The Australian Government’s Emissions Trading Scheme (ETS) Green Paper is due to be released tomorrow (Wednesday). It represents a critical test of the government’s credibility and willingness to govern for the whole community, present and future.
It’s important to remember that an ETS is not a comprehensive response to climate change, although it’s being portrayed as that by elements of the Australian press. It is one part of the strategy, and may not be even the most important part. It consists essentially of three parts: a national cap on emissions of greenhouse gases; the allocation, or sale, of permits to emit these gases, the total of which equals the cap; and a platform to trade these permits. The trading element is designed, in theory, to provide abatement of greenhouse gases at the lowest social cost, the ‘economically efficient’ outcome. But trading in itself does nothing to the level of national greenhouse gas emissions: that is accomplished only by the cap.
A critical element of a successful outcome is the inclusion in the ETS of all major national emitters. That provides for both coverage of all major emission sources, and for a volume and flexibility of trading that ensures the most cost-effective abatement outcome. Special pleading by industries and sectors is dominant in the public discourse at present. The proposal of agribusiness to be excluded from the scheme, or to seek massive compensation, is one such voice. Another is the export-oriented industries. It is likely that most sectors can, and will, make some kind of case for special treatment.
If the Government is serious about the ETS (and it should be, having been largely elected on the promise of addressing climate change) it will resist these calls. To do otherwise will be to vitiate the effectiveness of the ETS, perhaps fatally. Large emitters outside the ETS will go on emitting without a carbon price constraint. Emitters inside the ETS will be required to bear greater, and perhaps crippling, abatement targets and costs. Such an outcome would make a mockery of both the ETS as an effective market-based emissions constraint, and of the Governments political commitments on climate change.
The argument by businesses that some compensation is due to them for making such changes is particularly specious. The simple fact is that business has benefited for decades from a massive subsidy provided by the community at large, in their ability to pollute without penalty. Those costs should have been internalised and carried by business long ago. That has been clear for at least two decades, and has been ignored by the vast majority of businesses in the interests of short-term returns to shareholders. The wealth that has accrued to shareholders from this subsidy is immense. Now is the time for business to begin paying the community back. The only compensation that should be paid is by business to the community, for the unconstrained, decades-long use of a public good: the environmental services of the atmospheric system.
If there is to be support offered by government for the impacts of the ETS on business, it should be tied to structural change. The economy must make as rapid a transition from the high to a low carbon economy, for the sake not only of the economic strength, and the jobs that go with it, of this country, but to implement this countries obligations to the world, as one of the highest per capita emitters. Only those businesses who are prepared to make the structural changes that are implicit in these obligations should be financially supported by the community.
In a similar way, for export-oriented industries to argue that they should receive special treatment because they can’t pass on the new carbon costs to international consumers, as domestic companies can, is particularly outrageous. Domestic consumers have already been paying these costs, in the degradation of the public good of atmospheric quality and climate stability. Companies themselves must now absorb these costs within their own cost-structure, by making the required investments to increase efficiencies and move to a low carbon configuration. To argue that export-oriented industries are somehow disadvantaged because international consumers are not likely to be as compliant to cost-driven price increases as domestic consumers is both disingenuous and unethical.
Finally, the ETS must be coordinated with a comprehensive national plan on climate change, which includes investment in renewable energy and in other low carbon technologies, and which enables the national discussion to proceed. Nothing coherent on climate change will be done without that national discussion being permitted and encouraged. The Rudd Government has so far not been particularly transparent on its own views or receptive to community discussion and input; the Government’s interactions with the public at large have been notably token and selective. As Hugh Mackay recently observed, the Australian community is increasingly well informed about climate change issues, and open to making the changes necessary, at the individual and household level. Fostering that collective resolve is the core competency of the art of governing. The Government needs to learn it quickly, and put it in place, if Australia is to develop a coherent climate change response.