Man on emission

A POLL-DRIVEN respite may allow Malcolm Turnbull time to argue his emissions trading case.

IN the wake of the disastrous past two weeks for the Coalition - consumed by internal divisions over how to deal with Labor's emissions trading scheme legislation - Malcolm Turnbull received some respite yesterday when Newspoll found voters favoured him as Liberal leader over arch-rival Joe Hockey.

The figures may have been affected by Hockey's pronouncements that he does not want Turnbull's job and has no plans to challenge. Either way, it gives Turnbull a small window of opportunity to recalibrate the opposition's message back on to policy substance in a bid to convince voters the government is racking up too much debt as well as risking jobs and investment in Australia with its Carbon Pollution Reduction Scheme.

The Opposition Leader has been frustrated by the media's focus on the internal woes of his party. That frustration spilled out into media interviews he gave last week. Turnbull can't understand why the media isn't focusing its attention on the design of Kevin Rudd's CPRS and the many differences with overseas ETS models, in particular the US model, the likely consequence of which is that Australia will be adversely affected if the government's model is passed into law in its present form.

Turnbull may have a point. So far, Rudd's CPRS has not received attention it deserves for its likely effect on the Australian economy (and perhaps limited effect on the environment). But Turnbull has to be careful. Not only does he need to worry about placating his backbenchers, who aren't sold on his approach of negotiating with the government over the CPRS, but he needs to walk a tightrope on public opinion that is firmly in favour of Australia enacting a scheme to address climate change. A recent Newspoll found that 67 per cent support the government's CPRS, albeit down from 72 per cent in October last year.

The tightrope for Turnbull is that the CPRS legislation comes back before the parliament in November and it is unclear if the Coalition will support it. The public supports modifying the legislation and passing it: 64 per cent of voters said so when polled by Newspoll in late September. In other words, nearly two-thirds of Australians are happy for the opposition to critically examine Rudd's scheme, so long as it becomes law. The problem for Turnbull is that most of his colleagues want him to negotiate in bad faith: only negotiate amendments if the scheme isn't approved ahead of the Copenhagen conference on climate change set down for December this year.

The concept of an ETS has become a lightning rod for doing something about climate change; the suspicion is that few people really understand the design of the government's CPRS, much less how it compares with overseas schemes already enacted or under legislative review, such as the US Waxman-Markey climate change bill.

Named after the two Democratic congressmen who introduced it, Henry Waxman and Edward Markey, the bill passed through the US House of Representatives on a narrow majority earlier this year but isn't expected to be passed by the US Senate soon; certainly not before Copenhagen..

Before the 1993 election former prime minister Paul Keating said of then opposition leader John Hewson's GST contained in Fightback, "if you don't understand it, don't vote for it". The comment had added potency after a disastrous appearance on television by Hewson when he appeared incapable of explaining how the tax would be applied to a birthday cake.

If it weren't for the moral imperative that has crept into the debate about climate change in this country (the US is more focused on the global financial crisis and health reform) the same thing could be said about the CPRS. Even ministers privately admit they aren't really across the details of the scheme.

What frustrates Turnbull more than the public and media's failure to come to grips with the detail of the scheme is that he is across it and knows that without amendments it will considerably disadvantage Australia.

In essence the CPRS will put a national cap on emissions and assign individual permits. Businesses and organisations can buy those permits, and must if they want to emit carbon pollution. That means there will be a cost to pollute, meaning the market will provide a mechanism to reduce pollution because polluting will be expensive and businesses want to maximise profits.

There is an irony in Rudd supporting a market mechanism for addressing climate change. The central debates over the design of the government's scheme focus on what concessions are going to be included when it gets up and running, and what sectors (if any) are to be excluded from it.

The yardstick for the design of any nation's ETS has to be the Waxman-Markey model. What the US does, as the world's largest polluter and the world's largest economy, will form the blueprint for global action, if such action can be agreed.

The Rudd government's CPRS legislation is vastly different in design from the model the Americans are considering. Once you get past carbon reduction targets for the future, which of themselves don't tell you very much, the three key points of difference between Waxman-Markey and Rudd's CPRS are: expectations placed on the agriculture sector; protections for trade-exposed sectors such as the mining industry; and the way power-generating businesses are treated.

