How to get an ETS through the Senate

After the contortions of the last few weeks, I think it’s pretty safe to draw the following conclusions
(i) The Liberal Party is all over the shop on climate change and is going to stay that way, at least as long as Brendan Nelson remains leader
(ii) Whatever legislative proposal the government comes up with, the Opposition will oppose it

The first is pretty obvious. While the outright delusionists kept quite in the leadup to the election, and for a few months afterwards, they’re getting louder again, and Nelson is already pandering to them. On the other hand, the small but important group who actually want to do something, most notably Hunt and Turnbull, have nothing to lose by saying so. The great mass whose instinct is to do nothing, but who can see the political risks of this approach (of whom Nelson is a prime example) are swinging from one side to the other.

On the second point, in a situation like this, it’s natural to fall back on the maxim ‘the duty of Opposition is to oppose’ and that’s what I expect will happen in the end. That leaves the Rudd government with a number of choices, some of which must be made in advance.

The most aggressive response would be to move forward rapidly with legislation close to the model in the Green Paper, with the expectation that neither the Coalition nor the Greens would support it. A three-month wait and the same legislation would provide a trigger for a double dissolution. This seems appealing in a lot of ways. The risk of defeat in the Reps is small, and a more tractable Senate highly likely. On the other hand, Rudd is generally cautious.

The main alternative is to attempt a deal with the Greens and independents, with the threat of a double dissolution held in reserve. It’s hard to tell how this would turn out. The best outcome, in terms of a combination of political salability and environmental effectiveness, would be one where the government maintained compensation for households and at least some for industry, and secured Green support by the adoption of reasonably stringent targets for emissions reductions.

39 thoughts on “How to get an ETS through the Senate

  1. I couldn’t possibly see a Liberal crossing the floor on this issue in the upper house, it’s not (perceived as) values or morality based enough for that, and can’t see a deal that would satisfy that idiot Fielding coming to fruition without truly bastardising an ETS.

    So the options as I see them are:
    i. the Coalition has to swing behind it, and it passes with amendments, some time next year
    ii. Double dissolution (goodbye Steve Fielding, hello Greens BoP), which I rate highly unlikely until at least mid-2009 as Rudd is naturally cautious.
    iii. an election as early as 8 August 2010, with a fully costed ETS as a central policy platform, to be passed and implemented for 1 Jan 2011.

    Any which way, the Latham effect on the Senate will pass. I am very much guessing but I think Labor can win an election on this issue, it is something that the majority of Australians including swinging voters want and if properly explained and with appropriate offsets it is quite saleable. Also, some green voters will return to the fold. The only real risk is if there are aberrant weather periods and another La Nina, leading more out in voterland to doubt ACC. A solid El Nino will really kill that one, and I would not want to be the Libs betting my strategy on unlikely chance events!

  2. A number of correspondants have either deliberately misrepresented, or completely misunderstood, the Greens’ position on the ETS. While they are likely to push for amendments to the govt’s proposal, Bob Brown has made it clear that they will vote for it, at the end of the day, because even an inadequate scheme is better than nothing. The govt will certainly get Greens support, but will possibly have trouble with Xenephon, and will certainly have trouble with Fielding (given what they’ve both said about fuel prices).

  3. David, got a link re Bob brown’s actual position?

    Surprised that he would tactically give up in this way so early, cutting himself out of the game.

  4. What wilful said – it’s foolish of Brown to actually say that aloud. It’s no way to stiffen the government’s spine, and he’s just ruled out any chance of getting some Harradine-like favours for other pet causes.

    I think a week is a long time in politics. By the time this gets to the Senate some short-term factors – especially the spike in the price of oil – will have changed. Rudd has big opportunities to play the wedge here – the compensation package can be lovingly crafted to make both Senator Fielding and the Liberal wets very uncomfortable.

  5. To be critical of the new conventional wisdom of ETS, as being much ado about nothing and in terms of being seen to ‘do something’, you might assume I’m comfortable with doing nothing and simply adapting. Far from it. There is a much better way of approaching the plethora of interlinked problems manifesting themselves all around us now. I’d argue that the better solution lies in the fundamental rewrite of the constitution of our marketplace now. Tacking ETS onto the current flawed one is an exercise in futility IMO, particularly with a world recession/depression looming large. That and AGW should be the catalyst for much introspection and circumspection more generally, rather than some singular, somewhat manic focus on AGW.

    In some sense the little bloke is supposed to enter Camelot passing 2 great pillars or buttresses either side of the road, Left and right, Austrian or Keynesian perhaps, towering either side of his path as he carries his heavy load, both proclaiming to lighten the load and brighten the path for him. In which mighty edifice should he take some small comfort? That is his eternal question or more simply his lot in life. Unfortunately his Camelot has been built with the compromises of both and the cracks in the foundations are beginning to show.

