Here comes the rentseekers. Those industries that missed out on the handout bonanza that masquerades as the Government’s proposed emissions trading scheme will shortly be descending en masse on Canberra to lobby for amendments.

Admittedly, by caving in at the start, the Government is saving an awful lot of aviation-related carbon emissions. The big polluters won’t need to fly to Canberra to put their case, which has already been accepted.

But for anyone thinking the scheme proposed this week is a solid start and can be strengthened later, wait til you see what it looks like after industry lobbyists and trade unions have got through with it.

Woodside Petroleum has already enlisted The Australian with a $60b scare story ($60 billion? Why not $100 billion? Or just round it up to the nearest trillion?) about its liquefied natural gas plans. But Woodside has done us a favour by providing a concrete example of the perverse incentive created by the Government’s determination to reward big polluters with free permits.

Because Woodside’s LNG production process is just below the lower threshold for assistance for trade-exposed industries (1500 tonnes of CO2 equivalent per million dollars revenue), it misses out on the freebies, and actually has an incentive to increase the carbon intensity of its processes in order to gain access to the substantial benefit of 60% free emissions.

Similar scenarios in other industries might lead to some interesting upward creativity from some borderline firms in their emissions reporting.

Unlike the proposal for cash handouts and free permits to the coal-fired power industry, which is at least limited to existing power stations, the handouts to trade-exposed industries aren’t grandfathered. Any new, dirty industry can establish itself and take advantage of the free permits on offer. Funny – no none predicted “carbon leakage” might see jobs going to Australia, not from it.

This is sort of a reverse of the “sovereign risk” complained about by big polluters. Call it sovereign irresponsibility.

There are other perverse incentives in the scheme as well. In the absence of a rigorous co-funding requirement, any investment from the proposed Climate Change Action Fund or the Electricity Sector Adjustment Scheme targeted at research into new technology will simply replace whatever R&D spending companies were planning anyway. Why would you spend shareholders’ money when you can rely on taxpayers?

And while domestic aviation is included in the scheme and will not receive any free permits, international aviation is excluded – unlike the European scheme, which will include all air travel to and from Europe from 2012. This encourages more damaging long-haul international air travel over travel within Australia – something both Qantas and the tourism industry, both playing up their recent difficulties, will no doubt lobby strongly to overturn by exclusion or assistance.

The airlines, the tourism operators, the Australian Petroleum Production and Exploration Association, the relevant unions in each sector – joined at the hip with the employers they’re usually at odds with – won’t merely be calling on Rudd, Swan and Wong (try saying that three times fast), but on Greg Hunt and Malcolm Turnbull. The Government’s clear determination to avoid dealing with the Greens in order to get its scheme through the Senate means that, even more than previously, the Coalition is running climate policy as much as the Government.

Greg Hunt is correct that this is more or less the scheme the Howard Government would’ve run with – although he probably shouldn’t say that too often if the Coalition wants to keep its options open for rejecting it in the Senate.

And while the rest of us are content with noting that the Government is trying to marginalise the Greens, Laura Tingle is asking why, seeing Rudd’s agenda as part of a long-term ALP plan to prevent the drift of votes from its left wing over to the Greens.

The other logical reason for Rudd’s embrace of the Coalition is that co-ownership of the scheme with the Greens doesn’t afford much political comfort, whereas co-ownership with the Opposition nullifies both the scheme itself and climate change generally as a threat to the Government at the 2010 election. Unless, of course, Malcolm Turnbull turns out to be a David Cameron-type determined to attack the issue from the left, not the right.

So there it is, then: a Labor-Coalition-union-business alliance to address climate change by doing… not much at all. If Australians are genuinely prepared to do something about climate change, the Greens look like the only ones prepared to take them seriously.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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