Monday, October 19, 2009

A race to the bottom

Tim Colebatch
The Age, 20 October 2009
DAY in, day out, Malcolm Turnbull and his colleagues have been slamming the Government for ''reckless spending'', ''spending like drunken sailors''. Every day they have demanded spending cuts - until Sunday, when they demanded more spending: tens of billions of dollars more.
The spending the Opposition objects to is going to schools, public housing, rail or roads. The spending it wants to increase would go to selected companies - mining firms, coal-fired power stations, energy-intensive manufacturing, food processors - in the form of free permits to pollute.
The Coalition is proposing 13 separate amendments to the Government's scheme. All but three would work to blunt the impact of the scheme, and increase its cost to other taxpayers. And they would increase Australia's actual emissions (though not its emissions target).
The rationale, of course, is to preserve jobs and profits in the target sectors. It is to defend business-as-usual from a scheme that works by ending business-as-usual.
The point of emissions trading is to drive change - make it more expensive to pump greenhouse gases into the atmosphere, and give companies and individuals an incentive to switch to cleaner ways of doing things. It becomes more profitable to invest in low-emission alternatives, because the cost of permits reduces the time needed for investments to pay their way.
Australia generates the most greenhouse gas emissions per head of any G20 nation. There are many reasons why, but the main one is that we generate most of our electricity by burning coal, which produces lots of greenhouse gases. Our power stations produce four times more emissions than all our manufacturing smokestacks combined.
If you want to reduce emissions, the best place to start is in Victoria's electricity industry. Most of our power comes from old power stations burning moist brown coal - and producing more than 50 million tonnes of emissions a year. Under business-as-usual, Victoria's brown coal generators alone would produce 10 per cent of Australia's 2020 emissions target.
Frankly, the smart thing for Victoria is to let its old dirty power stations close, let the $4.5 billion of taxpayer subsidies to Alcoa lapse when the agreement ends in 2016, and clear the way for much cleaner gas and wind-powered generation.
The new plants are already coming. Origin is building a 1000-megawatt plant at Mortlake. Santos is planning a 1500-megawatt plant north of Port Fairy. Victoria now has almost 500 megawatts of wind power and another 3000 megawatts in planning.
Cleaner alternatives? We've got them in spadefuls. You want to reduce emissions, and save taxpayers money? Start here.
But what are Kevin Rudd and Malcolm Turnbull planning? They want to reward the dirty coal-fired stations. Rudd has offered $3.6 billion of free permits to existing generators. Not enough, says Turnbull: give them $10 billion worth, and keep it till 2025!
Their excuse is that this will help generators finance cleaner power stations. But if that's the goal, let's give a 10 or 20 per cent subsidy to build clean power stations - not free permits to dirty ones.
Then there's agriculture. Thanks to our 27 million burping, farting cows, agriculture produces 16 per cent of Australia's emissions, and without change, that would rise to 19 per cent of the 2020 target. No one knows how to measure emissions farm by farm, so Rudd's rules would leave them out until at least 2015. Not enough, says Turnbull, leave them out permanently! Yet also allow them to profit by selling offset credits for anything they do to cut their (unmeasurable) emissions.
That would make sense if and when we can measure the emissions. But nothing else in this makes any sense. We have already effectively exempted transport (15 per cent of emissions) and cutting down trees (10 per cent). That leaves just 60 per cent of emissions to be covered by the scheme.
There, Rudd and Turnbull differ mainly on how many tens of millions of free permits should be given to the biggest emitters. Turnbull wants food processors to share in the hand-outs, and any firm at all energy-intensive. Moreover, he wants permits to last until 80 per cent of their global competitors have to pay for permits.
If every country adopted these rules, the worst emitters would never have to reduce emissions, because each country would be waiting for the others to move first.
Nothing in these proposals would drive Australia to reduce emissions. Our population is growing by more than 2 per cent a year, our output grows on average by 3 or 4 per cent. Under these rules, our emissions wouldn't fall. They would keep rising, and Australia would meet its target by buying cheap permits from developing countries.
What happened to the process that began so well with Ross Garnaut's clean, principled model for tackling climate change? In Garnaut's plan, emissions-intensive industries would be compensated only to fill the gap between current market prices and those we would have if emissions permits were universal. Electricity generators would not be compensated at all. Why should they? They have known for years this was coming.
Garnaut's report should have gone to both party leaders so they could jointly design a scheme that both sides eventually will have to run. Instead, they have had a race to the bottom. What a tragedy.
Tim Colebatch is economics editor.

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