    An obvious example should suffice. We build a progressive income tax system, complete with capital gains tax, but with an exemption for the humble abode (naturally a serf’s home is his castle) and negative gearing to boot for rental market investors. Well you have to treat interest costs the same across investment sectors obviously. Then you add the depredations of central bankers’ miscalculations to that and it’s God, Kevin or Wayne save the first home buyer and ultimately renters. That isn’t the failure of capitalism or the market but the market doing exactly what it was constituted to do in the first place with all that incrementalism and the law of well intended consequences coming through loud and clear. Now it’s the devils own job to extricate the unintended consequences from that quagmire without dealing with the fundamental CM underlying it all.(just ask the Hawke/Keating govt about tinkering with capital gains tax in that regard)

    Take another obvious example with the environment. John Walmsleys Earth Sanctuaries Limited attempts at investing in natural environment. Now we can all accept the noble sentiments behind such an endeavour, but it had a snowball’s chance in hell of surviving in the current marketplace. Only altruism of the investors or the rearguard action of public investment (after all the other demands of the public purse) could survive the onslaught of bitumen, concrete and tuscan boxes in our current CM. Again that’s not capitalism or the failure of the market, but the way in which the market has been constituted and it doesn’t have to be that way if we think carefully about how to constitute an ideal marketplace, rather than more bureaucratic incrementalism and the law of well intended consequences kicking in.

    Where is the blueprint for such a CM you may well ask? In our logical minds and going back to first principles, bearing in mind our current starting point (history, knowledge, technology and inherent challenges) and how to redesign it afresh in a Rawlsian sense, where none of us know where we’ll be as ultimate players. More left or more right, more Keynesian or Austrian I hear you ask. Which of the 2 great pillars? My answer is both, locked together by a keystone arch of the third way, beneath which all can safely pass on the road to Camelot.

    In designing such a blueprint for such a new CM, you need to be aware of the two great philosophical pillars pulling you in false directions from time to time and also the flaws of past engineering/architecture in that regard. That said I’ll refresh part of my ideal blueprint again. Wipe the slate clean of all other forms of taxation for reliance on resource and carbon taxing, including land as a resource (nil rate for natural environment to a maximum for artificial cover ie. buildings, concrete and bitumen) Immediately that sends market signals that the use of new resources is dearer than existing and aids careful, considered use and recycling. Pirsig’s quest for quality over quantity, which is relevant to a spaceship earth outlook today. It’s neutral WRT private, business, religious or charitable pursuits and taxes the life blood of capital rather than labour. Also neutral on savings and investment, borrowing or lending, which is very important for those first home buyers you’ll recall. With no stamp duties or transaction taxes capital and labour will be free to be fleet of foot in the challenges of the future as well. Basically no frictional effects to hamper individual ingenuity and entrepreneurship. To give up progressive income tax the tradeoff will have to be an annual net wealth tax for the top end, adjusted for lifecycle stage of course. Physical wealth is more easily identified and measured than income. Also much of that wealth has been built on the past pyramid of fossil fuel use and there are intergenerational equity concerns to consider here too. That’s the basis so far, but now we need that keystone to lock it all in place. For that we’ll need to review some past philosophical points and settle some old arguments with modern realities. Off into the ether for a bit and then back to the practical blueprint for the final touches.

    Now John Locke had a valid point about enclosure and private property rights in order for individuals to capture the productivity of their efforts and avoid the tragedy of the commons. However he was a man of his times, in a frontier world. He might have had some different thoughts had he experienced the view of earth from the window of a moon mission and the birth of the concept of spaceship earth. Welcome to the tragedy of total private enclosure, should there be no John Walmsleys or simply lack of incentive for them. Whilst Locke might agree with some communal tax on his private enclosures, for the right of private exclusion and communal defense of such rights, he might not have agreed with Henry George, that all communal taxation be based on the market value of said enclosures. In that sense Henry might have been the pioneering Marxist, because if the level of that taxation were high enough, all private return to effort and ingenuity might be lost to the individual, something Henry George fans might like to ponder. However the main point is that taxing land via its market value today, would force its exploitation and that was one of Walmesley’s major problems. Coming back to Locke and George, if land as natural environment is held in private trust for us all, now and for the future, then clearly it should not be communally taxed to aid and abet its destruction. In fact quite the contrary. There should be tax credits for those who actively nurture and create more of it, as a countervailing market power against its conversion for economic use.

    The keystone to our overall blueprint then is to allow an exemption from that ANWT for all of it that is invested in natural environment ie an individual parcel of land or simply shares in a Walmsley’s ESL. Furthermore, if calls are made for more capital for the creation of more natural environment then ANWT obligations can be satisfied with such franked credits. That gives high wealth individuals a choice. Pay a communal deeming tax or invest in the environment. With that keystone in place, coupled with the other planks of a simple, neutral, fair and understandable CM, we could all go forward at great pace, with minimal bureaucratic interference and cost, toward a future we can agree on. (having said that we could always reserve an ETS to overlay carbon taxing later if desired) You might also like to dwell on just what section of our society might suddenly have a strong economic role and purpose with that last keystone in place, since they have a snowball’s chance in hell in the current one.

