The federal government’s Carbon Pollution Reduction Scheme is the worst type of political compromise.
It will not achieve the carbon pollution reduction targets needed to seriously address Australia’s contribution to climate change, and yet it will create unprecedented and unnecessary government interference in the economy.
The government’s environmental targets are pitifully low because the proposed scheme is so economically disruptive. It’s like the government has decided to shoo flies with a baseball bat, but it means they can’t shoo too many flies in case they knock somebody out.
What’s needed is a better designed scheme which will have less impact on the economy, allowing for better environmental outcomes.
A proper CPRS should be designed to encourage the economy away from “dirty energy” towards “clean energy”. To do this, any sensible model must make clean energy more attractive that dirty energy.
But what the government’s scheme does is tax all emitters, dirty and clean, with the dirty industries taxed more.
The threshold of taxation begins at zero so everyone is taxed and everything gets more expensive. The government will collect billions of dollars and then to mitigate the price increases caused by its scheme it will give some of the money it has collected back to emitters and consumers.
We are meant to trust this government and future governments to do this fairly, avoiding favouritism or political patronage.
But this process will make many industries reliant on government largesse year in and year out, which is subject to change at any time depending on the political environment.
This will not create an environment where industries feel secure to spend the billions needed to adopt green technologies. I favour a design that sets the threshold between clean and dirty industries. Modelling has been prepared for me on this by economists at Frontier Economics who have also conducted modelling for the New South Wales Labor government on the Federal Government’s CPRS.
Under the alternative design, dirty energy becomes more expensive and clean energy becomes cheaper, giving the right incentives to transform Australia to a low carbon economy.
And best of all you don’t have the federal government collecting billions of dollars it then has to re-distribute. The alternative scheme eliminates this wasteful churn of cash through the economy.
For me, the problem began with the government’s Green Paper on the CPRS. In it, the Federal Government’s proposed scheme had been modelled, but there was scant modelling of alternatives.
The government was acting a bit like a used car salesman who will only let you test drive one model. If we are going to reach a political consensus on this issue it is vital that alternative schemes are thoroughly modelled and debated.
The issue of man-made global warming is real and urgent. We must act now but we shouldn’t rush to adopt a poorly designed scheme that will damage the economy and not adequately help the environment.