In each case the Australian system does not provide the same protections and incentives that the US model does, lending support to Turnbull's argument that Rudd's CPRS, if passed in its present form, would make Australian industries bound to an ETS that is internationally uncompetitive.

The Rudd government has left the door open to include the agriculture sector in the CPRS from 2015. The Coalition says this leaves farmers in an uncertain world until then. In the US, not only are carbon outputs in the agriculture sector excluded from its ETS (methane emissions from livestock, for example), but farmers can generate carbon credits by planting trees, through revegetation and biochar (soil carbons), thereby encouraging more environmental farming practices.

Opposition climate change spokesman Greg Hunt says: "The Australian government is omitting the single biggest source of potential carbon savings for Australia. By refusing to include incentives for soil carbon and green carbon or agricultural savings, they are wasting over 150 million tonnes per year of potential savings. Instead, they will be taxing livestock emissions.

"By contrast the Americans have decided it is ludicrous to tax livestock for breathing and will instead provide incentives for farmers to capture carbon in their soil and trees."

The government isn't prepared to include biochar in the mix of carbon credits for farmers (tree planting is) because it is not covered under the Kyoto Protocol.

Earlier this year Climate Change Minister Penny Wong said: "Soil carbon (including biochar) does not fit within the scope of the current Kyoto Protocol accounts, so is not included at this time in the carbon pollution reduction scheme."

An Australian renewable energy company has set up a pilot plant to test biochar in NSW, and countries such as Canada, Denmark and Spain are interested in using biochar to offset carbon pollution.

The government's rejection of biochar may be a sign that Labor is more committed to the concept of an ETS than the outcomes it is designed to generate.

The present debate is a reminder of the one during the Howard years between Labor MPs who insisted Australia should ratify the Kyoto Protocol for symbolic reasons and John Howard, who would point out that, despite not having ratified the protocol, Australia was meeting its obligations anyway.

The effect of an ETS on trade-exposed sectors such as mining and manufacturing is another significant difference between the Waxman-Markey bill and Rudd's CPRS.

Waxman-Markey protects such sectors by not initially calling for large-scale compliance with its ETS, instead phasing in compliance with a "decay rate" which, although more rapid than Australia's, starts more slowly.

Australia's economy is far more reliant on trade-exposed industries than the US; note the level of protection that exists for the US car manufacturing sector. The government's response is to point out that the US bill does not provide for as many permits for the industry as Australia is prepared to allocate.

The third area of difference concerns the treatment of the power industry. In the US that industry is largely excluded whereas in Australia it is largely included.

"Australia will be the only country in the world to place a heavy tax on electricity," Hunt says. "President (Barack) Obama is focusing on directly cleaning up the power sector, rather than using the blunt instrument of forcing up electricity prices for pensioners, families and small businesses."

The effect of the CPRS on the power industry was the subject of a report by modelling agency Morgan Stanley.

The report was commissioned by the government earlier this year and the findings have been received, but the government won't release them, citing commercial in confidence.

The opposition suspects the report confirms its suspicions that the energy sector will be adversely affected by the CPRS.

Wong said in August: "We are putting forward a very substantial package of assistance to the energy sector because we understand that there is a transition and we do understand the need to secure or to make more certain the investment environment."

The comparison of Waxman-Markey and Rudd's CPRS shows that the Americans are more cautious in their approach to an ETS but, interestingly, that has not reduced their carbon reduction targets. One of the reasons is because they have embraced a greater amount of direct investment in alternative power as a supplement to an ETS.

And of course the US has the nuclear power option, which Australia has shied away from for political reasons.

The non-ETS mechanisms the US is talking about include loan guarantees for industries and accelerated tax depreciation as sectors are hit by reductions targets.

But the comparisons between Waxman-Markey and Rudd's CPRS may be meaningless if the US legislation doesn't get past the Senate, as predictions suggest. This raises the question: Why is Rudd so hellbent on getting his CPRS through the parliament before the end of the year?

The opposition likes to note that a reduction target of 5 per cent by 2020 in a nation contributing 1.4 per cent of global emissions, as Australia is, is meaningless. It uses that logic to argue for delaying debate until after Copenhagen. The problem for conservatives is that the same logic is reason not to embrace an ETS at all and that is out of line with public sentiment, however ill-understood the government's CPRS legislation may be.