A carbon tax that’s recycled back to the public equally on a per capita basis is a double anathema to politicians: not only do they get the blame for the tax, but they don’t get to distribute the cash to the best electoral advantage.

On that score, emissions trading is the exact opposite – a double boon. The politicians get to blame the market for the tax, and then get to distribute all the cash to the greatest advantage – under various household and employment support schemes.

In other words, the proposed Carbon Pollution Reduction Scheme is the Rudd Government’s 2013 re-election policy (or is that the Gillard Government?), just as this year’s debt-funded stimulus binge is the 2010 re-election plan.

After 2012 there will be billions of dollars for the Government to hand out to save jobs and support pensioners – all from selling permits in an arm’s length marketplace, where the price is set by someone else.

Sounds like a win/win, just as long as there’s no referendum.

This article first appeared on Business Spectator.