The question I’m being asked most frequently in the last day is “Can Tony Abbott aim to cut emissions if he won’t accept an ETS or a carbon tax?”

It’s one of many great ironies we face right now in Australian climate politics that the Greens are the ones arguing for economic orthodoxy — a strong and unperverted market mechanism as part of a suite of measures to reduce emissions — while the Labor government’s now twice-rejected CPRS is a morass of economic perversions and the Liberal Party rejects the market mechanisms altogether.

The answer to the question, however, is yes, he can, but not in a way the Liberal Party would ever be expected to approve!

Remember this — a market mechanism is a means to an end. As with every problem governments try to fix, there are three generally accepted options for government action — direct regulation, market mechanism or mobilising voluntary action. Voluntary action is important, but is certainly incapable of delivering even 5% emissions cuts below 1990 levels, let along the kind of deep cuts we need.

Emissions trading, when well designed, can be guaranteed to deliver a particular outcome, because, as part of its market mechanism, it directly regulates the quantum of emissions allowed in the market. Ideally, this drives the market to find the cheapest emissions cuts available and thereby delivers the outcome at lowest cost. Of course, if as part of the scheme, you deliberately pervert the market to undermine the price signal and prop up the polluters, you make it far more expensive.

The better approach is to use complementary measures to overcome the non-price barriers to actions such as energy efficiency uptake, thereby unleashing the cheapest possible emissions reductions and lowering the cost of action even further. As we know, that’s not what Labor chose to do with the CPRS. Its approach would have left the vast majority of emissions reductions in Australia untapped and used the scheme to buy in cheap (and possibly dodgy) emissions reductions from overseas.

Unfortunately, the structure of emissions trading also serves to make it difficult to deliver a better outcome than the one you envisage at first if, as with the CPRS, you lock in targets and gateways a decade into the future. A reasonable ETS must give you the flexibility to increase the target dramatically if, as expected, the science gets worse and global action gets stronger.

While properly designed emissions trading is the only mechanism under which you can absolutely guarantee a specific outcome, you can certainly achieve deep cuts with direct government intervention through investment and regulation. You just won’t necessarily know exactly what your outcome will be in advance. Oh, and you’ll have to be willing and able to pay.

So here’s an itemised account of what Abbott would need to do for his proposal to be viable:

  • The obvious place to start regulating, when you look at Australia’s emissions profile, is with the 50% of our emissions that come from stationary energy.
  • First step is to roll out energy efficiency programs — free retrofits from homes and there’s an array of options for commercial buildings and industrial sites. We can easily flatten energy demand growth and, with a bit of effort and investment, bring demand down from current levels.
  • At the same time, we start replacing coal with the zero pollution alternatives. We lift the Mandatory Renewable Energy Target to 40% by 2020 and supplement that with a true feed-in tariff for all renewable energy, direct investment in new grid infrastructure and fast start-up funding (loan guarantees, for example) for the baseload renewable options such as solar thermal, ocean power and geothermal. It is no huge stretch to envisage that, with such a program we could halve Australia’s current stationary energy emissions in a decade with existing technology. Many people suggest that, with the right technologies coming on stream fast enough, we could head towards zero. Since we’re currently at about 110% of 1990 levels, this approach alone would take us well below the 5% under 1990 target that Tony Abbott has signed up to, and possibly beyond 15%.
  • But it doesn’t stop there. We can and should stop native forest logging and start helping and paying farmers stewardship payments to reduce emissions — changing tillage practices, increasing soil carbon, potentially creating biochar, regrowing bushland and much more.
  • We can start the difficult process of shifting transport out of private petrol cars and into renewably powered electric vehicles (private and public).
  • We can increase options for people to telecommute instead of flying between cities.
  • We can reduce waste and invest in new industrial processes that generate fewer emissions.

I don’t have the expertise to hazard a guess at the quantum of emissions reductions that this could deliver, but you can be confident that every aspect of Australia’s emissions profile can be massively reduced — and some brought swiftly to zero or below — with the right regulation or investment. It is entirely possible to achieve very deep emissions cuts through direct government regulation and investment.

But here’s the rub — who’s going to pay for it?

A program such as  this will be tremendously expensive — many tens of billions of dollars. If the cost is placed on taxpayers, the result will be deep government debt or hugely increased taxes. And it will be deeply unfair. The only equitable approach is to make polluters pay for the cost of the transformation through either a well-designed emissions trading scheme with 100% auctioning of permits, or a well-designed carbon tax.

That cost will, of course, be passed on to consumers, but the government will be able to use the revenue to invest in all the programs that will reduce their costs — particularly energy efficiency and renewables. That’s the approach the Greens take in the Safe Climate Bill.

So, yes, Tony Abbott could deliver emissions cuts without a price signal. But it would not be an economically or ecologically sensible approach to take.

*Join the discussion at Rooted.

Peter Fray

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