Can Tony Abbott really dodge carbon tax? Kohler

New Opposition Leader Tony Abbott’s sudden and completely leftfield declaration that his solution to climate change will not involve any carbon tax or emissions trading means we are really in for an interesting debate on this subject next year.

Let’s put to one side the irony of the Liberal Party now going for the Big Government solution to global warming, while the Labor Party pushes the free market. At least it provides us with a clear policy difference, even if it’s upside-down.

Abbott has now firmly taken the Australian Conservative parties out of the pollution permit-trading mainstream that began with the 1977 amendments to the US Clean Air Act of 1963, and then was formalised with new Clean Air Act of 1990. That Act introduced a “cap and trade” system of “allowances” for power companies that burn coal to emit sulphur dioxide and nitrous oxide – the “acid rain” compounds – with the caps gradually reducing over time.

Over the past 20 years a huge international effort has gone into developing and refining cap and trade systems for emissions trading. The 1990 US Clean Air Act was adapted for the 1997 conference on climate change in Kyoto, which committed ratifying nations to emissions trading in 2005 (although only Europe actually did it, even though the idea of emissions trading actually began in the United States).

John Howard’s announcement in June 2007 that the coalition government would introduce a carbon trading scheme, based on the work of the Prime Ministerial Task Group on Emissions Trading, was one of the first such announcements by any sitting government in the world. As a result, both major Australian parties went to the 2007 election promising to introduce emissions trading.

But now a group of anti-emissions traders have got control of the coalition and committed themselves to going to the 2010 election with a policy that doesn’t put a price on carbon, either through a tax or tradeable permits. Unless there’s another party room coup, which can’t be ruled out of course, the 2010 election will therefore be a referendum on emissions trading.

The new gang of coalition leaders are apparently not, at this stage anyway, climate change sceptics – although some in the party are, including the man who triggered the leadership coup, Nick Minchin.

The Labor Government and the mainstream of climate change believers will now ridicule Tony Abbott’s attempt to turn back the clock 25 years to before the development of sophisticated cap and trade systems, but they would be wrong to assert that it can’t be done.

It can’t be done without cost, of course, but you can definitely regulate greenhouse gases away.

If the coalition’s climate change policy ends up saying “No Cost”, rather than “No Great Big New Tax”, which is the mantra that Tony Abbott has been repeating this week, then he might get into trouble, since that presumably means the coalition government would have to mitigate the cost entirely out of its budget, which would probably be an impossible blank cheque.

The truth is that defeating global warming was always going to involve a combination of regulation and emissions trading. If you cut out the trading, it just puts more weight on regulation.

And even if the US introduces carbon trading (they already have acid rain emissions trading) that doesn’t mean Australia has to – it will be the reduction targets that matter, not how you get there.

Government-regulated health and safety standards are commonplace, and the Renewable Energy Target legislation, already passed into law, is simply a new regulation. It’s a more expensive way to reduce carbon emissions than a cap and trade system, but it’s not a Great Big New Tax either.

So the first thing Tony Abbott will probably have to do is increase the renewable energy target from 20% by 2020 to something more than that. He would also need to introduce stringent energy efficiency laws, perhaps subsidised by the government to some extent (like this year’s insulation scheme which was part of the fiscal stimulus).

But the real key to Australia meeting any serious medium term greenhouse gas reduction target is replacing coal – especially brown coal – with gas for base load electricity generation. Nuclear would take too long for any emissions reduction timetable that’s likely to come out of Copenhagen – even if, miraculously, nuclear power suddenly became politically acceptable. The only other potentially viable base load power source – geothermal – would also take too long.

So a coalition government would have to simply ban electricity generation that involves carbon emissions above a certain level – say, 1.2 tonnes per megawatt hour, which would shut down the brown coal generators. They would have to be fully compensated, but they have to be compensated under the ETS anyway. It would be more expensive but at least this would be a much more certain method of shutting down the Latrobe Valley than an ETS.

Overall, it will be challenging for Tony Abbott and his team to come up with a coherent policy with no tax or emissions permits because it will necessarily involve government spending with no extra revenue – that is, it will mean increasing deficits.

And although that policy might sound appealing in door-stops at the moment (“We’ll Have No Great Big New Tax”) it will be hard to win votes with such a policy too – because Kevin Rudd’s carbon permit revenue will be handed back to voters, carefully targeted for maximum electoral advantage.

But there is actually a decent theoretical argument in favour of increasing the budget deficit to pay for a reduction in carbon emissions, because unlike most other causes of deficits, this is one item of current spending that only benefits future generations, so maybe they should pay for it.

And that may be an argument Tony Abbott will find himself putting to the voters next year.

This article first appeared on Business Spectator.