Direct Action buys lower emissions in Australia

WITHOUT global moves, carbon pricing hurts our industries.

THE wild contortions of Clive Palmer are a curious national spectacle, often employing convenient or hapless props to captivate a fawning media pack from the ABC and Fairfax Media.

This was the case in June when the Queensland MP roped in former US vice-president Al Gore for a bizarre press conference in Canberra. The Palmer United Party leader presented himself at the time as a champion of a zero-rated emissions trading scheme and saviour of both the renewable energy target and the Climate Change Authority. Mr Palmer orchestrated a media circus and fleeting buzz about an ETS; Mr Gore, climate alarmist spruiker extraordinaire and PUP ingenue, was his Sideshow Al.

Now the maverick politician with coalmining interests has agreed to support Tony Abbott’s Direct Action plan to cut carbon dioxide emissions, one of the Prime Minister’s signature policies, three months after PUP senators voted to abolish Labor’s forlorn carbon tax. Only recently, Mr Palmer described Direct Action as a “token gesture” and a waste of money; the plan’s centrepiece is a $2.55 billion emissions reduction fund, which will operate as a reverse-auction system where funding goes to polluters that submit the lowest-cost abatement bid for projects. Mr Palmer has saved the CCA but has dropped his devotion to an ETS. The Coalition has agreed to an 18-month inquiry into international trading schemes by former Reserve Bank governor Bernie Fraser, an odd position for a government that has rejected an ETS and ruled out buying international carbon permits.

The Australian supports a market mechanism as the best, least-cost method of achieving the bipartisan commitment of reducing Australia’s carbon emissions by 5 per cent in 2020, as long as we don’t move ahead of the rest of the world. A cap-and-trade scheme is vastly superior to taxpayer-funded adventures, especially if it is properly designed and policed. The Labor-Greens carbon tax, however, was an ill-timed, poorly conceived disaster. The initial fixed price of $23 per tonne of carbon dioxide was far too high and decoupled from established carbon trading schemes in northern Europe; it was a lazy sop to Julia Gillard’s partners in climate idiocy and governing, the Greens. The world’s highest carbon price, for that is what it was, also reflected the compensation money-go-round that the Gillard government settled on. The scheme began in July 2012, with the price rising every year thereafter; the prevailing carbon price in Europe was about $6 a tonne.

Labor’s impost was a heavy burden on power-intensive industries, such as struggling carmakers and aluminium producers, especially for those competing on world markets. The carbon tax, which pushed up electricity costs for business and consumers, was undeniably a contributing factor in the decision by multinational vehicle companies to pull the pin on local operations. Adelaide’s Penrice Soda, maker of soda ash and bicarbonate, cited the tax among its many woes when it closed operations. Of course, the carbon tax was not the only driver of higher energy prices; the so-called “gold-plating” of electricity networks has been the major contributor. Still, as we have seen since the carbon tax was abolished, power prices have been on a downward track and regulators have promised to be vigilant in ensuring cost reductions find their way to users.

The reality of Labor’s carbon tax was that it bolted on to our nation a vast, false economy. We built a large, costly, bureaucratic architecture — for what? The measure had a perverse effect on household behaviour and our built environment, with a proliferation of solar panels now planted on the nation’s roofs (and the generous rebates pocketed). Ultimately, this exorbitant economic cost — reduced industrial output, job losses, a fall in competitiveness and higher business costs — did not justify the minuscule amount of abatement that occurred on our continent. Not that a small emitter country can do much to offset global carbon pollution; no major economies followed us down this crazy path. It was a catastrophic own goal economically but also a brutal blow to broader voter support for climate change action.

Labor ignored the assessment of Peter Shergold, John Howard’s former department head when he was prime minister, who conducted a thoughtful, groundbreaking inquiry into climate change policy: don’t act ahead of the rest of the world. A myth propagated by ABC and Fairfax journalists is that there is concerted action occurring in the major emitting countries, particularly in China and the US. Some argue that China is making great strides in pricing carbon. That’s nonsense; its schemes are small regional projects, based on artificially low prices. A rapidly modernising China is now responsible for half the world’s carbon dioxide emissions; it is, as is to be expected, using a mix of energy sources. Earth to Fairfax: China continues to build coal-fired power stations. US President Barack Obama talks a good game on climate policy and aspirational targets; the reality is more mundane. The boon of shale gas, and a weak economy, has fundamentally changed the carbon intensity of the world’s economic powerhouse. While there is little policy innovation in Washington, Mr Obama’s pragmatic version of direct action is at play.

Let’s be clear: Direct Action is not a panacea. Nor is it world’s best practice. Like any major government program, it runs the risk of being wasteful, rorted and mismanaged. Give us the free market over the dead hand of Canberra any day. But if the aim of the policy is to actually achieve some carbon dioxide abatement, in our country, Direct Action is the best hope on offer, any time soon. We may even get ancillary benefits such as improved agriculture and reduced soil erosion. The RET is a form of direct action (albeit a costly one). As business groups argue, it’s vital that industry has certainty on climate change policy and that the emissions reduction fund is properly audited and administered. Mr Abbott’s deal with Mr Palmer now provides a way forward.