For years now the Labor state
governments have been attacking Canberra for its refusal to take the
greenhouse effect seriously and to ratify the Kyoto agreement. Talk,
however, is always cheap. As this morning’s Australianreports, when it comes to measures that would actually have some economic impact, the states are showing much less enthusiasm.

The
report says that the states’ plans for a carbon emissions trading
scheme have been pushed further into the future and watered down with
numerous exemptions. As the prime minister – admittedly not an unbiased
source – said, “The states’ scheme has exclusions, generous permit
allocations, offset credits, gateways, soft starts and compensation for
loss of profits and no effective global greenhouse response”.

Concerns
apparently are that the scheme would raise energy prices. But that’s
something that any effective greenhouse response has to deal with. If
burning coal has environmental costs – which all but a few diehard
sceptics now concede – then those costs should be incorporated in its
price. Making harmful emissions more expensive isn’t some unpleasant
side effect of the scheme, it’s the whole point.

The Australian‘s editorial writers,
however, amid their glee at bashing the Labor governments and the
Kyoto-loving Europeans, think we can somehow “find a way to reduce
carbon emissions from coal-fired power stations” without setting up any
economic incentives for doing so.

The states are reported to be
especially worried about “the effects of the scheme on low-income
households”, since “The proportion of weekly expenditure on domestic
fuel and power is greatest among households with the lowest incomes.”
But trying to help the poor by giving them cheap energy is misguided in
the extreme.

No-one who was designing a welfare system would
start by offering benefits to poor households in proportion to how much
electricity they used. It’s not only arbitrary, but it sets up all the
wrong incentives. It’s like uniform utility pricing for country people,
which subsidises them not according to some test of disadvantage, but
according to their energy consumption.

The logical answer is to
introduce carbon trading, let the market price electricity accordingly,
and increase welfare payments (or, better still, cut taxes) to
compensate. But the states won’t do that, because tax and welfare are
the commonwealth’s responsibility, not theirs.

Peter Fray

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