Climate goals unviable amid policy disarray

AUSTRALIA'S latest climate change stance is untenable in policy and moral terms, a view best captured in Kevin Rudd's retention of our greenhouse gas reduction targets but the abandonment of any means to achieve them.

On the one hand, nothing has changed: the 5 per cent reduction target by 2020 will be delivered, the Prime Minister asserts; on the other hand, everything has changed over the next three years, with no carbon price, no emissions trading scheme and no price signals to drive clean energy investment.

This contradiction has no logic in policy. Its only rationale is retail politics. It exploits the idea of climate change action as an endless moral project that never materialises into higher prices.

At the 2007 election there was a bipartisan consensus between John Howard and Kevin Rudd to legislate an emissions trading scheme in the present parliament. At the 2010 election that consensus has collapsed despite science suggesting the problem is worsening and polls showing the public wants action. The position Rudd now takes to the 2010 election is inferior to the position Howard took to the 2007 election.

The collapse of what Climate Change Minister Penny Wong calls the consensus for climate change action testifies to Australian public policy failure. The suspicion is that it may constitute something larger: the end of the reform age that started in 1983 with the Hawke government pioneering a new political courage for pro-market reform. This politics now seems to be exhausted.

Ross Garnaut raised this fear at a University of Melbourne symposium on March 30, warning that the reform age (which he dates from 1983 to about 2000) may have become an aberration, with Australia now reverting to its traditional model of government-directed special deals with private interests and growing public sector regulation.

Rudd's stance invites the judgment that over the past five years Labor has exploited climate change brilliantly for electoral goals but, when the pressure is applied, has little conviction to address the problem (a criticism that cannot apply to Wong and Greg Combet). By keeping his target of 5 per cent unconditional, Rudd pretends his commitment is undiminished. But what has changed is that the pain inflicted on businesses, households and the economy will be greater because the reduction will be squeezed into a delayed and shorter time frame. The equation is simple: by making life easier now, Rudd only makes the politics and the economics more difficult down the track.

The central issue in this week's decision is that Rudd no longer has a viable policy. He had several options: to push ahead with his ETS; to legislate an ETS framework with a fixed and low carbon price; to resort to a carbon tax pending global progress on emissions trading. He has chosen none of these. Two consequences are certain: fresh doubts over a carbon price will encourage investment in coal and discourage investment in gas and other alternatives.

It is doubtful whether Rudd's new position is sustainable for the next three years. Although the Prime Minister says the government will reconsider the situation in late 2012 into 2013, he makes no promise to legislate his ETS. What remains is merely a commitment in principle. As Wong says, future policy depends on "whether there is sufficient progress internationally, particularly from major emitters like China, India and the United States". This must create a serious doubt.

The way this retreat has been presented by Rudd inspires little confidence after the herculean processes of the Garnaut report, the green paper, the white paper, the policy adjustments in May and November last year.

The position Rudd now adopts was comprehensively repudiated by one of his main advisers, the head of the Climate Change Department, Martin Parkinson, in his speech of March 31, just four weeks ago. It is compulsory reading. Doing his job, Parkinson was defending the then policy, but his words have a retrospective lethality. Parkinson began by saying Australia's debate was marked by "a very poor understanding of numbers". It's an understatement.

Parkinson warned that without Rudd's proposed Carbon Pollution Reduction Scheme, "Australia's baseline emissions are forecast to rise strongly over the next decade" to 121 per cent of 2000 levels by the year 2020. Critically, this incorporates all other present policies, including the renewable energy target. The point is that only the CPRS, because it prices carbon, has any hope of reducing Australia's emissions.

This is the scheme Rudd has deferred for at least three years.

Returning to his numbers, Parkinson said that a 5 per cent 2020 unconditional emissions reduction target on year 2000 levels equates to a 22 per cent reduction off our projected baseline emissions and to a 28 per cent reduction in per capita terms relative to year 2000 levels.

By global standards these are serious cuts. Parkinson warned of the "sheer scale" involved in reaching this bipartisan 5 per cent target. It is "daunting" but not "impossible". He said: "The simple point to make is that because baseline emissions are projected to grow so strongly as a result of strong economic and population growth, a given percentage cut on 2000 levels translates into a much higher percentage cut on baseline levels in 2020."

This means that meeting Australia's 5 per cent unconditional reduction is a big ask. One myth in this debate, as Parkinson demonstrates and as the Garnaut report and the white paper made clear, is that the 5 per cent target is easy to achieve. This has been the Greens mantra; much of the media has run this line for two years. The numbers have repeatedly shown it to be wrong.

Moving to his central point, Parkinson said: "The size of the abatement task suggests a need for strong and efficient policy tools. They need to have the ability to control and turn around such strong momentum. The government, in line with the findings of the Shergold, Stern and Garnaut reports, has chosen an economy-wide carbon signal as the principal means of delivering emission abatement for Australia. Putting a price on carbon, via either an ETS or a carbon tax, is a fundamental requirement to meet our climate challenge." Yet Rudd has just ditched plans to price carbon for another three years.

Warning about the risks of this situation, Parkinson said: "Without an over-arching carbon price, scope remains for a complex patchwork of measures across the commonwealth and the states, all interacting in unpredictable ways and creating huge cumulative compliance costs for business."

Sounds like a fiasco? That seems to be Rudd's new policy. If Parkinson tried to give this speech now, he'd been shot at dawn. The problem for Rudd is that hundreds of pages of analysis in the Garnaut report and white paper and speeches such as Parkinson's sit on the table of public debate arguing that what he has just done is folly.

With his ETS in suspension, Rudd is talking up the role of his renewable energy targets, pledging the biggest rollout that Australia has seen. That's fine. But Parkinson's baseline rising emissions included the impact of the RET. "Regulation and subsidies alone cannot be relied upon to drive sufficient abatement at a reasonable cost," he said.

In policy terms Rudd has cracked on one of his core principles: that Australia must initiate its own scheme. This was repeatedly declared to be essential to promote global momentum. Rudd's December 2008 white paper said: "The least responsible path that Australia could take would be to do nothing while we wait to see how the rest of the world acts."

In effect, this is now Rudd's decision. The same white paper warned that Australians would pay for any delay. This was because "a wait-and-see approach leaves the economy exposed to far more serious future adjustment costs that could leave assets stranded, workers unemployed and households exposed to rising costs". Rudd's new policy is condemned by his old policy.

Rudd points the finger of blame at Tony Abbott and the Greens for voting down his ETS. He is right to do so. But prime ministers cannot excuse their failures by pointing to the opposition. They are judged by their ability to overcome such opposition.

In 1974, when Gough Whitlam's Medibank faced a campaign just as virulent as that facing the ETS, Whitlam won a double dissolution and legislated universal health insurance. It wasn't easy but Whitlam judged he would win his first re-election. In 1998, John Howard went to an election on his GST in the teeth of a ferocious campaign by the Labor Party, and negotiated his policy through the next parliament. It wasn't easy but Howard judged he would win his first re-election.

The explanation Rudd offers for his withdrawal is global uncertainty and lack of policy bipartisanship, but the real reason is electoral politics and the safest possible re-election.

The irony is that if you are dubious about climate change or its solution, then Rudd's retreat makes sense. If you believe what Rudd has said about climate change for the past three years, then his retreat cannot be justified. It leaves his credibility in serious doubt and Australia's policy in untenable suspension.