The surrender is virtually complete. Our biggest polluters have won, and the rest of us will be paying for it under a joke of an emissions trading scheme that encompasses a significant transfer of wealth to our largest polluters.

The Government has rejected the two fundamental truths at the heart of the Garnaut Report — that it costs less to act now rather than delay, and that acting within an international agreement significantly reduces the costs of curbing carbon emissions.

By taking a 450ppm option off the table until after 2020, the Government is in effect saying that such an agreement in Copenhagen isn’t merely improbable, but that we wouldn’t cooperate with it for a decade even if it eventuated, despite modelling consistently showing that the costs of pursuing even ambitious emissions reductions targets are much lower when there’s an international framework. The signal to the rest of the world is clear: Australia is still a climate change recalcitrant.

Remember we’re not talking here about unilateral action. The Government has said it will not take action until after 2020 to comply with a 450ppm target even in the event the rest of the world manages to agree to such a target next year.

And on compensation, too, our biggest polluters have won a major victory. In addition to increasing the flexibility with which eligibility for compensation will be calculated, the Government has lowered the arbitrary threshold at which 60% of free permits are allocated, dropped from 1500t per million dollars revenue to 1000t per million dollars revenue or value added. That will bring in the LNG sector — although presumably won’t shut up Don Voelte, corporate Australia’s biggest whinger. Doubtless there are firms around the 900t per million dollars mark who are already preparing to lobby for further relaxation.
In the absence of an international emissions trading agreement, if eligible industries grow at about the same rate as the rest of the economy between now and 2020, at that point 45% of all permits will be handed out for free to polluters, even with a sort of carbon efficiency dividend each year.

And each time more permits are handed out to polluters, the burden on the rest of the economy increases. Low and medium-emission firms ought to start lobbying now for the retention of the price cap through to 2020, otherwise it’s going to be very expensive bidding for the remainder of the permits left over after they’ve been gifted to polluters.

And if heavily-polluting industries grow any faster than the rest of the economy, the impact on scheme revenue will mean taxpayers will have to start funding some of the assistance measures, which are meant to be revenue-neutral.

The coal-fired power industry will also do very well. Despite taking investment decisions for a decade or more knowing that action needed to be taken on climate change, they will still receive nearly $4b in assistance, described as “once and for all” in nature. Believe that when you see it.

With such massive handouts and generous compensation arrangements, the ETS will be a half-baked, ineffective joke amounting to little more than a paper-shuffling exercise for our most polluting industries. The latter have worked hard and successfully to convince the Government to further weaken what was already an inefficient and anaemic scheme in its Green Paper form.

The political consequence of that, however, is that the Coalition will be struggling to find grounds on which to block the ETS when it comes before the Senate next winter, and might lack an industry support base for its efforts, even in Western Australia. Today the Coalition was still saying a 2010 start date was too soon. That plays into the Government’s hands perfectly, reinforcing Kevin Rudd’s message that he occupies the moderate middle ground on climate change.

It’s politically astute, but a craven surrender to polluters and rentseekers. In the middle of the year, Kevin Rudd was talking up his capacity to take tough decisions. On climate change, we’ve yet to see any evidence of it. Worse, we’ve announced to the world that we’re not prepared to play our part in reducing our emissions.

Join a Crikey liveblog to discuss the Government’s ETS White Paper here.

Peter Fray

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