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Oct 09 2013

The carbon price is as good as dead

We knew, long before Australia elected Tony Abbott as Prime Minister, that Abbott wanted to tear down the former government’s (already meagre) climate policy regime, particularly the carbon price. On election night, as Abbott’s Liberal/National Coalition stormed the House of Representatives, the question became whether the ragtag bunch of misfits elected to the Senate crossbenches would be inclined to help or hinder his agenda, and what deals he might have to make to pass his legislation.

The final Senate results are now known. When the new Senate begins next July, the Liberal/National Coalition will have 33 seats, Labor 26, Greens 9 (Scott Ludlam lost his seat), Palmer United 3, Liberal Democrats 1, Family First 1, Democratic Labor 1, Motoring Enthusiasts 1, and independent Nick Xenophon 1. This almost certainly gives Abbott the numbers to repeal the carbon price (though he’ll probably have to wait until July). However, Abbott may struggle to implement the voluntary incentive-based Emissions Reduction Fund which he has proposed to replace the carbon price.

To pass legislation in the Senate requires 39 votes including the President, so with 33 seats the Abbott government will need 6 extra votes.

Labor and the Greens oppose repealing the carbon price and both look set to hold firm. I have my reservations about this position – in the unlikely event that they manage to salvage the existing legislation, it is scheduled to soon turn into a cap-and-trade emissions trading scheme (ETS) with a meaninglessly weak target to be met by international offsets, which would allow Australia’s domestic emissions to rise. But that is now largely academic because the legislation is very unlikely to survive.

Clive Palmer is a coal mining billionaire and one of his central policies is to retroactively abolish the carbon price and compensate everyone who paid it. Palmer United Senator-elect Jacqui Lambie briefly advocated a “lot lower carbon tax at 3 or 4 per cent” (did she mean dollars?), but Palmer later clarified that she “got confused”. Complicating matters, Palmer has also threatened to block Abbott government legislation unless his allegations of electoral fraud are investigated. Notwithstanding the incoherent rhetoric, I presume Abbott can count on Palmer’s 3 Senators to uphold the interests of the coal industry, making 36 votes for repeal.

The Liberal Democrats are a right-wing libertarian party who deny human-caused global warming and oppose any climate policy, making 37.

Family First are also climate deniers and oppose the carbon tax, and Business Spectator points out Family First Senator-elect Bob Day is, like Palmer, a successful businessperson and former Liberal – making 38. I expect these five crossbenchers to also be broadly in line with Liberal economic ideology.

Thus the crucial votes will be those of Democratic Labor’s John Madigan, Motoring Enthusiast Ricky Muir, and independent Nick Xenophon. Any one of them could provide the Liberals’ 39th vote, but all three would need to combine with Labor and the Greens to block legislation.

Democratic Labor deny human-caused global warming and oppose the carbon tax, though confusingly Madigan has recently expressed an apparently contradictory position in favour of what sounds like an ETS. Little is known about Muir’s politics, but his party apparently supports “unimpeded recreational use of the environment”. Xenophon’s position is well-known and idiosyncratic: he will argue for a baseline-and-credit ETS (similar to the Emissions Reduction Fund but with tradeable permits). However, Xenophon says he won’t support repealing the carbon price unless it is replaced by something closer to his proposal.

(UPDATE 10 October 2013: Palmer has formed an alliance with Muir, meaning Palmer will effectively have 4 Senators. This makes it virtually certain that Abbott will have the required 39 votes to repeal the carbon tax, and probably for right-wing economic policies generally.)

So it seems very likely that the Liberals will be able to get to 39 votes, albeit with possible policy modifications. However, what if anything will replace the carbon price remains highly uncertain.

What will replace the carbon price?

The Liberals’ proposed Emissions Reduction Fund would financially reward polluting companies who voluntarily act to supposedly avoid emitting CO2 they otherwise would have emitted. There will be a consultation process on the Fund, with the terms of reference to be released by the end of next week. Based on what is already known about the Fund, problems with it include:

  • It aims for an inadequate emissions reduction target of -5% by 2020.
  • Its budget is capped, sabotaging the target and allowing emissions to rise 10% by 2020.
  • It cannot guarantee results because participation is voluntary.
  • Its incentives will be to cut emissions intensity (emissions per economic output), which reduces automatically as emissions rise.
  • It cannot ensure the claimed emissions cuts would not have happened anyway.
  • It limits the scope of actions by requiring extra environmental benefits and no economic costs.
  • It helps lock in continued fossil fuel use by propping up the industry.
  • It relies largely on unachievable and impermanent soil carbon storage.

Palmer, the Liberal Democrats, Family First, Democratic Labor, many Coalition politicians, the Australian Chamber of Commerce and Industry, and Liberal-aligned think tank the Institute of Public Affairs are all likely to argue there is no need for any climate policy because human-caused global warming isn’t real, and that the Emissions Reduction Fund would be an unnecessary cost to the budget. (However, the Liberal Democrats say they might be willing to accept the legislation in exchange for a major reduction in taxes.) Since Labor and the Greens are (rightly) skeptical of the Fund, it is difficult to see Abbott getting it through the Senate (which is ironic in light of a recent poll showing voters now prefer it to the carbon price).

