There are three possible outcomes for the Government’s ETS bill.

One is that it gets “deferred” i.e. rejected in a few weeks’ time, but when it comes to the crunch later in the year, enough Liberals are worried about the threat of an election to change their minds and vote it. We end up with an ETS that will create more carbon emissions than it saves in the vast paper chase it generates.

The second is the bill gets rejected twice, and the Prime Minister decides to not make the serious but non-fatal mistake his predecessors John Howard and Bob Hawke made, and go to an early election. There’s no ETS, good, bad or indifferent, and every time anyone complains that Australia is doing nothing about climate change, the Government points at the Coalition and says “that’s their fault”.

Or third, the Prime Minister decides he’d prefer to fight an election late this year against Malcolm Turnbull, with the Government’s public works program in every school in the country fresh in voters’ minds and before unemployment peaks, rather than late next year, probably against Peter Costello, when the economic outlook might be better or might be a lot worse and voters have forgotten why their new school hall was built. And we end up with a dud ETS after the post-election joint sitting.

I’ve ranked those outcomes in order of probability. A double dissolution election needs the Government to raise the political temperature to near-crisis point so voters get the impression there’s a genuine reason for an election. Most voters would only be barely aware of what the Coalition’s position is after yesterday’s announcement. The Government needs it to be front-page stuff, day in and day out.

In truth, though, any of those outcomes represents a failure of our governing class. And there’s plenty of blame to go around.

The Government has never taken climate change seriously enough to invest political capital in it. It could have followed its “moral challenge” rhetoric and tried to engage the Opposition in a genuinely bipartisan approach to addressing the issue. Instead, it saw it primarily as a weapon to use against its political opponents. The Prime Minister gave carriage of the issue to an over-promoted minister with no negotiating skills, and kept tight control of the process. The Government comprehensively botched its handling of the details of its ETS, starting off with a poor scheme that has been compromised to the point of ineffectuality in subsequent negotiations. And it has been cowed by the likes of Mitch Hooke and Don Voelte when, as its NBN experience should have told it, big companies can be brought to heel by a ruthless display of executive power.

The Coalition, which ignored the issue for a decade in office, is equally culpable, with the sceptics, agrarian socialists and the plain bloody-minded allowed to shape policy, stalling and possibly preventing the passage of even the Government’s hopelessly ineffective scheme

In the middle are Steve Fielding, a man hopelessly out of his depth, and Nick Xenophon, for whom climate change or any other issue is less important than his own ego and passion for the limelight.

Only the Greens have clean hands in this debacle.

Yesterday Malcolm Turnbull called for the Productivity Commission to consider the proposed ETS, as part of his litany of reasons for further delay. Um, Malcolm, the PC has already looked at the CPRS in its new industry assistance review. And its judgement is pretty harsh — but not for the reasons you’d like.

The PC says this about assistance for trade-exposed industries under the CPRS (it looked at the White Paper version, not the even more generous recent version):

Identifying activities that may contract, shut-down or shift offshore following the introduction of a domestic constraint is not sufficient. The test for carbon leakage is whether these shifts would still have occurred even if other countries effectively constrained their carbon usage. The difficulty in forming these judgements make it likely that any policy response will at times fail to protect against carbon leakage and also at times provide assistance where no carbon leakage would have otherwise occurred.

The PC goes on to say:

Direct budgetary assistance requires governments to raise revenue from taxes that will generally impose broader distortions and consequent welfare losses. Likewise concessions to revenue raising measures (such as the allocation of carbon permits without levying the permit price) potentially not only distort the allocation of economic resources, but also impose a cost reflected by the forgone revenue and opportunity to reduce distortive taxes. These “opportunity costs” are substantial in the case of Australia’s proposed CPRS, given the significant value of the free permit allocations, other tax concession and outlays proposed…


Policies that protect against carbon leakage … transfer the abatement task to other sectors of the economy.

In short, the assistance provided by the CPRS has a poor rationale, has a substantial cost and makes things more difficult for everyone else. And that was for the White Paper version. Apparently Greg Combet thinks this is a big tick in favour of the CPRS.

Just how skewed this debate is was shown yesterday when Malcolm Turnbull in effect argued that we should delay and reconsider an ETS because the Americans were planning a scheme that provided even more assistance to some of their industries than the CPRS. In essence, because the Americans are considering being even more protectionist than us, we should match them.

If Turnbull had used this argument to call for a delay in other forms of protectionism — the reduction of automotive tariffs next year, say, or for an official Buy Australian policy, or keeping foreign firms out, he would have been howled down by every economic commentator in the country. But carbon protectionism is so deeply embedded in Australian political culture that the argument went unchallenged.

Funny thing is, that’s the good news. The bad news is, the only way climate change will be slowed is if the rest of the world takes action, and if you thought our politicians were self-interested, wait til you see what the rest of the world’s are like. Too bad Australia will be among the first and worst casualties of climate change.