Questions about a carbon tax

October 3, 2010 at 5:04 am Leave a comment

On the surface, Labor PM Julia Gillard appears to have done an about-face on climate change in the weeks since Labor scraped back into government. Immediate action on climate change — especially setting a carbon price — is back on the agenda, she says.

The Labor minority government has given in to a Greens demand for a new parliamentary committee on climate change. In doing so, Labor appears to be backing away from its pre-election promise to delay new climate legislation until 2013.

The September 28 Sydney Morning Herald said Gillard said a “new environment” made by business and community enthusiasm for carbon pricing now allowed her to move faster.

But is this seeming change of heart for real?

During the election campaign, Gillard straddled two contradictory positions on climate. On one hand, she played up her belief that climate change is real and is caused by human activity. This was meant to contrast her position with that of opposition leader Tony Abbott’s climate change denial.

Yet, fearful of business opposition, she also said she had to build more “community consensus” before any action could be taken. The flawed Carbon Pollution Reduction Scheme (CPRS) was junked but no other plan was put in its place.

Critics threw Gillard’s past words — that delay on climate change is as bad as denial — back at her. Labor paid a price for its “delay action” stance at the federal elections and lost many votes to the Greens.

Given this, Labor is anxious to restore some credibility on climate change. It also hopes to wedge the Coalition, which won’t budge from its blanket opposition to a carbon price.

But anyone hoping for a big breakthrough on climate policy should not expect any joy from the new parliamentary committee.

Labor has two aims for the committee. First, it will try to draw out the negotiations for as long as possible. That is, continue with delaying tactics but in the name of public discussion and consultation.

Second, it will try to narrow the discussion to putting a price on carbon, at the expense of dozens of other crucial climate policies. These policies include government support for a rollout of renewable energy, energy efficiency measures and sustainable land use.

Labor will use its numbers to make sure the committee’s recommendations fall far short of a real response to the climate change emergency.

Labor is searching desperately for a climate policy that can please mainstream environment groups, while not offending the big polluters too much. This is why the centrepiece of Labor’s new climate agenda will most likely be a business-friendly carbon tax.

A well-designed carbon tax could play a role in the transition away from fossil fuels, in the right conditions. But a bad carbon tax could do a great deal of damage.

A tax has one big advantage over an emissions trading scheme. With a tax, it is much harder for businesses to get out of paying.

However, any carbon tax would have to meet certain conditions before it deserved support from climate campaigners.

First, it would have to make the polluters pay. The burden of any tax must fall on polluting industries, not households and consumers. Households affected by any tax must be compensated to ensure they are not worse off.

If this is not the case, then a carbon tax would only undermine public support for action on climate change.

Second, the price set must be high enough to keep fossil fuels in the ground. A low carbon price would simply stimulate the market for fossil fuels such as natural gas and leave renewable energy lagging behind.

At the same time, a high carbon price must go together with ending all government subsidies to the fossil fuel industry. The billions in subsidies now given away help keep the price of coal, oil and natural gas artificially low.

Third, proceeds from the tax must be spent directly on renewable energy. The goal of the tax must be to help fund the replacement of fossil fuels with clean alternatives. Leaving the huge economic restructure we need to market forces is not a serious option.

Fourth, a tax can be only a secondary, additional climate policy among many others. On its own, even a high carbon price will lead to relatively small emissions cuts. This has been the experience in Sweden, which has had a carbon price higher than $100 a tonne for 20 years.

If a carbon tax was adopted as a substitute for serious public investment in renewable energy the result would be disastrous.

So the key questions to ask about a carbon tax are: who pays, who benefits, will it cut carbon and what other measures go with it?

Unless these questions are addressed, then any carbon tax proposal from Labor this term is bound to be the same old climate delay, repackaged in a new, elaborate guise.

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Entry filed under: Carbon tax.

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