Green cutbacks usher in tough new line

THE Gillard government's $1.5 billion slashing of green schemes is a turning point in Labor's political maturity; it signals a re-think about green programs, a scepticism about "feel good" environmental gestures and a tougher line on industry protection disguised as clean energy.

The rethink is not before time. It is entirely possible Julia Gillard's flood reconstruction package will be defined by its savings as much as by its temporary tax levy. Remember, the levy will go but the savings will stay.

Labor is recanting, in part, from the false politics and misconceived schemes it has peddled to win green support. Here is evidence that Gillard could become a tough leader. Yes, it may be a false dawn. But she is ditching not just Rudd programs but Gillard programs from her dubious 2010 campaign. This is a sign not of weakness but of strength.

Might Gillard soon pass muster as a tough leader and transcend the endless claptrap about "who is the real Julia Gillard"? It is too early to know. But given the policy challenges Gillard faces off the back of a dismal 32 per cent Labor primary vote, a tough persona is the branding she needs. After all, being sweet and compassionate won't work as a Gillard brand. She must operate as a leader of strength or she is doomed.

The three key ministers in this package were Gillard, Treasurer Wayne Swan and Finance Minister Penny Wong. It went through cabinet's expenditure review committee and then the full cabinet.

The spending cuts send several messages: Labor is serious about bringing a new realism to its green programs; Gillard is betting the house on the main game of getting a carbon price and beating Tony Abbott on this front; as PM Gillard has less interest than Kevin Rudd in industry intervention policy; and the savings signal a leadership team ready to make more cuts to underwrite the 2012-13 budget surplus goal. Gillard was blunt: "Some of these [green] policies are less efficient than a carbon price and will no longer be necessary." Yes, that means a new direction.

The biggest saving is $429 million across the forward estimates from killing the Cleaner Car Rebate Scheme, known as cash for clunkers. To call this scheme a shocker is too polite. Announced last July, Gillard pledged a $2000 rebate for owners of pre-1995 cars who purchased a new, low-emission, fuel-efficient vehicle, hoping to reduce carbon dioxide emissions by one million tonnes.

In short, spending more than $400m to reduce emissions by one million tonnes would cost taxpayers more than $400 a tonne, about 40 times the initially proposed carbon price a tonne under Labor's emission trading scheme. It was an idea so bad it could not survive, yet testimony to what politicians will do under green mania. Gillard is sensible to put it behind her.

The next main green saving is $234m across the forward estimates and $401m over the program life from winding up the Green Car Innovation Fund. This was Rudd's baby and his dream. It was part of his new car plan with Rudd telling parliament on World Environment Day, 2008: "We do not just want a green car; we want a green car industry."

For Rudd, it began as a $500m fusion to retain automotive industry jobs and meet the climate change challenge. The industry was to match the government's contribution on a three-to-one dollar basis. Climate change action would become a core task for manufacturing industry. In the end it was a huge $1.3bn fund bid up by Rudd and administered by Industry Minister Kim Carr.

The industry entered into commitments but would have preferred more of the funds as direct support rather than under the "green car" banner.

Gillard's winding up of the fund defies both the car industry and the trade unions. It will be cheered in the Treasury and Productivity Commission. In August 2008 Productivity Commission chairman, Gary Banks, attacked Rudd's initiative, in effect, as a fraud. He said the fund "would be unlikely to yield significant innovation or greenhouse benefits if it were all allocated on a similar basis to the first $35 million instalment."

This was a reference to Rudd's Tokyo announcement to subsidise Toyota on the hybrid Camry out of Altona in Melbourne. Critically, Banks said an effective ETS should render "many pre-existing emission-reduction schemes redundant." Guess what? Gillard has started to accept this argument.

The car industry chiefs from Toyota, Holden and Ford wrote to Gillard on Monday evening accusing Labor of broken commitments. But Labor's power centre has moved from Rudd to Gillard. Have no doubt, this reflects a sharp Gillard-Rudd difference on both industry and climate change that could become more significant down the track. Head of the Chamber of Automotive Industries, Andrew McKellar, says abolition of the fund is an "unwelcome surprise" and accuses public servants of misleading their ministers on the issue. But the mood within cabinet at this decision was for a discipline not apparent during the Rudd era.

The Global Carbon Capture and Storage Institute, another ambitious Rudd idea, loses $55m over the forward estimates but stays alive with strong ongoing funds. Another theme behind the savings is practicality, witness $500m saved across the forward estimates (though much of this is available later) by cutting back on support for large solar projects and carbon capture and storage projects.

The conclusion is manifest: the value here is not yet available. One cabinet minister said: "What's more important: helping rebuild after the floods or backing a solar hot water rebate?" Such decisions reflect the "cleaning up" strategy already being implemented by Climate Change Minister Greg Combet and his parliamentary secretary, Mark Dreyfus.

Last April Combet announced the termination of the $2.4bn home insulation scheme debacle. Under Combet and Dreyfus both the green loans and green start schemes (offering energy assessments to households) are terminated at a saving of $129m. This followed the Auditor-General's September 2010 report that the green start program could not be implemented without acceptable control of risks.

In short, the failure of multiple green schemes since Labor came to power in 2007 constitutes a stunning story of public administration and policy failure.

Senior ministers say the principles guiding future green policy must be the allocative efficiency of markets, attention to equity and proper service delivery. But the big play is pricing carbon. No final decisions are taken but Combet's December 17 speech gave the critical clues. Labor is looking at a fixed carbon price in the short-term evolving into an ETS with a market price down the track with more ambitious targets decided not at the start but only at this transition point.