After more than 12 months of waiting, the details of the Carbon Polluters Rescue Scheme have finally been released — and what a scheme it is! Four billion dollars to coal-fired power stations, with the dirtiest brown coal-fired plants the biggest winners, and 90 per cent of the permits needed by “emission intensive” activities provided free of charge. And the agriculture industry, which accounts for around 16 per cent of Australia’s emissions, excluded from the scheme indefinitely.
By 2020 no Australian polluter will live in poverty. The only reason to introduce an emissions trading scheme is if you accept the scientific evidence that, unless we drastically reduce emissions, dangerous climate change will occur in our lifetimes. It therefore beggars belief that, if you accept the scientific case for action, you would completely ignore the scientific evidence about how much action to
take. This is like a patient with a deadly infection agreeing that they need to take antibiotics, but insisting they take only one fifth of the recommended dose.
Not only will the low targets be ineffective, the design of the CPRS ensures that it will be inefficient. The claim that it will deliver “least cost abatement” is based on hope rather than on evidence.
One advantage of emissions trading, in the textbooks at least, is that the creation of tradeable permits to pollute will provide firms with a financial incentive to reduce their pollution. If they can emit one tonne less pollution, they can either sell one of their permits or buy one fewer. Either way, they can save money on permits if they reduce pollution.
But the biggest advantage of emissions trading, from the textbook point of view, is that if some firms reduce pollution at relatively low cost, other less adaptive firms can keep polluting as long as they are willing to buy permits from the more efficient firms.
Economists call this “gains from trade”.
But, unfortunately, the Rudd Government’s CPRS doesn’t look much like the textbook model and most of these gains from trade will not be achieved. The “administrative simplicity” associated with including only the 1000 big polluters in the scheme means that the CPRS will not deliver “least cost abatement” at all.
In addition to being ineffective and inefficient, the CPRS is also inequitable. Besides shirking Australia’s global responsibilities, there is an unexpected sting in the tail for Australian families who try to “do their bit”. If the CPRS goes ahead as planned, the more effort Australian households put into reducing their own emissions, the more emissions the big polluters will be able to make.
Without Senate amendment to the CPRS, Australia will be locking itself into a five per cent emissions reduction. Efforts by households to reduce emissions below that target will be futile as they will merely increase the number of permits available to the big polluters.
There is some consolation for householders who are keen to keep trying. Under the CPRS, the harder we try to save energy, the cheaper the permits bought by the big polluters will be.