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The tax that shall not be named

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Australia’s climate change policy is a shambles. We are the only country ever to have repealed a carbon tax, the issue was key to the felling of two Prime Ministers, and our renewables industry is the subject of a sustained vendetta[i]. Meanwhile the world is warming[ii] faster than ever.

This is why a new proposal[iii] from the Grattan Institute to radically reshape the debate and achieve bipartisan consensus on climate policy is potentially such a game-changer.

The proposal, which would leave in place the basic infrastructure of the Coalition’s ‘Direct Action’ policy, while completely transforming how it works, is aptly named the ‘climate phoenix’. The debate is in flames, but we might salvage something yet.

The idea behind the report is to solve two big problems with the government’s flagship Emissions Reduction Fund (ERF).

The first problem is that the ERF, which directly pays big polluters to cut their emissions, is currently funded by the taxpayer, which is neither an efficient nor a financially viable way of abating emissions. There are cheaper, easier and fairer ways of achieving emissions reductions.

The second problem is that the ERF cannot actually achieve our emissions targets beyond 2020. The fund has a so-called safeguard mechanism that tries to ensure that emissions reductions purchased through the ERF are not offset by increased emissions elsewhere in the economy. It does this by enforcing emissions caps on the nation’s largest emitters and penalising them for exceeding those limits.

The caps, scheduled to come into force on July 1, are a good start. But if our long-term objective is to get to zero emissions then keeping emissions where they are won’t get us there. We actually need emissions to drop at some point. The ERF has no long-term plan for doing that.

Grattan’s proposal gets around these problems by moving to a floating, market-based mechanism. It would see the emissions caps on businesses slowly lowered in line with Australia’s emissions reduction targets. Moreover, instead of assigning emissions allowances, the government would auction tradeable permits. That way, businesses could decide whether it will be cheaper to abate emissions themselves or purchase offsets. Significantly, the proposal would abolish government purchasing of emissions reductions and move to an entirely market-based model.

The proposal, then, is basically to change everything about the current policy except its name.

But that points to an awkward truth: this hefty report from one of Australia’s most respected think tanks, is less about policy than it is about politics. The proposal is essentially an emissions trading scheme, but the authors stop short of describing it as such because doing so would destroy the bipartisanship that is necessary for long-term policy success.

The authors themselves say as much. In a study[iv] just five months ago, Grattan assessed all climate policy options available to Australia, and found that even though “cap and trade with full auction of permits appeared to be the best option”, it was not politically viable given the Coalition’s opposition to emissions trading. This most recent proposal attempts to break that impasse by blending “some of the characteristics of cap and trade….to build on existing policies”.

The report points out that “policies that are less than ideally efficient or equitable will be used in the short to medium term because they represent a pragmatic mid-point along the path that leads from current policies to the policies needed to achieve more ambitious emissions reductions in the future”.

Translation: this is a way of transforming a bad policy into a good one, without stepping on anyone’s toes.

What Grattan has done is a masterstroke of policy subterfuge, dressing up good policy in the nomenclature of an old one. Everyone wins. The Coalition get to claim it is still their policy, while Labor gets it desired emissions trading scheme.

The report is aimed at the Coalition’s right wing, which, having thwarted bipartisan support for emissions trading, scrapped the carbon tax, and instituted the deeply flawed Direct Action policy, have back themselves into a policy corner. This is a face-saving exercise for them.

Obviously, politics has always gotten in the way of good policy. We should not be surprised by this. But the fact that a respected non-partisan thinktank like Grattan is forced to concoct elaborate policy mechanisms just to massage the egos of overly proud politicians is a tremendous waste of human capital.

Australians need to get comfortable with the idea of pricing the damage inflicted by carbon pollution, and our political leaders need to have the courage to argue the case which has the full force of scientific and economic consensus behind it.

The report’s co-author admits[v] “Grattan’s proposal is not perfect policy. It is not meant to be. It is pragmatic”. He is right. And that is the problem: in Australia in 2016, pragmatism is the enemy of good policy.

This is the political equivalent of the “choo choo train” method of spoon-feeding a baby. If you want someone to swallow something they don’t like, convince them it’s something else.

Grattan should be applauded for their clear-eyed and creative pragmatism. Meanwhile, our politicians should be ashamed that our policy-makers are forced to treat them like children.

Hamish McKenzie is a Rhodes scholar researching environmental policy at Oxford University.


[i] http://www.theguardian.com/environment/2016/feb/08/half-of-windfarm-complaints-about-turbines-yet-to-be-built-commissioner

[ii] http://www.theguardian.com/environment/2016/mar/10/dangerous-global-warming-will-happen-sooner-than-thought-study

[iii] http://www.theguardian.com/australia-news/2016/apr/11/climate-change-plan-thinktank-suggests-policy-both-sides-of-politics-can-embrace

[iv] https://grattan.edu.au/report/post-paris-australias-climate-policy-options/

[v] http://reneweconomy.com.au/2016/climate-phoenix-38267  

  • Chris Fraser

    The politicians themselves have permitted this situation go on for over 6 years. If we saw some believable pride-swallowing now we’d probably keel over in disbelief.