How green is the green paper

I haven’t had time for a really thorough reading of the government’s Green Paper on emissions trading, let alone a full-scale response. But I thought I’d put down a few points for discussion.

The obvious omissions from the Green Paper are a target for emissions reductions, and (a big reason for the first omission) an analysis of costs and benefits. This is unsurprising in view of the fact that the previous government left virtually nothing in the way of institutional capacity to deal with problems like this. What modelling was done, mostly by ABARE, was designed to support the ever-shifting policy line of the day, and had very little value in terms of objective analysis. In any case, the departure of most of those involved in this work means that ABARE, like Treasury, is starting pretty much from scratch. Still, when it arrives, the analysis is likely to be a lot better than the spurious scaremongering offered by the Shergold committee (see my Agenda review (PDF))

Although there’s plenty of interesting and useful detail about the design of emissions trading schemes, the hot topics are obviously those concerned with exemptions, offsets and compensation. On compensation, the broad outline of the approach is pretty good. At least 50 per cent of the proceeds of the permit auctions should be allocated to compensating households for the cost increases arising as carbon costs are passed through to consumers. That leaves 30 per cent for business and 20 per cent to fund research into cost-effective ways of reducing emissions.

The big question here is whether business is getting too much and whether it is being allocated appropriately. I am working hard on this will colleagues at UQ, and my provisional answers are Yes (most of the cost will flow through to households) and No (sectors should be compensated for a general increase in costs, but firms should not be compensated for bad investment decisions in CO2-intensive technologies. In addition, more money should be allocated to workers rather than capital-owners). However, these are only provisional views – we’ll have to see how the numbers come out.

Then there’s the decision to effectively offset any impact on petrol prices. Unlike the other compensation measures (which transfer wealth but preserve price incentives) this will negate any impact of the scheme on actual behavior. The only defence for this is pragmatic – this will make it harder for the Opposition to reject the scheme and the likely impact below 10c a litre in the first round of trading is marginal compared to the price increases we’ve already seen. The big danger is that, when reviewed at the end of the first round, this fudge will prove politically untouchable.

Whatever criticisms we might have of the scheme, it’s important to take a step back, and consider how the issue stood only a couple of years ago. No progress at all had been made in nearly a decade after Kyoto and plenty of commentators were asserting that even a change of government would make no real difference. Now we are set to have an emissions scheme in place by 2010 and serious targets for 2020. That’s a fundamental shift, and one I hope to see replicated in the US once the long disaster of the Bush Administration is over.

48 thoughts on “How green is the green paper

  1. I have changed my mind on global warming. I used to think it was important that Australia become involved in a carbon trading scheme to reduce carbon emissions etc. But now I don’t think it is that important. By all means we should give it a go, but intervention will fail.

    Probably the most beneficial thing we can do is to try and mitigate some of the worst consequences of diminishing biodiversity. I am not a biologist but perhaps corals from the warm northern barrier reef could be relocated to the cooler southern regions. At least then when humans have disappeared from the planet these corals will have a chance of continued existence.

    David

  2. David – Once we have disappeared from existance who really cares what the coral does? It can migrate to Mars if it likes. To suggest that the most benefical thing we can do is to save coral for after our extinction seems to suggest a rather extremist view of humanities responsibility to other species versus responsibility to itself. Does it worry you that around the world scientists are at this very moment working hard to make many varieties of microbe extinct?

    It’s this type of deification of nature that gives the green movement such a bad name. I do like coral but are you serious?

  3. terje, are you serious? Does nature have absolutely no value for you beyond human utility?

    You may characterise the alternative view as religious (read, batshitinsane), but most people are on the other side of the ledger to you, most people strongly consider that the environment and biodiversity has intrinsic value, even if and where no human has any interaction with a species or place.

    David, it’s a trade-off to be sure. We’ve locked in some need for adaptation, but it’s still clearly much cheaper to keep working hard towards mitigation. The only reason to do only adaptation and not mitigation is if we believe that the big polluters will not ever play ball. I’m not that pessimistic.

  4. The developed world creates around 20% of ACO2 emissions so the EEs who create around 80% are going to increase by how much?
    If they go 10 times they will still be less than the DW [per capita]and that will bring their contribution to 98% and the DW’s to around 2%.
    What effect, in practical terms, could any DW reductions make?
    If Australia in this time achieved reductions of 50% of its now 0.2%, this would represent 0.1% of ACO2.
    I think Penny and the Advocators need a reality check.

