Isra-Mart srl: Gillard must admit carbon trading inevitable

Isra-Mart srl news:

As Federal Cabinet goes through the rather novel (for them) task today of debating important economic policies, including carbon pollution reduction, they should do two fundamental things: recommit Australia to an unconditional 5 per cent reduction target, and to emissions trading.

Unfortunately like immigration and refugee policy, climate change is now being discussed in the caged wrestling match of an election campaign, so anything at all is possible.

Also, Prime Minister Julia Gillard and the rest of the Cabinet will no doubt remember Kevin Rudd’s expletives in Copenhagen.


The language, and its revelation, appears to have been a tack in his coffin, but what he said was accurate. China showed by its by behaviour in Copenhagen that it is a fair chance to undermine efforts to establish global emissions trading, even though it is pushing ahead with renewable energy.

That, plus the Coalition’s decision to abandon support for emissions trading, has made the political debate around this subject complicated and difficult.

But it looks like the United States is pushing ahead. Sometime during the Australian election campaign, the US Senate will debate and possibly pass emissions trading legislation – adding carbon dioxide to the existing acid rain emissions trading scheme.

Elsewhere, New Zealand began emissions trading on July 1 and Europe is tightening its ETS caps, with the expected result that the price of carbon will rise from its current level of around 15 euros a tonne.

The value of the global market was $US144 billion last year, of which Europe turned over $US118 billion. The European market is now well established and New Zealand’s move to an ETS this month gave carbon trading some much-needed credibility.

In Australia the tide seems to be swinging towards direct action. The Coalition has abandoned its support for an ETS in favour of paying big emitters to stop or cut back, and the Victorian Labor Government appears to be heading in the same direction with its request to the Federal Government to help fund the partial closure of the Hazelwood power station in Victoria – the “dirtiest” power station in Australia.

It will be tempting for the Gillard Cabinet to back something like this, and perhaps go a bit further down the direct-action path, in order to tick the climate change box before the Prime Minister drives to Yarralumla in a few days to call an election.

They would be fearful of going into a campaign with Tony Abbott’s “great big new tax” soundbites hanging over them, as well as with Kevin Rudd’s words about China in Copenhagen.

But to rule out emissions trading would be a big mistake. They can’t design a new scheme this week, of course, and shouldn’t try, but one must be designed eventually.

And by the way, “designing a scheme” basically means setting levels of compensation for trade-exposed industries. The certificates and the structure of the market to trade them must fit in with what’s happening around the world; the only real flexibility available to a national government now is the extent to which local firms are let off the hook.

That’s where China’s behaviour comes in: the prospect that it will use other countries’ emissions trading schemes to boost its own employment at their expense raises the price of compensation for trade-exposed industries in every country.

Don’t forget that It remains bipartisan policy in Australia to reduce carbon emissions by 5 per cent by 2020, from the year 2000 levels. That might not seem much, but it would require a cut in emissions of 21 per cent against business-as-usual baseline emissions, because we are half-way there already and emissions are still rising rapidly. On a per capita basis, the task is even higher – 26 per cent.

The emissions reduction target is so ambitious that whatever happens it will touch every company and every household in the nation. The Coalition will claim that the target can be achieved effortlessly with direct action. That is not true, although some of its proposals make a lot of sense, and are worth doing anyway.

Eventually there must be a price on carbon, and it can’t be via a carbon tax. The only viable method of achieving an ambitious carbon emissions reduction target is through a market-based trading scheme. Even China will have to eventually have to agree.

The most important thing Julia Gillard can do this week is admit that. That’s probably all she needs to do at this stage.