The Coalition have announced their climate change policy. It certainly isn’t cap and trade. The question is: what is it?
The main part is an Emissions Reduction Fund. It appears that this is a fix pot of money that the Coalition will then spend via a tender process to identify projects that will reduce emissions, not involve price increases to consumers, protect Australian jobs and need the funding. What this appears to mean that the Coalition will ‘pay for carbon’ and cap the total pay. It is a ‘fiscal cap and stay.’
But that only appears to be part of what the fund is for. It also looks set to pay businesses for emissions reductions below their historic average. If they agree to reduce emissions, they will be paid for the reduction. It is not compulsory for small businesses.
That said, the Coalition will hold the line at the status quo. Businesses who exceed their current emissions will incur a penalty. Aside from the obvious issue that this puts an amazing weight on working out what ‘business as usual’ actually is for each individual business what if they can actually do that? Does that mean a polluting business can’t expand? Not quite. So long as they can justify it as ‘best practice.’ In other words, it isn’t a ban but a regulatory hurdle. It is claimed that this will be less complex or bureaucratic than Labor’s proposal, although it is hard to see how. It is also, by its very nature, hard to scale up if a target of more than 5% is required by international agreements. (That said, it makes it much harder for Australia to be part of such agreements too).
This approach of setting a budget and then somehow allocating it to a grab-bag of projects is a difficult task. In the bizzaro world we are living in, it is the sort of thing that those who have great faith in governments recommend. By faith I mean in the ability of governments to gather accurate information and allocate funds in a way that doesn’t encourage rent seeking. Call me crazy but this proposal seems a textbook example of how not to do things when you note that in the real world, there is a governmental knowledge cap and a flow of funds to industry in a way that would surely be difficult to account for — even if you can somehow make it transparent. It throws two decades of public sector management improvements out the window.
I had previously called Abbott an environment-hater. In retrospect, I realise that can’t be the case. After all, how can someone willing to expend so much in economic inefficiency for the sake of the environment, hate the environment? The Coalition policy caps the government’s fiscal commitment to climate change but not the economic commitment of the economy. It is still unknown how costly that economic commitment will be and hopefully we will never have to find out.