Paul's Blog: Carbon Tax

On 24 February 2011, Prime Minister Gillard announced that her government would introduce a carbon tax, probably as early as 1 July 2012.

Since that time we have seen some rather nonsensical claims about what Gillard has done.

It is not true that she has drawn a dividing line between the major political parties about how seriously they are engaging with climate change.

Both sides of politics are committed to reducing Australia’s greenhouse gas emissions to five per cent below 2000 levels by the year 2020.   This was the basis of the policy which the Liberal Party took to the 2010 election, and it remains our policy.

For Australia to achieve this target will be no easy task: it means reducing emissions to around 530 million tonnes of carbon dioxide and equivalents, when on a business as usual basis they are currently projected to reach around 690 million tonnes by 2020.

Equally, both sides of politics are committed to the requirement that 20 per cent of energy must come from renewable sources.

Nor is it true that Gillard has boldly made a commitment which puts principle above politics.

On the contrary, her announcement shows the kind of breathtaking cynicism which gives politicians a bad name in the eyes of ordinary Australians.

Ms Gillard quite deliberately said, during the 2010 election campaign, that she was ruling out a carbon tax.  It is hard to find an ambiguous interpretation of, “There will be no carbon tax under the  government I lead.”

Yet in February 2011 Gillard announced that she would be doing precisely what she had promised she would not do.

Not even Bill Clinton – who famously responded to a question about whether he had a sexual relationship with Monica Lewinsky by saying “It depends on what the meaning of the word ‘is’ is” – could wriggle out of this one.

Under Gillard’s scheme, for five years there will be price per tonne of carbon emitted which is fixed by government – in other words, a carbon tax.  

After that point, the system will shift to a ‘cap and trade’ emissions trading scheme, under which government will specify the total amount of tonnes permitted to be emitted.

Operators of power generators and other industrial plants which emit carbon as a byproduct of their operations will be required to buy permits allowing them to emit the required amount.  Under that system, the price per tonne of carbon will be set by supply and demand in the market for permits.

Unfortunately, this is not the first time that the Labor Party has taken a deeply political approach  to the question of how to respond to global warming.

Under Kevin Rudd Labor took to the 2007 election a policy to introduce an emissions trading scheme.  He notoriously told Australians that global warming was ‘the greatest moral challenge of our time.’

Yet when the legislation for an emissions trading scheme came before the Parliament in 2009, Kevin Rudd was missing in action.  He failed to make the case for this major change to Australian economic policy.

Instead, Rudd chose to play the issue for short term political advantage, believing that he could exploit divisions within the Liberal Party.  He deliberately ran dead in the media – instead of working to sell his policy to the Australian people.

By mid 2010 Rudd’s approach became even more cynical, as he announced the deferral of the emissions trading scheme legislation.

In contrast, the Liberal Party announced a clear and reasoned policy in February 2010.  We committed to a target for greenhouse gas emissions reductions matching Labor’s – and a clear plan to achieve the target through an abatements purchasing approach.

We plan to spend $10.5 billion by 2020.   This amount has been struck based on an abatement price of $15 per tonne, which is actually twice the current price of abatement under the NSW Greenhouse Gas Reduction Scheme scheme, and therefore a very conservative estimate.

It is rather odd to hear the Coalition’s policy criticised as not being sufficiently ‘market-based’ by people like Julia Gillard and others like her whose political backgrounds show longstanding hostility towards the free market.

In fact, the Coalition’s policy relies specifically upon key market disciplines including the price mechanism and competition.  Projects will be chosen for abatement funding through a competitive selection process on the basis of price per tonne – we want to get the best value for the taxpayer’s dollar.

Whereas Gillard’s carbon tax will apply to every tonne of emissions, our approach will focus specifically on the emissions to be abated.

The Liberal Party announced this policy in February 2010, we took it to the August 2010 election, and we stand ready to implement it immediately upon coming to government.

By contrast Labor’s policy was an emissions trading scheme in 2009; in 2010 this policy was indefinitely deferred; at the August 2010 election Labor committed that it would not introduce a carbon tax; and by February 2011 Labor had adopted a carbon tax.

So the first question which Gillard’s new policy raises is: how long is it valid for?

But the second question is: how likely is this approach to be successful?

If you are seeking to introduce a major economic reform, it is critical to be honest about what you are doing – and to engage in a thorough and painstaking job of making the case for the reform you propose.

This is what the Howard government did when it introduced the GST.

There was an enormous amount of work put into explaining the changes – before the Australian people had the chance to vote on this reform at the 1998 election.

Labor’s approach has been completely the opposite.

It has done a very poor job of explaining what it proposes to do – and why.

Even more problematic, it is trying to sneak this change through before the next election – after specifically denying at the last election that it would do what it is now doing.

In a democracy like Australia, a reform of this magnitude ought to be explicitly debated in an election.  The people need the chance to understand what is proposed – and to say yes or no.

Ultimately, Australia faces some difficult choices in dealing with the threat of global warming.

We need to be ready to play our part in coordinated international action designed to stabilise the total volume of greenhouse gases stored in the atmosphere.

But it is critical that we do it in a way which minimises the adverse impact on our economy – and builds strong community support.

Unilaterally burdening Australian industry with a carbon tax which its international competitors do not face is not a good way to tackle this problem.

No amount of rhetoric from Labor about “Australia falling behind the rest of the world” will disguise this critical issue.

The fact is, Labor just does not know whether or not Australian companies will be relatively disadvantaged, compared to their international competitors, under its scheme. The Chairman of the Productivity Commission says that it is very difficult to conduct a systematic comparison between Labor’s proposed scheme and the various arrangements which apply in other countries.

That is why the Coalition has designed our policy to ensure that Australia contributes to a sensible international approach to this global risk, without incurring unacceptable damage to Australia’s prosperity along the way.