Improving the CPRS
It seems virtually certain that the CPRS legislation will be reintroduced to Parliament later this year, and highly likely that it will be passed with the support of some or all Liberal Senators. The alternative, a double dissolution fought on an issue where the party is split down the middle, would be catastrophic, good reason for any party with an interest in long-term survival to avoid it. I’m guessing the Liberal Party still fits that description, or at least that enough of its members do to provide a Senate majority.
In these circumstances, it’s unlikely that we will see improvements on the current proposal, in fact the opposite. It makes tactical sense for Labor to offer the Libs some further modest concessions, enough to get their support while splitting off the Nationals and leaving the delusion, delay and do-nothing faction among the Libs deeply unhappy.
Undaunted, I’m going to suggest some ways in which the scheme might be improved.
First, I’ll look at a couple of proposals the government could conceivably adopt, that would remedy some of the most glaring flaws in the scheme as it stands. Then I’ll consider what might be done on the (not very likely) assumptions that one progressive Lib (Marise Payne?) might put planet ahead of party, and that the Greens would vote for a scheme that might be imperfect but would still be at least as strong as anything likely to be agreed at Copenhagen. Add Nick Xenophon, who usually comes good in the end, and you would have a bare majority.
Starting with the feasible improvements, the existing scheme has two notable problems aside from general questions about design, targets and so on. First, it makes voluntary action to reduce emissions ineffectual, since this just lowers the cost of emissions permits (I thought this had been fixed by the changes announced in March, but I was wrong on this point). A suggestion to fix this is the idea of an Additional Action Reserve, put forward by the Centre for Energy and Environmental Markets (described here).
Second, not only does it give out free permits to existing polluters (bad policy, but probably politically inevitable) it undermines the scheme by requiring that those receiving the permits should continue to pollute. This could be fixed by allowing holders of free permits to cash them in and use them to finance adjustment out of the industry in question. An even bigger improvement would be for governments to provide matching assistance to workers and communities affected by shutdowns of, for example, brown coal power plants. The current scheme has almost nothing in this respect.
Now consider the ideal scheme. As I said a while back, the targets the government announced in March are reasonable. The only thing that really matters is the global agreement coming out of Copenhagen, and Australia’s position should be strong enough to ensure that we contribute to the achievement of the strongest possible program (the likelihood of an agreement that is ‘too strong’ is, I think, near zero). A 25 per cent cut on our preferred baseline is at least as good as what any other country is offering. Raising this to a conditional offer of 40, as the Greens have suggested, would make no difference, since no one else is likely to match it.
An ideal scheme would involve hardly any free permits and would instead focus almost entirely on adjustment assistance.
A scheme with a target stringent enough to ensure a carbon price around $50/tonne by 2020 would largely obviate the need for a separate Renewables Target. With this kind of scheme, attention could be focused on research and development, ideally targeted at problems specific to Australia. For example, it seems likely that the optimal choice of solar technology would be very different in a sunny country with a highly dispersed population like Australia than in Europe or China where most of the development is taking place at present.
In addition, recent debate suggests an adjustment with little immediate cost, and probably not much cost for some time to come. Discussion so far has focused on stabilising global CO2 concentrations at 450 ppm by 2050. But there’s an obvious argument that, having gone this far, it would make sense to keep going after 2050 with the aim of restoring the pre-industrial level (278 ppm) by a combination of massive reforestation, improvements in land use and, if necessary, technological measures to remove CO2 from the atmosphere (there are some ideas about already and this would be the last cab off the rank, giving decades to turn them into workable options).
To propose this as a long-term goal, it’s not necessary to take a view on new and relatively untested research about long-run climate sensitivity. It’s reasonable to say that, if the generations alive in the next few decades are willing to give up, say 3 per cent of their income for a project which will deliver most of its benefits after 2050, those who will benefit from that (modest but not insignificant) sacrifice ought to be willing to give up a similar proportion of their (almost certainly much higher) incomes, to return the environment to something like the starting point, before the process of industrialisation that delivered all that wealth.
Also going beyond the CPRS, Australia should be making an explicit commitment to the principles of contract, converge and compensate. That is, we should be aiming for an agreement under which all countries agree to a common emissions entitlement per person, to be reached by 2050 at the latest, with compensation from developed countries to the poorest countries to assist them in reaching their development goals without reliance on cheap carbon-based energy.