After winning four more years, Barack Obama again represents hope for a global carbon pricing scheme. Just don’t count on it until the economy is much healthier.
Even before the 2008 US presidential election had concluded it seemed the US had turned the corner from the dark days of George W Bush on climate change issues.
On one side you had John McCain who was not just in favour of pricing carbon, he’d actually co-drafted and introduced emissions cap and trade legislation into the Senate (the McCain-Lieberman Bill). On the other, Barack Obama, a man who seemed tailor-made to take on great challenges like radically transforming our energy system. The US turning the corner seemed part of a broader, inevitable transformation in climate change policy that was also occurring in Australia.
It was a time of great hope before the grim reality of the Lehman Brother’s collapse had truly sunk in.
Back in 2007, a few months before the Australian federal election, I remember chatting with an old university friend who was a successful merchant banker at Macquarie Bank (or as he referred to himself: a glorified real estate agent). We hadn’t seen each other for some time and so were relating what we’d been up to with our lives and careers.
I told him how the past 12 months had been absolutely incredible. I’d been working on climate change policy since 2002 and it had been like banging my head against a brick wall for much of that time. But then around mid-2006 it was just like a light switch was flicked on and everything I’d been working towards was coming to fruition.
State governments, like a wall of dominoes, had implemented renewable energy targets and then, just as we’d planned, John Howard’s hand was forced and this was converted to an enlarged national scheme. Solar PV was about to take off with an $8000 rebate, and prospects for solar hot water were also good with Malcolm Turnbull unveiling a $1000 rebate. We’d finally managed to get residential five-star energy efficiency standards implemented and Victoria was going to introduce an energy efficiency target. All achieved in spite of rabidly irrational lobbying by the Housing Industry Association and the Productivity Commission, criticising the initiatives with all the ideological dogma they could muster.
And the crowning achievement of it all was that Prime Minister John Howard had finally rolled over and agreed to implementing a price on carbon (or as Tony Abbott refers to it, a carbon tax).
After telling my friend all this with wide eyes, expressive hand movement and a beaming smile, he nonchalantly and matter-of-factly replied: “Yep, it’s because the economy is good. When the economy is good people start thinking beyond their own immediate concerns and are willing to consider bigger picture, longer-term problems.”
At the time I didn’t want to believe him, because I knew the economy could always go into reverse. I was hoping that thanks to an extraordinary drought and effective communication from the likes of Al Gore and Tim Flannery, people had been awakened to how serious and pressing a problem climate change was, and this knowledge couldn’t be reversed.
But he was right.
In the lead-up to Obama’s inauguration the US saw a repeat of conditions incredibly similar to those of the 1929 market crash and subsequent Great Depression. Financial and real estate markets plummeted, huge banks teetered on the brink of collapse, and we even saw the re-emergence of panic runs on banks (where depositors rush to withdrawal their money from the bank for fear it will collapse). This flowed through to the real economy, with the big three car makers close to bankrupt and home construction stalled.
Climate change dropped down the priority list for voters. Cap and trade legislation stalled in the US Senate and then in the mid-term elections the Congress was stormed by the extreme-right Tea Party movement.
At the same time the effectiveness of already operating carbon pricing schemes to drive investment into clean energy was neutered. In Europe the carbon price plummeted as industrial emitters curtailed output. First it dropped in half from around €30 to €40 (approximately $A40-50) over 2008 to €15 to €20 from 2009 to 2011. Then it plummeted again to between €6 to €8 ($7.50-10) on fears of debt default by European governments. Such a price will do little to drive a switch out of coal into gas, let alone a shift towards very low carbon technology, including carbon capture and storage.
The market for UN carbon credits from developing countries (CERs) is now little more than a joke, trading around $1.25. Due to unconstrained international linking, the New Zealand emissions trading scheme has gone down with it, with permits changing hands at around $2.
With economies across the developed world stuck in a rut, politicians are reluctant to make the kind of changes required for a carbon price to represent a credible signal for investors to shift towards low carbon assets. Instead it will be down to other measures like renewable energy and energy efficiency support policies to fill the breach.
No one should expect Obama’s vistory will spell the revival of a US nationwide emissions cap and trade scheme. He must first prioritise a recovery of the economy, and restoration of the government’s appalling finances. Only once these are under control will he be afforded the electoral freedom to address the bigger, longer-term problem of climate change.