This is the third part of a series examining the Liberal Party of Australia. Part 1 covers the party’s climate change denial and intention to abolish various existing climate policies. Part 2 examines the climate policies they promise to introduce. This part defends them against incorrect criticisms of their climate policies.
To use language which Liberal leader Tony Abbott might outside of a family program, the Liberals’ climate policy is complete crap. Having said that, its problems do not include some of the things for which it is most often criticized: fiscal impact, directness, and reliance on domestic action.
Some commentators (eg. Alan Kohler) claim the Liberals’ policy would have a massive impact on the government’s budget. But there is nothing wrong with the government spending money on addressing the greatest threat facing humanity. Indeed, we should be spending far more than either major party is currently prepared to. The real problem, as I explained in Part 2, is the Liberals would not spend enough. The Emissions Reduction Fund is capped at $10.5 billion by 2020, making it impossible to make sure it meets its target (let alone a more ambitious target). Because the Fund’s current costings depend on achieving 60% of its abatement through buying soil carbon offsets, it is difficult to see how it could make genuine absolute emissions cuts with such a limited budget.
The loudest criticism of the Liberals’ policy is that it is inferior to a carbon price because it is not a market mechanism, and therefore would be less cost-efficient. This claim seems to have originated with Labor’s climate change advisor Ross Garnaut, who said in 2010: “to think that regulation, decision by bureaucrats and governments, can reach the right conclusions is, I think, delusional. […] I thought that debates over government taking huge decisions about resource allocation ended with the fall of the Soviet Union.” Garnaut argues a market mechanism is the cheapest way of delivering an emissions reduction target because the market has access to more information than government.
I disagree: climate change policies should be evaluated on their effectiveness at decarbonizing the economy, not on their cost-efficiency or whether they are market mechanisms. Our goal should be to decarbonize as fast as possible, not to meet an arbitrary target at lowest cost. Furthermore, I tend to think the more limited the market aspects of a climate policy, the more restrictive its regulatory aspects, and the higher the apparent short-term cost, the more likely it is to be effective. After all, it was unrestrained markets that got us into this mess. The less disruptive a policy is, the more likely polluters will be to simply shrug it off and carry on with business as usual. The bigger the shock to the system, the more likely it is to have an effect, the same as if you’re trying to change your own personal behavior. One can easily imagine direct policies the Australian government could adopt that would be far more effective than the existing carbon price – for example, a moratorium on new fossil fuel mining and export projects. We do not need to know every tiny detail of the market to figure out that would have a large, concrete effect.
A related belief is that we must choose between a carbon price and more direct measures. I can’t count the number of times I’ve heard journalists (particularly business journalists) say things along the lines of “There are two ways to reduce emissions: a carbon price or direct action.” This is a false dichotomy: governments should put in place a comprehensive set of climate policies. Instead of putting all our eggs in one basket, we must throw everything we can at the problem. This is why, despite Garnaut’s best efforts, the incumbent government’s policy does not solely consist of a carbon price, but also includes several complementary measures.
So the directness of the Liberals’ policy is not a problem. The Liberals are right when they say we need “real action” and “direct action”. The real problem is that’s not what they propose; they use “Direct Action” as a meaningless slogan. At odds with Garnaut’s claims, the Emissions Reduction Fund is a market mechanism designed to deliver lowest-cost emissions cuts, just like the carbon price. The market, not government, would determine which projects were funded. I shouldn’t have to spell this out, but the Liberals’ policy is not socialist! Whereas socialism would give money to the poor, the Emissions Reduction Fund would give money to rich, powerful industries that don’t need government subsidies (as does Labor, through $13 billion in annual fossil fuel subsidies including free carbon permits). In one way, it is even more market-friendly than a carbon price, because it is voluntary and incentive-based while a carbon price is (at least in theory, if undiluted by compensation) a penalty. As for the various other elements of the Direct Action Plan, they are relatively small in scale.
