I confess to being a little taken aback by the swing back towards campaigning for immediate adoption of a cap-and-trade emissions scheme that appears to be gaining ground in sections of the environment movement. This, in my opinion, is a misguided strategy that risks stifling progress at a critical moment instead of opening the space for the most ambitious action possible in this term of government.
As I understand it, this is driven by two misunderstandings – firstly that an emissions trading scheme is automatically a more ambitious outcome than a tax and, secondly, that the Greens are currently in a position to effectively demand that the government moves a long way from its pre-election weak position on climate policy as embodied in the CPRS.
This may be an unfair oversimplification, and I welcome anyone telling me so in comments, but my point in making it is really to spend a bit of time looking at that first assumption – that emissions trading is automatically more ambitious than a carbon tax – as it is central to the debate over the coming year.
For the longest time, many of us (including myself) have looked at comparative climate policy from the perspective of the ideal – we compare, for example, a well-designed emissions trading scheme with a well-designed tax. From this perspective, we quite rightly decide that a policy which delivers environmental certainty and lets the market determine the cost is better, from an environmental perspective, than a policy which sets a price and lets the market determine the outcome. If there is the real prospect of an emissions trading scheme with a cap consistent with what science and global equity requires, environmental certainty is indeed something to aim for.
But what if the only environmental certainty you are likely to have is the absolute certainty that we are screwed? What if your certainty is a low target which is extremely difficult to lift and well below what is environmentally necessary? Doesn’t environmental certainty suddenly flip from being a benefit to a major problem?
In other words, what if, by campaigning for an emissions trading scheme as a primary goal, assuming it be ambitious, environment groups are actually helping to dampen ambition instead of creating the space for a stronger outcome?
Bear with me here – I hope I’m not about to get bogged down in technical detail.
I’ve had it put to me repeatedly recently that a given carbon price will deliver a given outcome, whether it is delivered through a tax or a trading scheme. In other words, if your modelling tells you a 5% target will lead to a price of around $20/tonne and you decide instead to fix the price at $20, you will deliver the 5% target and no more. Therefore, the argument goes on, if you can deliver a certain level of ambition through a tax, surely it would be better to deliver that same level of ambition through an ETS.
There are several reasons why this is simply not the case. They are each aspects of the lock-in argument the Greens mounted against the CPRS – that the CPRS as designed acted as a cap on action rather than a stimulus.
The first point is that models for the price of carbon implied by particular targets often over-state the expected price. When the trading scheme comes into effect, the price tends to dramatically underperform, as happened in Europe. This too often means that expected behaviour change and shifting investment doesn’t occur and targets are met mostly through cheap and dodgy offsets. The flip-side of this coin is that, if the modelled price had been introduced as a tax, much more abatement may actually have been delivered than the models predicted because, in reality, that price is actually in line with a higher target.
The second point concerns the impact of complementary measures, measures such as renewable energy feed-in tariffs and energy efficiency targets which green groups and the Greens are promoting alongside a carbon price. As the Australia Institute’s Richard Denniss articulated during the CPRS debate, complementary measures introduced in parallel to a cap-and-trade scheme can in no way increase the emissions reductions delivered – all they can do is reduce the carbon price by making it easier to meet the target that has been locked in. On the other hand, complementary measures introduced alongside a carbon tax can dramatically increase abatement, as they bolster the price signal instead of depressing it.
To take the numbers used above, a cap-and-trade scheme with a 5% target will deliver 5% cuts regardless of any complementary measures. A tax set at the $20/tonne implied by a 5% target can deliver far more than 5% cuts if supported by a range of complementary measures.
The final point is one of politics, not policy: the targets discussion is locked in a political dead zone. The ALP has effectively locked itself into a 5% target and has made it clear that it will not move to any level the Greens are in a position to accept. Moving to an interim tax frees both sides of baggage and allows discussion to start on a clean slate.
That realpolitik acknowledgement, frankly, is what led to the Greens’ decision to propose the interim tax option at the beginning of the year. It allows both sides to agree on less controversial aspects, get a price in the market, prove to the community and business that the sky will not fall in, and only then tackle the fraught issue of targets.
So, where does this leave us, other than frustrated?
In my opinion, what we need to see over the coming months is a campaign for ambition in our climate goal, not any particular mechanism per se. We should be talking about levels of ambition that can and will transform our economy, whether delivered through a strong carbon price or a high target. We should be making it clear that weak action, action which makes it more difficult to prevent climate crisis, is not an option.
The Greens are not in power, despite what Tony Abbott says. We can only push the government as far as they are willing to move. A campaign from environment groups which promotes a preemptive compromise will only lead to a final deal which is weaker still – or no deal at all. The only way to get an ambitious outcome is if people are out campaigning in a way that creates the space for the government to move towards us.