    This personal blueprint is why I back Nelson’s critique of the grand plan, systemic risk, jurisdictionally impossible ETS being promulgated as the only true conventional wisdom now. Not because he has the answers, but because there are better, exemplary paths for us to follow and I present this one as the best I can think of for consideration. It’s a market green policy with Keynesian overtones in overall setting. Also note that if central bankers continue to get it wrong, it may show up in some speculative capital gain in natural environment rather than first home buyers’ mortgages. The signs that price and markets work is all around you if you look closely. Keynesians should understand the need to set the overall course and leave the steering to deft individuals. Old habits die hard I guess and hence the attraction for bureaucratic, nightmare ETS add-ons to the current mess.

  6. And while you’re mulling that over you might like to think about-
    1. How your ETS add-on deals with the incentive to enclose more land particularly in LDCs for say corn and sugar to ethanol, or palm oil for biodiesel.
    2. How we’re going to deal with SWFs and all their dough buying up our jurisdictional resources and indulging in some transfer pricing and the likes.
    3. The growing number of Lowys, etc claiming the Fifth on their Leichtenstein bank accounts.
    4. Why on earth the income from the O’s subsidised solar panels and feed in tariffs aint income in the current CM, just to mention one priceless anomaly of your current CM.

    Of course in my ideal CM, I’ve got all that covered, not to mention the kids’ housing affordability problems all wrapped up neatly.

  7. For what it’s worth, here’s the Family First environment policy.

    It’s so convoluted and self-contradictory that it could be used to justify everything from the Greens to Nick Minchin’s position on greenhouse issues.

    They want an ETS, but don’t want to impose increased costs on families. And businesses. And they want to cut petrol tax because it’s too expensive. The only conclusion I can come to is that they’re utterly clueless.

  8. Don’t you just love this typical la la land view of the world-

    “FAMILY FIRST believes it is important to recognise that households account for less than 10 per cent of greenhouse gas emissions, with the bulk coming from the electricity sector, gas,
    water, agriculture, forestry and fishing..”

    It’s just like some insurance co, accounting firm, law firm, bank, etc adding up the electricity bill and the fuel bill for the company cars and saying that’s our CO2 consumption and trotting off to plant some trees and buy some green power and bingo, they’re carbon neutral. Forget the energy tied up in their building, office furniture, computers, consumables, the roads, trains, trams, buses cars to get the workers to work. The pro-rata food clothing and shelter for the workers working week, the power station infrastructure, that portion of power workers carbon allocated to their power,Govt admin workers, etc, etc, etc. As if the whole bloody edifice and infrastructure of a modern, industrialised economic system is somehow immediately excisable from their little patch. What a bunch of blinkered moral posers and tosspots.

  9. So the ETS fans haven’t said whether my environmental blueprint for a new CM from first principles fits the Greens, Libs, Labs or Family First view of the world. Any thoughts?

  10. Yes but emission trading allows us to identify the lowest cost ways of cutting emissions.

    So does a carbon tax. You are hardly going to see consumers using the most expensive alternative energy source to avoid a carbon tax so long as there is a cheaper alternative.

  11. observa,
    What the Georgists want is a tax on the unimproved value of the land, not the market value. That forces land-owners to make the best economic use of it or relinquish it and would likely stop a lot of e.g. land clearing of marginal-productivity farmland as it would no longer be cost-effective. Given that most modern Georgists believe in taxing natural resource use (e.g. mining rights, fishing rights, spectrum rights, etc) your position sounds a lot like Henry George to me.

  12. Terje, a carbon tax imposes the same cost on all emitters – which ignores the differing marginal cost of abatement which is what drives trading in an ETS scheme.

    A carbon tax has the same problem as a quota system – it ignores the fact that different businesses have differing potential for emission reductions.

  13. “The Federal Opposition has finalised its climate policy of starting emissions trading by 2012, with a soft start if necessary.

    The Coalition joint party room met today and endorsed the position of shadow cabinet reached yesterday.

    Today’s decision means Opposition Leader Brendan Nelson has lost his fight to make the trading scheme conditional on big emitting nations coming on board.

    The Coalition today decided to start by 2012, regardless of what other countries do.”

    http://www.news.com.au/story/0,23599,24101663-5007133,00.html

  14. “What the Georgists want is a tax on the unimproved value of the land, not the market value…..[hence]your position sounds a lot like Henry George to me.”

    To some extent council rates, land tax, water and sewer rates are all defacto taxes on unimproved land at present and it’s that holding cost that often forces say farmers on suburban fringes to ultimately sell. Walmsley’s Warrawong Sanctuary was in the desirable Adelaide Hills and without customary economic return was effectively doomed, barring altruism. Notice under my schematic, his holding costs are nil and he has no need to make an economic return for wealth-holders(shareholders). He can simply provide them with a sanctuary from wealth tax and furthermore they get an ANWT franking credit if he calls upon them for more capital to build the natural environment. The reverse of current economic wisdom. Tell me how Georgists deal with that countervailing market power on behalf of natural environment? In fact under my blueprint, there may ultimately be no need for any Govt owned national parks and wilderness. Internationally you might go and visit the Bill and Melinda Gates Trust Amazon Forest, tended by locals. Think about aboriginals and their land locally too in that regard.

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