With a week to go before the release of the detail of the Government’s Emissions Trading Scheme and its associated target, the debate on an appropriate target for Australia is ramping up.

Thirteen Australian companies today joined dozens of international companies urging developed nations to adopt “immediate and deep economy-wide emission reduction commitments which are much higher than the global average reduction target.” The newly-formed Global Climate Network has launched a report showing that the time for action to prevent highly-damaging levels of climate change is rapidly coming to an end. And Ross Garnaut is urging the importance of an international agreement in which developing countries play their part, but on the basis of a (very) long-term convergence of per-capita emissions targets. The Australian has helpfully spun that into an argument for doing nothing without India and China.

Garnaut also observes that getting an international agreement on emissions targets will be harder than securing trade or arms controls agreements. Which probably means that our grandchildren — the ones that are left — will be finalising a deal for mutually-verifiable reductions of 5% in non-farm sectors in 2050.

I noted when the Government’s Green Paper emerged that it proposed a scheme that was only two-thirds effective anyway, and would be watered down further under pressure from rentseekers and corporate sooks and whingers. Sadly, that appears to be exactly what has happened. In particular, the establishment of an arbitrary threshold — 1500t of CO2-equivalent per million dollars revenue — as the basis for free permits has predictably led to pressure on the Government to lower the threshold or otherwise extend the compensation arrangements.

This is what is known as being hoist on your own petard. The Government would have been better off taking a harder line on compensation and caving in to only the heaviest polluters. The contrast with the Howard Government’s mostly-successful resolution to hold the line on the GST is instructive. Ultimately no amount of compensation short of 100% will stop the lurid predictions of carbon leakage, even when the impact of the ETS would be well below that of the impact of the sort of fluctuations in the value of the Australian dollar seen in the last six months.

Still, politicians are not rational creatures, and telling them something will cost jobs when the great question of the moment is whether we will join the world in recession is the best way to guarantee you’ll get what you want. Stand by not merely for increased ETS compensation but a low — almost notional — initial carbon price.

A failure to adopt a fully-effective ETS means we have to fall back on other measures to reduce emissions – other, less effective and efficient measures, revolving around encouraging investment in renewables and carbon capture.

Many environmental stakeholders want both a tough ETS and a host of complementary measures to drive renewable energy investment. Last week, the ACF, the ACTU, ACOSS, the Climate Institute, and the Australian Institute of Superannuation Trustees and the Property Council of Australia all joined forces to call for a “Green New Deal” involving the investment of billions in renewable energy and energy efficiency — in addition to a stringent ETS target.

Garnaut’s argument was that a functioning ETS didn’t require complementary measures. He was correct, but the point will be moot. The debate needs to switch focus to how we encourage investment in energy efficiency and renewables.

One suspects this is where politicians — of all persuasions — would prefer the debate to be. An ETS is the most hands-off of mechanisms. It’s set-and-forget, with minimal opportunities for political interference once it is up and running. But investment program and tax incentives hand politicians the power to make decisions, cut ribbons and help preferred constituencies. The Rudd Government’s enthusiasm for the decidedly-undeveloped technology of carbon capture is hard to explain without understanding the political influence of both the coal mining industry and its unions.

The Government is still committed to a renewable energy target, although its implementation is in the somewhat uncertain hands of COAG. A fortnight ago, COAG produced some decidedly wishy-washy national guidelines on feed-in tariffs for renewable power generation.

The downside of investment programs and tax expenditures is their cost. To seriously drive efficiency and renewable investment, to make a significant dent in problems like first-mover disadvantages, and to bridge the huge gap between research and commercialisation of new technologies, requires billions of dollars. A few months ago, we had those billions in the budget. Now they’ve vanished faster than a collapsing investment bank. Suddenly the choice of addressing climate change the efficient way, via an ETS, or the less efficient way, through government investment, is problematic for politicians either way.

There’s one small glimmer of hope. If the Government can at least ensure that its carbon price, however low initially, will increase in real terms year-on-year, then eventually businesses and households will start to accept it and respond in the way they consume, produce and invest. The only problem is, all the evidence suggests we don’t have a lot of time to let that happen.

Peter Fray

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