Last night Julia Gillard warned that in the coming days there’d be criticism of her proposed carbon price mechanism — the figures bandied about would inevitably be “false and baseless”. She’s right. Her announcement provides no basis upon which to accurately assess its economic or environmental impact. There’s therefore no basis for yesterday’s grand rhetoric–no guarantee yet that this is “a clear signal that the old, polluting ways will have to change and a new, exciting era is set to begin” or that “the transformation from a dirty, polluting economy to a clean, green Australian economy starts now”. Rather than “a big step forward”, there are worrying signs that this could end up being another step sideways.

We should keep in mind what ought to be our main climate change policy aim — reducing Australia’s contribution to the problem in line with the urgency of the science, and in a manner consistent with our continued prosperity and well being. We should be mindful of what the public expects: that the vast majority of the emission cuts we promise the world are made here in Australia by moving away from fossil fuels. Then there’s the inescapable scientific equation — if the world hides fossil-fuel emissions growth behind biosequestration credits generated by planting trees, protecting forests or adding carbon to our soils, there’s no prospect of returning atmospheric CO2 levels to safe territory.

With this in mind, the tests we should apply to a carbon price presented to us as a panacea are pretty clear: Does it reduce Australia’s largest contribution to climate change — its fossil fuel export emissions? Does it ensure the vast majority of the emission cuts we promise the world are made here in Australia? Does it stop big polluters hiding business-as-usual behind biosequestration credits? Is the carbon price high enough to drive the large-scale renewables deployment? Do the compensation arrangements for consumers and industry negate the incentive to cut emissions? On these tests, yesterday’s announcement is unconvincing.

Let’s start with fossil fuel exports. Depending on the eventual fixed carbon price, the pace at which it escalates, and the compensatory arrangements, the rate of fossil fuel export growth may slow slightly. However, with coal exports on track to double in 10 years, and coal seam gas-based LNG growing even faster, there’s no prospect that what is being proposed will cause emissions from fossil fuel exports to fall. We remain on track to export more CO2 in fossil fuels than Saudi Arabia does today.

The interim carbon tax is being promoted on the basis that there are “no international offsets allowed”, yet the agreement makes clear that they will be allowed well in time for 2020, the year around which Australia’s post-Kyoto emissions target will probably apply. Once the interim carbon tax moves to an emissions trading scheme businesses will be able to meet their obligations with international offsets. The package even flags the prospect of the Australian government complying with its emissions target by directly buying international offsets. With decisions on whether to limit international offsets postponed, the option of outsourcing Australia’s post-Kyoto emission reduction obligations remains well and truly alive.

Similarly, yesterday’s announcement floats the possibility of allowing biosequestration credits generated domestically to be used by polluters to avoid emission cuts of their own. The suggestion is that this be limited to “Kyoto-compliant credits” (mostly new forests on land cleared before 1990). However, with hundreds of millions of tonnes annually worth of other tree-planting, forest protection and soil carbon enhancement credits potentially available for decades (according to the likes of Ross Garnaut, Wentworth Group, not to mention the Coalition), the pressure and temptation to broaden the biosequestration options down the track will be immense.

It’s impossible to say for sure yet whether the carbon price will drive large scale deployment to renewables, however, the range of prices being floated $10-25 a tonne of CO2 suggests that it probably won’t. On the final question of compensation, the PM said last night that almost every dollar raised would go towards compensating consumers and industry. All indications are that the government favours similarly generous arrangements for big polluting sectors and consumers as applied in the ill-fated “Carbon Pollution Reduction Scheme”. So the prospect of another money-go-round that leaves all parties feeling looked after but doesn’t cut emissions in Australia is real.

In short, it’s unclear yet whether this deal will reduce Australia’s contribution to climate change or whether it’s a political fix that postpones the prickly issue of emissions trading. In August last year I wrote that “little effective action on climate change is likely this term from whichever major party forms the new government. The Labor Party might ultimately agree to brave a carbon levy, but you can bet it will be one that is as polluter friendly as its CPRS”. Time will tell, but I see no reason yet to revise that forecast.

Peter Fray

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