It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.

The spin surrounding the Queensland mid-year budget review was interesting and a bit puzzling. All the initial spin was gloom and doom, in keeping with the government’s claim that the dire state of the budget necessitated asset sales[1]. But it turned out that the deterioration in the budget was entirely due to a couple of fairly arbitrary accounting entries for extraordinary items – a projected loss on land purchased for the failed Traveston Dam project and some federal government money that was not going to come in. The underlying picture was an improvement f $800 million a year. This more than cancelled out the deterioration between the pre-election economic statement in February and the post-election budget in June.

I was set to take this nonsense on but by the next day, Treasurer Andrew Fraser was singing a very different song, saying

Treasurer Andrew Fraser described the losses as a “mask” hiding a raft of stronger indicators, including a forecast of 1 per cent growth this year after the previous negative 0.25 per cent.

It is really hard to make sense of this

fn1. This claim doesn’t make much sense. In general, if privatisation is good (or bad), a change in the budget position won’t affect that. About the only case to the contrary is where public ownership provides services that are not paid for by users. In this case, asset sales are like an expenditure cut. But that doesn’t seem to be applicable in most of the cases we are looking at here,

I usually wait a day or two before reposting my Fin column. But the Liberal Party is such a rapidly moving target that this column, drafted on Tuesday, looks prescient in retrospect, but may well be obsolete by tomorrow.

Apologies in advance if this gets posted multiple times. The server is flaky, so I’m using Posterous which works, but sometimes too well. Please comment on the first (lowest on page) version.

Attentive readers of the Letters page may have noticed a letter from The Hon Wilson Tuckey MP (Quiggin sticks to problem not solution Letters 24/11). Mr Tuckey gave his account of a discussion of climate change policy held at Parliament House, organised by the Federation of Australian Scientific and Technological Societies Great Barrier Reef Climate Change Alliance, in which he and I took part.  As is usual in such cases, I had a rather different recollection of events. But, since Tuckey appeared to be, in Malcolm Turnbull’s words a fringe figure of the far right, I saw little value in responding.

Now, however, the situation has changed. As one of Turnbull’s earliest and most vociferous critics, Tuckey can consider himself vindicated by the decision of the Liberal Party to replace Turnbull with Tony Abbott, someone whose views on climate change are much closer to his own.

More significantly, as Tuckey himself has pointed out, the proposals presented on his website http://www.wilsontuckey.com.au now represent the closest thing the Liberal Party has to a climate change policy. It may therefore be useful to examine these proposals, and, in the process, to recapitulate some of the points I made during our meeting in November.

As was noted in Tuckey’s letter, I did not discuss the specifics of the government’s ETS policy, canvass alternatives such as a carbon tax, or speculate on the amendments being negotiated between the government and the then leadership of the opposition. The position presented by the Great Barrier Reef Climate Change Alliance was that a 25 per cent reduction in emissions was needed by 2020, and that a market-based emissions reduction policy should be the central approach. We did not seek to promote one market-based policy over another, and my answers to Tuckey’s questions reflected that.

I was however, quite happy to explain the merits of a primarily market-based approach as against a centralised command-and-control solution, in which governments seek to determine and impose by fiat, particular technological fixes for climate change. Within a market based framework, there be room for some policies, such as feed-in tariffs for solar energy, aimed at nudging decisionmakers to adopt new technologies. But the central element must be to ensure that there is a price attached to carbon emissions, whether through taxes or through tradeable permits.

A visit to Tuckey’s website reveals a different approach. Tuckey is an enthusiast for the tidal power potential of the Kimberley region, as indeed am I. Given the incentives associated with a high enough price for carbon, and reforms to the National Electricity Market to encourage more investment in long-distance transmission lines, there is huge potential in tidal energy.

But such an incentive-based approach is of no interest to Tuckey. Rather, he suggests ‘To respond to these problems the Government should take an up front role investing in and developing Australia’s only significant and predictable renewable energy resource which is to be found in the tides of the Kimberley.’

Tuckey also proposes extensive public investment in High Voltage Direct Current transmission lines, noting that ‘China will not have an ETS. It will invest in Hydro, Nuclear and other renewable energy. Its Government is already building an extensive HVDC network.’

There are strong arguments for a return to greater reliance on public investment in energy infrastructure.  But, in the context of a policy response to climate change, it is important to avoid ‘picking winners’. There are many candidate technologies for reducing our CO2 emissions, ranging from nuclear power and ‘clean coal’ to extensive investment in energy efficiency. 

The most cost-efficient way to choose options for emissions reductions is to ensure that investors in energy infrastructure, public or private, face a price for each tonne of carbon they emit, and earn a return for each tonne they prevent. If that is done, standard commercial criteria will select the most cost-efficient path.

Tony Abbott has effectively ruled out such an option. Having denounced the government’s emissions trading scheme as a massive new tax, he can scarcely embrace the main alternative, a carbon tax. On the other hand, he has committed himself to achieving the emissions reductions promised by Labor.

In these circumstances, the Chinese approach endorsed by Wilson Tuckey is probably the only feasible option. It is, perhaps, surprising that, having elected its most conservative leader ever, the Liberal Party may have to turn to the Communist Party of China for policy guidance. But politics makes strange bedfellows.

John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.

Posted via email from John’s posterous

The ETS has been rejected, and the government has announced it will come back for a third try, adopting the failed deal with Malcolm Turnbull as its new policy. In short-run political terms, there are some obvious benefits here.
Clearly, a crucial consideration is that the government does not want to negotiate with the Greens and would much prefer a deal with the Liberals. But if they are looking at three or four terms in office (and they should be) they will have little choice but to make such deals.

And, even if they don’t care about having an ETS that is decent in environmental terms, the government could save billions of dollars that is currently being handed over to ungrateful political enemies.
I hope this bill is rejected once again, and that the government finally bites the bullet for a double dissolution.

Posted via email from John’s posterous