If the Senate blocks the Emissions Reduction Fund, it will leave the Liberals with three options that I can foresee: 1) drop all pretence of climate action, 2) call a double dissolution using the Emissions Reduction Fund legislation as a trigger, or 3) negotiate a new climate policy with the Senate.

On the face of it, the first option looks like the most likely outcome. It’s obviously the worst outcome in terms of reducing emissions. But in one way it would be a gift to the climate movement, because there would no longer be any greenwash to cover the expansion of the fossil fuel industry. It would also be an opportunity to go back to the drawing board on climate policy, and a blow to those climate activists who thought incremental action would succeed. The need for radical action would be more evident than ever. However, the Liberals are probably savvy enough to realize this is politically unwise and consider the other two options.

As for the second option, the Liberals say a double dissolution is on the table if the Senate blocks carbon price repeal, but it is not clear whether this also applies if the Emissions Reduction Fund is blocked. My judgement is that whereas abolishing the carbon tax is a central policy, the Emissions Reduction Fund is half-baked window-dressing and the Liberals are very unlikely to risk losing seats or losing government over it.

What about negotiating with the Senate? If Abbott makes significant concessions to the Senate, he will leave himself open to accusations of hypocrisy after having spent three years attacking Julia Gillard for making relatively minor concessions to the Greens and independents and claiming he would not “do deals”. Nevertheless, he may be left with no choice but to negotiate.

Negotiation with the denialist crossbenchers would presumably result in an even weaker climate policy.

Negotiation with Xenophon might result in redesigning the Emissions Reduction Fund to incorporate emissions trading and international offsets (as was at one time suggested by the Australian Industry Group). In my book this would not be an improvement: it would still be a dodgy incentive-based emissions intensity scheme, plus it would move emissions permits around to make it even harder to tell if it is meaningfully meeting its targets.

Negotiation with Labor could be done soon without having to wait for the new Senate, and would most likely result in a (possibly temporary) cap-and-trade ETS, the policy favoured by Labor and most business groups.  The Australian Industry Group has advocated an ETS as a “bridge” to the Emissions Reduction Fund. Another transitional proposal, advocated by the Business Council of Australia, is a lower fixed carbon price in line with the international rate. Perhaps the worst possible outcome is a permanent internationally linked cap-and-trade ETS legislated with Labor’s support, because it would effectively result in bipartisan agreement on 20 years of international offsets.

Negotiation with the Greens is perhaps least likely of all, but the Greens are probably the only ones who would push for a stronger climate policy.

My preferred outcome would probably be a mix of regulatory measures – in other words, true direct action. However, this is unlikely to eventuate as all indications are that the Liberals intend to wind back such measures (eg. the Renewable Energy Target).

But I consider negotiation with Labor or the Greens very unlikely. Abbott has built his entire brand on opposing the climate policies of Labor and the Greens, and called Kevin Rudd the “fabricator” for describing Labor’s early ETS election policy as “terminating the carbon tax”. For Abbott to turn around and negotiate a carbon price with Labor would rightly be seen as a huge and hypocritical backflip.

Might such a negotiation be more likely if Abbott is replaced as Liberal leader? Maybe, but don’t count on much good coming from it. Malcolm Turnbull, former Liberal leader and widely believed to be a possible future Prime Minister, has over the years variously supported the Emissions Reduction Fund (after a decision was made to cap its budget), a cap-and-trade ETS (in his short-lived deal with Labor which led to his downfall), a baseline-and-credit ETS (having co-commissioned the report from which Xenophon took his policy), and his own set of voluntary measures. Personally I don’t have a great deal of confidence in any of these proposals, nor in Turnbull’s commitment to climate action. But even if Turnbull is genuinely the green Liberal many believe him to be, he now looks further from leadership than ever.

While the choice of policy mechanisms is up in the air, the forthcoming Climate Change Authority Caps and Targets Review Draft Report should finally reignite the debate over emissions targets. This will coincide with the release of the IPCC AR5’s remaining instalments and an international campaign demanding countries sign up to more ambitious emissions targets at upcoming climate talks. Unfortunately, an alleged leaked copy of the draft report apparently recommended a mere 15%-by-2020 target, little better than the present target. Even if the recommendation turns out to be stronger than that, Abbott is unlikely to listen (though the report is still worth doing because it could help reshape the political debate).

Overall, the outlook for climate policy under the Abbott government is dismal. But on the bright side, this makes for a simpler strategic choice for the climate movement. It should be obvious there is little point in sucking up to the Abbott government. We have nothing to lose by advocating the rapid emissions cuts we know are urgently necessary.

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