A couple of days before Christmas 2014, Environment Minister Greg Hunt – he who rather consults Wikipedia than rely on the considerable in-house expertise at his fingertips – published data that seemed to show that during the second year of its existence the carbon price (often falsely called a “tax”) was more successful than the first, notwithstanding the political uncertainty that existed ever since it was implemented July 1, 2012. Of course, the very scheme was discontinued (at least temporarily) July 1, 2014, as promised by Abbott in the run-up to the Federal 2013 elections.

The data now published (see here and here) deserves all the attention it can get: it shows that emissions declined across Australia by 1.4 per cent over the 12 months to June, up by about 75 percent over the previous 12 months’ reduction (a decline in emissions of 0.8 per cent). As one of my colleagues put it on his facebook page, “Demand curves slope downwards. Who knew?”  

Comparing data over different time periods is, of course, problematic – confounds such as the weakening economy could drive this result, as could a change in the “generation mix” — but the sum of the evidence, including estimates by knowledgeable sources that emissions have been on the rise again since 1 July 2014, suggest strongly that simple economics is playing out here.

Really, it is basic economics. Production that creates public bads such as pollution of air, land, or water is best addressed by putting the appropriate price tag on them when and where possible. That such price incentives work, can only surprise people who do not understand basic economics, or who are so ideologically blended that they do not want to accept basic economic insights.

Hunt’s spokesman – apparently arguing from the silly (and ideological) premise that bads should not be priced — is reported as having said, “In its first year, the carbon tax was a $7.6 billion hit on the economy but reduced emissions by less than 1 per cent.” He did not comment on the second year, probably because it did not fit his narrative. And, of course, it would have been too much to ask from him to remind the audience that, if these reductions were indeed the result of the carbon price, it was implemented under considerable uncertainty and hence whatever we see these days in the data for those two years was confounded by well-grounded hesitation and expectations of the temporary nature of the carbon price.

Hunt’s spokesman also suggested that the Coalition’s Emissions Reduction Fund (ERF) – now in the ramp-up phase – would be a more effective means of reducing emissions. Well, I take bets against that. As many, and as high, as you want (as long as we can agree on an independent arbiter; more on this below).

Providing subsidies to businesses that want to reduce their emissions, through reverse auctions (allegedly to be implemented soon), is a nice but not uncontroversial idea. It might function as such but it will take more money than the 2.5 billion now ear-marked for it and it will create a monstrum of bureaucracy and is certain to invite massive rent-seeking and, predictably, corruption. Mark my words. It is hardly surprising that there is a long list of applicants for those billions that have been ear-marked for the ERF scheme. Billions, I should add, that have to be financed out of the budget and hence through taxes, adding to the – arguably self-inflicted — budget malaise the government has already on its hands. The fact that there is a long list of interested parties demonstrates nothing (whatever claim to the contrary Hunt or his spokesman seem to make).

I am not the only one who has doubts about the efficacy of the ERF. My pessimism is shared by the Climate Change Authority (CCA) – an independent watch-dog of sorts financed by the government. The Abbott government wanted to dismantle it as soon as it came to power presumably because its marshalling of science facts inconvenienced it but was forced to keep it alive in the recent gift-exchange exercise with the PUP that allowed it to put away with the carbon price, at least temporarily: “The scheme might not only miss some real opportunities to reduce emissions but also (and perhaps more worryingly) result in large payments for reductions that would have occurred anyway,” the CCA stated.

While there are legitimate questions to ask about climate change facts (see here and here and here and here and here) and the optimal means to fight it, the answers to these and related questions (RET) ought to be decided – arms-length and unfettered by a political process that seems broken and highly dysfunctional – by the Climate Change Authority, or similar independent bodies. Yes, there will be some uncertainty left and everyone who thinks the facts can be ascertained beyond reasonable doubt does not understand the nature of the evidence that we are dealing with (essentially modelling of rather complex systems based on, and initialized with, all kinds of assumptions and trends from decades of data) but that makes it some much more important that people knowledgeable of the facts of science get to make the key calls.

I look forward how the Abbott government will respond to the CCA assessment of the ERF scheme, as it has promised. Anything more than yet another exercise in obfuscation would surprise me. (Yes, after all those broken promises, and after its opportunistic and unprincipled attempt to defund the CCA, etc., I am that cynical.)

Trust is the key ingredient in the relationship between government and those it governs. The Abbott government has given no assurance that it can be trusted to make forward-looking decisions that are based on science (and the majority of people seem to understand this, women being quicker at understanding than men.) The Abbott government has shown nothing but disdain for science (facts), both substantially and symbolically. The recent appointment of a minister for science (well, as one could expect from the Abbott government nothing but an opportunistic name change/title addition; see also here for the history, lest we forget …) instills about as much confidence that the government will mend its ways as Abbott appointing himself the minister for women, and not demoting himself in the recent cabinet reshuffle, as he arguably should have.

In light of the public’s current assessment of its policies and the ways it goes about implementing them, I wonder what the Abbott government knows that the public does not. Surely it does not think that Daily Telegraph and various shock jocks will help it paint a different picture. It’s easy to gamble away trust (see here and here and here) but it is very hard, and takes considerable time and good-faith effort, to (re) build it. These are simple, elementary facts and it is hard to understand what Abbott and his strategists think. That, of course, applies to other areas of policy making, too.

The most reasonable explanation I can come up with is that Abbott and his strategists thought they could hi-jack the political process for the big money it seems beholden to but it is hard to understand that they believed (and still seem to believe) they would get away with as radical an agenda as they tried to implement. You would think that they have learned their lessons in light of the vehement opposition they have faced in the Senate. Alas, it does not seem so. Certainly, the way Hunt went about the publication of the carbon price data, and for that matter, the Abbott government’s pursuit of an environmental agenda that seems widely discredited (and increasingly so) does not suggest much learning if any.

There is no doubt in my mind that carbon price and RET will make a triumphant return under a somewhat more enlightened and forward-looking government (i.e., a government that takes in this area on board the guidance from science, as it should according to a widely shared understanding among economists), as will ACNC and FoFA. The problem is that in the meantime valuable time has been lost and Australia’s position and reputation as one of the fore-runners in carbon pricing and renewable energies seems to have been severely damaged.

 

P.S. Disclosure: I was member of a team that assessed experimentally the feasibility of the Carbon Pollution Reduction scheme and I was consulted in the run-up to the ERF implementation and invited to bid for the experimental testing of the reverse auctions that are at the heart of the ERF. (We decided not to submit some such tender since the time frame was unrealistic. Besides, as mentioned, the real issue is not the design of the reverse auctions — which are reasonably well understood — but the mechanism that is required to implement them and the rent-seeking and bureaucracy it invites.)

P.P.S I am currently traveling and online only intermittently. I might respond to comments somewhat delayed but respond I will.