A Convenient Change

I can already read tomorrow’s headlines, “Rudd changes climate on climate change” or “An expedient truth.” But, in actuality, today’s changes to the ETS are practical and sensible and if we can’t get a political coalition to pass this, then you can’t believe what those voting against it say about being serious about dealing with climate change.

[DDET But let’s review]

By far the most significant change is that, if this legislation passes, Australia will go to Copenhagen with a climate budget of a 25 percent emissions reduction to deal with. To go in with anything less had no rationale and the Government has seen the error of their ways. Phew.

Second, the scheme will be delayed for a year. Some will read this as breaking an election promise but, in reality, if this legislation passes, a year’s delay is completely inconsequential. This is because the price signals will impact on any investment that is expected to involve assets with more than a two year life. That means buildings, car purchases, and energy. The year gives big businesses breathing space to implement carbon accounting, etc, and also diminishes the whole “I can’t deal with this in the GFC” hysteria.

Third, the carbon price will be set at $10 for the first year. What does that mean? I think it means we will have a carbon tax that year.

Fourth, the government has left itself room to do all this by offsetting emissions which is something I have long argued is where there is great innovative potential.

Fifth, there is a finance mechanism — the Carbon Pollution Trust — that, if I understand it correctly is part benefit-contingent loan and part offset scheme. The last bit first, if you put in solar panels and this reduces electricity, then you can put money into the Trust to ensure that the permits get taken out of the system. Sound familiar? Yes, it was precisely what I thought the solution to the ‘voluntary conservation’ problem ought to be. Now it will be government sanctioned.

The second part of this is if you are a business and you want to spend lots in increasing energy efficiency of your buildings, then the government will lend you the money and you will pay it back based on the actual savings in energy (including carbon price I guess) that you would get. Is this the first non-educational application of something like an ‘income-contingent loan’?

In summary, if this can’t pass, nothing will and Australia will lose any claim to be dealing with climate change. Neither the Greens nor the Coalition should object. Indeed, each should declare victory and vote yes.


5 thoughts on “A Convenient Change”

  1. I certainly agree that this is a deal that should and probably will get done. But I suspect the Greens will want to tread more carefully than declaring victory. Presumably they aspire to hold the balance of power by themselves after the next half-senate election in late 2010 and hope to use dissatisfaction about the scheme to their advantage without saying that they won’t pass it and handing a little more bargaining power to the Coalition.


  2. This is a puzzling post Joshua.  In what ways are they ‘practical and sensible?’  This is fundamentally the same, flawed scheme – insufficient to drive any structural changes – except traders  get screwed for a year and the door is open to a (ridiculously unlikely) Global Agreement.

    We need academic economists standing up for the public interest in Australia, promoting social interest over corporate rent-seeking.  They exist in the UK – like Michael Grubb.  There are already plenty of journalists providing middle of the road punditry…


  3. DK, your problem is over-compensating the rich corporations? You know I have like a 1000 posts on this blog about that compensation angle. But they are still doing it? Why? Who knows and in the grand scheme of things it isn’t the first order issue. The main issue is getting climate change policy and the main obstacle at the moment is not the Government. If they trashed corporations they might get the Greens but it still wouldn’t pass. The travesty is that they haven’t and yet still can’t get the Coalition. Why? Who knows.

    And it is sufficient to drive changes. Every model suggests that.


  4. Joshua,

    Good post – nice and pragmatic and I agree with your sentiments.  Like you, I would prefer that there wasn’t the scale of grandfathering that is proposed – the plus side of it is that at least the grandfathered permits are based on a sector average which means that the early abaters receive some benefit for their action and the recalcitrants are penalised.

    Also agree that the best part is the higher target with Copenhagen targets.  But not far behind is the energy efficiency loans.  While the CIE Report argued for more modelling, it’s real gripe was lack of action on the energy efficiency low hanging fruit – these loans (and the insulation rebates) pretty much kills that criticism.


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