Malcolm Turnbull has shifted the Coalition closer to supporting the Government’s Emissions Trading Scheme this year after winning shadow Cabinet support for a negotiating position this afternoon.

Turnbull has issued a list of issues on which he wants amendments to the Government’s current ETS, without which the Coalition will reject the bill.

The announcement represents a further step in Turnbull’s slow process of dragging the Coalition – or at least the Liberal Party – to some form of deal to pass the ETS.  The issue has played havoc with party unity this week and promises to continue causing difficulties for Turnbull until the issue is resolved.  A number of Coalition members are also concerned at the possibility of the Government using the defeat of the ETS bill as a trigger for an election which, on current polling, would result in a serious mauling for the Coalition.

The position is bound to cause divisions with the Nationals, but it is clear the Nationals will oppose any form of ETS anyway.  Some Liberal backbenchers are also likely to be vocal in their opposition.

Turnbull’s principles rely heavily on Australia’s scheme mimicking the United States’s emissions trading arrangements, although the Coalition appears to have gone further and demanded “full compensation for higher energy costs” until there is a global scheme.  The Waxman-Markey bill provides 100% compensation for American trade-exposed industries – compared to 94.5% and 66% for Australian trade-exposed polluters, but unlike the Government’s CPRS, the US scheme would as currently proposed cap compensation, guaranteeing US industry will not be fully protected.  The Coalition also wants coal mining protected in the same way as other emissions-intensive trade-exposed industries, which would significantly increase the level of assistance for coal companies, who are expected to receive an increased assistance package next week from the Government.  The Coalition also wants agricultural offsets included in the scheme while omitting agricultural emissions.

The Government is unlikely to agree to virtually any of Turnbull’s demands, aiming to keep the pressure on the Coalition to fall into line with the CPRS more or less as currently drafted or face the prospect of a double dissolution election.

Turnbull’s principles:

1.       An Australian Emissions Trading Scheme (ETS) should offer no less protection for jobs, small business and industry than an American ETS which is being developed and is presently in the form of the Waxman Markey Bill which has been approved by the House of Representatives but is yet to pass the US Senate. The final form of any legislation may be materially different from Waxman Markey and will not be known until later in the year.

2.       To that end there must be an effective mechanism, such as a regular review by the Productivity Commission or a similar expert independent body, to ensure that the Australian ETS does not materially disadvantage Australian industries and workers relative to American industries and workers. The legislation must bind the Government to correct any disadvantage identified by the review process.

3.       In order to ensure that an Australian ETS does not simply result in futile carbon and production leakage – exporting the emissions and the jobs – Emissions Intensive Trade Exposed industries (EITEs) should at least be on a level playing field with the United States and other advanced economies and should therefore receive full compensation for higher energy costs until the bulk of their competitors (measured as in Waxman Markey by global market share) face a similar carbon cost.

4.       Fugitive methane emissions from coal mining should be treated in the same way as they are in the United States and Europe.

5.       As in the Waxman Markey legislation agricultural emissions should be excluded from the scheme and agricultural offsets (eg. biosequestration or green carbon) should be included. Australia’s greatest near term potential of reducing its CO2 emissions are to be found in the better management of our own landscape.

6.       The scheme design must ensure that general increases in electricity prices are no greater than comparable countries to minimise the impact on all trade exposed industries, to reduce the need to compensate for households and to avoid a needlessly high increase in taxation.

7.       In order to ensure continuity of electricity supply, electricity generators should be fairly and adequately compensated for loss of asset value to ensure capacity to invest in new abatement technology and to fund maintenance of existing facilities for energy security purposes.

8.       Effective incentives and/or credits must be established to capture the substantial abatement opportunities offered by energy efficiency, especially in buildings.

9.       There must be adequate incentives for voluntary action which can be added to Australia’s 2020 target.