Insulation and emissions
I’ve thought some more about the home insulation component of the stimulus package and I’ve come to the conclusion that (drum roll!) my immediate reaction was correct. In the absence of a corresponding lowering of the aggregate emissions target, the package will have no effect at all on emissions. The Australia Institute has come to the same conclusions, and IPART (the NSW utility regulator) has made the same point in a more general context.
Some minor qualifications to this. As Joshua Gans points out here The Russell Girl divx the effect of the scheme will be to reduce the demand for permits and therefore the equilibrium price. If the “safety-valve” price in the CPRS is binding, the scheme will reduce the government’s obligation to supply permits at the safety valve price. And, if home insulation is a cost-effective method of reducing emissions, which householders are neglecting for reasons such as credit constraints, the scheme could allow the target to be reached at lower social cost. This might, in the long run, encourage more ambitious targets
But there is no need to wait for the long run. The Greens and any other Senators who care about saving the planet should demand a reduction in the emissions target, equal to the savings from the scheme, as part of the stimulus package.