Garnaut slams climate plan

• Michelle Grattan
• The Age, December 20, 2008
• http://www.theage.com.au/national/garnaut-slams-climate-plan-20081219-72dl.html?page=-1

ROSS Garnaut has launched a scathing attack on the Government's emissions trading policy, condemning its failure to embrace a more ambitious goal and the multibillion-dollar compensation for electricity generators.

In his first intervention after Monday's unveiling of the Government's blueprint, Professor Garnaut — the Government's climate guru — said last night that the plan would get "5½ out of 10 at a good university".

Writing in today's Age, he says it makes large transfers of money "from the general community to particular interests", and warns of its fiscal and environmental risks.

There is "no public policy justification for $3.9 billion in unconditional payments to generators" for hypothetical future loss of asset value.

"Never in the history of Australian public finance has so much been given without public policy purpose, by so many, to so few," he writes. "The best that can be said is that these are once-and-for-all payments — unless the spectacular success of investment in lobbying inspires repetition and emulation."

But he does endorse the Government's unilateral target of a 5 per cent reduction on 2000 levels by 2020, which is in line with his review.

But that review said a 25 per cent target should be kept on the table in the slight hope of a comprehensive international agreement. The Government says it won't consider such a target until after 2020. The review was also much tougher than the white paper in proposals to compensate industry.

Professor Garnaut urges the Government to rethink its position on the 25 per cent target before next year's Copenhagen climate conference, especially if the Obama presidency and China's response bring hope of an unexpected breakthrough.

"Australia cannot play a strongly positive role in encouraging the global community towards the best possible outcomes if it has ruled out in advance its own participation in strong outcomes," he writes.

He warns that high payments for trade-exposed industries in both Europe and Australia, and presumably other countries, justified on the grounds of the international financial crisis, could serve to worsen the downturn — as happened when the US and other countries raised protection in the 1930s, deepening the Great Depression.

Professor Garnaut points to large risks to public finances in the five-year price cap for emissions permits and in the issuing of free permits to trade-exposed emissions-intensive industries, although he says the permits are based on sound policy.

"The problems arise from the absence from the white paper of a sound conceptual basis for payments," which has profound consequences, he writes. "Sound principles would see the automatic withdrawal of payments as carbon constraints emerge in other countries.

"With political bargaining determining payments, as in the white paper, there is no obvious point at which payments would be partially or completely withdrawn." Even if there was an international agreement that completely removed the case for payments, five years' notice would need to be given for withdrawing them.

Professor Garnaut said last night the "next reforming Australian government will have as its central objective the removal of the distortions in the ETS' trade-exposed industries".

He said the scheme would have been better if it had taken on more of his proposals.

Supporting the 5 per cent unilateral target, he writes that this is a challenging target in the absence of an international agreement. "To go further would run the risk that Australia's example of early action would be negative rather than positive in its influence on others."