Against all expectations, Tony Abbott and Greg Hunt have actually come up with a clever climate change policy, and certainly one that will change the debate in Australia.

Prime Minister Kevin Rudd will now have to quickly do a deal with the Greens to get a government scheme through parliament, or else simply give up and blame everyone else.

With the failure at Copenhagen having pulled the rug out from under him, and a global agreement on emissions trading now impossible this year, Kevin Rudd must avoid a 2010 election on his current CPRS at all costs. To do that by dealing with the Greens now would mean a two-year carbon tax eventually turning into an emissions trading scheme – a big risk.

The clever, pinpoint focus of the new Coalition policy that the Shadow Minister for Climate Change, Greg Hunt, has come up with, was actually lost yesterday amid the wildly incoherent antics of politicians back from holidays at the start of an election year.

In fact it’s quite simple: the coalition is proposing to pay the Latrobe Valley companies to convert from brown coal to gas. There are a few other ideas tacked on to make it look like a policy, not a deal, but that’s the guts of it.

It’s a good idea – first proposed in Business Spectator last November. I’m not sure the amount of money nominated – a total of $3.2 billion, with up to $2.55 billion available for power station conversion – will be enough, but it’s an opening gambit.

Hunt spelled it out towards the end of yesterday’s press conference when the journalists were nodding off listening to Tony Abbott, so what he said has been largely ignored.

He said: “One of the large power companies has provided us with their advice. Because it’s commercial-in-confidence, they didn’t want it released – but they provided us with their advice that they could convert from coal to gas for $13 per tonne under this system.

“Now we want to check that, but … the oldest and least efficient of the power providers has said to us that under the government’s ETS we’re just not going to be able to afford the capital to transition because we will be struggling just to survive… Under this they’ve said that if our balance sheets are clear and there’s an incentive to change from coal to gas, this is very attractive and we are more likely rather than less likely to change under this system.”

Australia’s oldest and least efficient power station is Hazelwood in Victoria’s Latrobe Valley, owned by International Power of the UK and the Commonwealth Bank (8.2 per cent). In fact, in 2005 it was nominated the least efficient power station in the world.

Yallourn, owned by China Light & Power subsidiary, Truenergy, is next. If Hazelwood and Yallourn convert from brown coal to gas, Australia’s greenhouse gas emissions would drop by 5 per cent, as required. Job done.

Presumably Tony Abbott didn’t just announce a deal with the owners of Yallourn and Hazelwood because firstly Greg Hunt didn’t have to enough time to negotiate one, and secondly because saying you’re going to hand over large dollops of cash to Hong Kong and British companies is not as good politically as saying “No Great Big New Tax” over and over (and over).

So instead they announced an “Emissions Reduction Fund” to provide “direct incentives to industry and farmers to reduce CO2 emissions”. The fund would start with $300 million in 2011-12, rising to $1 billion in 2014-15 – a total of $2.55 billion. Companies would apply for cash (this means you, International Power and Truenergy – just tell us what you need).

It is, of course, just a Great Big New Tax since the money will have to come from somewhere, but at least it can be disguised.

Meanwhile the government’s policy will be a general carbon tax, eventually turning into an ETS, and raising a lot more money than $2.5 billion.

Some of that money will go to Latrobe Valley power companies for conversion to gas (but not enough they say) and the rest will go to some businesses and consumers – in marginal seats of course – to compensate them for the tax.

The coalition’s policy will have the benefit of being small and targeted, while the government’s will have the benefit of being big enough to generate cash for a lot more voters than those living in the Latrobe Valley.

But while the government’s scheme used to also have the benefit of being an ETS, in line with the global movement towards emissions trading, that movement has now stalled. If that global process doesn’t restart soon, the government will be a shag on a rock with a new tax around its neck.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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