While the strength of a carbon price is its penalizing nature, its weakness is its trading aspect. Abbott has been criticized for raising potentially legitimate concerns about the credibility of emissions trading. For example, when he said in July 2011 that without strong policing it “could offer the appearance of achieving lowest cost abatement without much actual abatement occurring at all”, he was lambasted for questioning the preferred policy of economists. (However, he contradicted himself later that month when he called the Clean Energy Regulator “a draconian new police force chasing an invisible, odorless, weightless, tasteless substance”.) This brings me to the next incorrect criticism of Liberal policy.
The Liberals say their emissions cuts are “to be achieved entirely within Australia”, unlike the Labor government’s policy which (from 2015) relies on international offsets to meet the same target. Treasury, the Australian Industry Greenhouse Network, and the Business Council of Australia claim the exclusion of international offsets makes the Liberals’ policy cost $69/tonne, more than twice as expensive as the carbon price. For example, Climate Change Minister Greg Combet says: “It is very important for the business community that it has access to abatement overseas through the purchasing of carbon units on international markets – and in fact without that, it would double the cost of reducing our pollution in this country, and yet that’s what Liberal Party is saying is not appropriate.”
It is wrong to criticize the Liberals for this, because they are correct when they point out Australia’s domestic emissions are projected to rise by 2020 under current policy. They are also correct in arguing we need direct action in Australia, not offsets overseas. International offsets are not a serious way to tackle Australia’s contribution to climate change: they are a breeding ground for creative accounting while preventing structural decarbonization of the Australian economy. So what the alleged double cost of the Liberals’ policy really means is it would achieve twice as much domestic abatement, assuming it were actually implemented and met the promised target. The real problem is those two assumptions are extremely dubious considering the Liberals’ coziness with the fossil fuel industry and the design of the Emissions Reduction Fund.
Indeed, the Fund is essentially a scheme of domestic offsets purchased by the government. It has the same credibility issues as international offsets, because it is difficult to confirm additionality without a binding emissions cap. And whereas Labor intends to meet 60% of its target overseas, the Liberals intend to meet 60% of their target with domestic soil carbon offsets, which are just as ineffective at addressing the main challenge of phasing out fossil fuels. Just as Labor policy would hide Australia’s emissions offshore, Liberal policy would hide them in soils.
Also, although the Liberals are broadly correct in their criticism of international offsets, they seem to misunderstand the implications (can’t they get anything right?). Liberal environment spokesperson Greg Hunt wrongly says (my emphasis): “In 2020 alone, Australian companies will have to purchase $3.5bn in foreign carbon credits on top of the carbon tax.” In reality, Australian companies will not be mandated to buy carbon credits; they will be clamoring to do so – because it will not be an additional cost to the carbon price; it will be an alternative which is cheaper for them and dodgier for the climate. That’s why businesses advocate international linking: it allows Australia to continue our own high level of emissions while offsetting our conscience overseas. In the jargon, it means “the lowest possible cost to Australia”. Thus the Liberals’ opposition to international offsets contradicts their argument that Australia should not act ahead of the world, and their goal of protecting the Australian fossil fuel industry.
One possible explanation is the Liberals are in fact well aware of this contradiction, but have cynically seized on the offsets issue because they find it politically convenient to argue the carbon price is ineffective. After all, if the Liberals are really so concerned, why didn’t they move an amendment to the carbon price legislation to disallow international offsets? (The only two amendments they did put forward, both voted down, were to delay the carbon price until after the next election, and to allow electricity generators to defer payments for forward-dated emissions permits.) And this article claims, though it is only hearsay, that there are “signs (although no formal policy) that a Coalition Government may allow companies to purchase some abatement internationally”.
The Liberal climate policy’s budgetary impact, directness, and exclusion of international offsets are not problems. On the contrary, the real problems with their policy include the opposite: a spending cap, a voluntary incentive mechanism, and reliance on domestic offsets.
In Part 4, I will debunk the Liberals’ allegations that the incumbent government is illegitimate.