  5. Ian Gould,
    On those figures [if they are right] Australia’s
    percentage is even less.

  6. “On those figures [if they are right]”

    Feel free to check the figures and link to any creidble altenrative figures.

    “Australia’s percentage is even less.”

    Even less than what?

    Australia’s 2004 emissiosn were 1.2% of world emissions, that’s higher than the 1% figure usually mentioned in these discussions.

  7. My original figures obviously weren’t good but my point is still just as valid.
    If Australia succeeds in reducing our 1.2% of emissions by 50% [highly unlikely] this 0.6% will be decimated due to the EE’s increases.
    Taking a moral stand for pure principle and no earthly effect [whilst very noble] is not a coat traditionally worn by Australians.

  8. “Taking a moral stand for pure principle and no earthly effect [whilst very noble] is not a coat traditionally worn by Australians.”

    Right, that’s why we sat out both world wars and didn’t intervene in East Timor.

  9. Ah but what percentage did we contribute to the allied war effort in both world Wars? 1%? 2%?

    surely you must realise that was totally swamped by the Russian contributions.

  10. So you believe our 0.6% reductions [if we can make ’em] will make a difference?

  11. Spangled drongo, what proportion of the contributions on the blogosphere do you think you make? I’m guessing its less than 0.6%. By your logic that can’t make a difference, so there’s no point you making them. (Which is true, but for other reasons). I likewise trust that you never vote in any electorate where you represent less than on 200th of the electorate.

  12. Presumably Spangled Drongo doesn’t contribute to charity because his contribution would be an insignificant percentage of the total.

  13. SD, I pulled this morally obtuse line to pieces in a very recent post. Why don’t you read it and comment there?

  14. SD,

    There are 195 countries in the world, and they all have their little bit to do. Every little bit adds up to a lot. 195 times 1.2% is 234%. So think about how significant our share is in that context. To get into a football match might cost $10, but $10 is just a small part of the $20,000 that it takes to put on the match. So as it is such a small amount, why should you have to pay at all?

    The other approach to this is to realise that in our system of law a persons responsibility is proportional to their ability to act. We, as a community, have a superior ability to act on climate change, proportional to most other countries, and it would be a breach of our own common law to not act to prevent massive damage to our environment through negligence, when we are well aware that action is imperitive.

  15. There are some serious problems with Chapter 4 of the Green Paper “Emissions targets and scheme caps”. The preferred positions are that the Government announce a minimum of five years of the indicative national emissions trajectory, and a minimum of five years of the scheme cap at any time.

    Addressing climate change requires resolving the international prisoner’s dilemma and resolving it quickly. Setting a minimum five years before adjusting Australia’s emissions trajectory risks Australia dragging its feet when it comes to international cooperation on climate change.

    We also need to be flexible enough to tighten the trajectory in the case that we approach any tipping points or the science proves to be worse than expected (which seems to be the case). The risks are too high for five year delays.

  16. John,
    If you’re referring to companies pursuing social goals for moral reasons, that’s not the same thing.
    This is individuals being “mandated to be moral”.

  17. “This is individuals being “mandated to be moralâ€?.”

    No actually it’s about the democratically-elected government of Australian moving to enact laws which it promised to enact before it was elected and which are supported by a large majority of the electorate.

    Hence I have to repasond “what’s YOUR point?” since the mutterings about the voluntary nature of charitable donations are an obvious logical non sequitor having no relation to your previous argument about the small relative size of Australia’s contribution.

  18. You embrace your own pointless contributions.
    Just let me decide what mine will be OK?

  19. Is there an argument from market distortion for the fuel excise cut? That is, in the past petrol was taxed while other energy sources (e.g. electricity from coal) were not. Replacing the excise with the carbon tax (which applies to all non-renewable energy sources) should ceritus paribus lead to a more efficient energy market.
    Which uses more carbon per watt, petrol or coal? If it’s coal, then cutting the fuel excise is actually a greenhouse good.

    James, I think you have a good point there. I at first thought the offset was a mistake but no longer object.

    Suppose that, in between plundering the Assorted Creams, the outgoing Howard government had decided to cancel the fuel excise. Would we now be arguing that a new tax should be imposed on fuel in addition to the carbon cap price? Looked at this way it does seem quite distorting.

    Well, we might, because vehicles have costs and externalities beyond just their CO2 emissions: smog, accidents and crime, road congestion, wear and tear on infrastructure, and so on. Fuel is a reasonable proxy for use of the roads. However, now that part of the cost of pollution is going to be captured by the carbon charge it may be reasonable to reduce the rebate.

    If we want people to switch to more efficient vehicles then cutting the tariff might help.

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