27/04/2019

Both Parties Still In Climate Policy Black Hole

AFR - Editorial

The Greens have set a renewable energy target of 100 per cent for the power sector by 2030 as part of their climate policy goals for the federal election. Jo Buchanan
Australia’s share market jumped yesterday on the back of higher world oil prices, prompted by Donald Trump’s hardline stance against oil-exporting Iran.
Protesting climate change absolutists might deny it. But clean energy policies need to come clean about the costs they will impose on Australia’s fossil fuel prosperity.
Denying the costs of decarbonising an economy that has developed on the back of clean fossil fuels has ended up undermining public acceptance, fomenting the political climate wars and disrupting investment confidence.
The result has handicapped efforts to reduce Australia’s carbon emissions and destroyed Australia’s traditional competitive advantage in cheap energy.
When Labor announced its new climate policy the day before the April 2 federal budget, The AFR View backed the return toward a carbon price through a limited form of an emissions trading scheme for big companies.
But Bill Shorten, we said, needed to provide credible reassurance that his ambitious target to cut emissions by 45 per cent of 2005 levels by 2030 – against the Coalition government’s goal of 26 to 28 per cent – would not come at a significantly greater cost. Last week, Mr Shorten was finally forced to confront the question and made a hash of it, just as he did on negative gearing and the taxation of super.
He eventually fell back on ANU professor Warwick McKibbin’s modelling for the Abbott government in 2015, suggesting that the Labor and Coalition targets would both cost the same – though only if Labor’s plan relied more on buying cheaper carbon abatement permits from offshore. Otherwise, Labor’s plan would cost $60 billion more by 2030: not crippling given the size of the economy, but not chicken feed either.

Increasingly competitive
But more importantly, as Professor McKibbin wrote on these pages yesterday, economic modelling of carbon policies merely offers a range of plausible cost comparisons that inevitably will vary as the uncertain future unfolds.
Labor’s deeper problem is that it seeks to redistribute the shares of a slowly growing national income pie while saddling it with more ambitious carbon reduction targets; increased taxes on savers, investors and wealth creators; a higher minimum wage floor; and more burdensome pro-union workplace regulations on employers who have to do business in an increasingly competitive global market. It doesn’t add up.
Labor has been able to get away with this, in part because the Coalition’s own climate change civil war has resulted in such a hodge-podge policy. The Coalition has failed for six years to create a coherent energy plan.
When it was on the cusp of one in 2018 with the National Energy Guarantee – itself a compromise on the Clean Energy Target developed by Professor Alan Finkel’s review – it politically decapitated Malcolm Turnbull.
Then it came up with a most un-Liberal plan to reduce power prices by bludgeoning energy companies with a big stick of threatened breakup, backed by a sudden rush to large-scale hydro. And last week, Scott Morrison slammed Labor for proposing to allow business to buy international carbon permits or offsets to hit its more ambitious emissions target.
It is Australia’s national interest to allow individual countries to reduce emissions at lowest cost, where ever they occur on the planet. By rejecting this, Mr Morrison has effectively put the Coalition on the same side as the Greens.
The use of international credits is simply an extension of the idea that a robust climate change policy should be like good tax reform policy – as broad-based as possible to spread and minimise the cost. That is what an economy-wide carbon price would do best – and which Labor is closer to. At the same time, a good climate change policy has to avoid “carbon leakage” that would simply drive emissions-intensive industries offshore. That would hurt Australian prosperity without helping the planet.
The election campaign reflects the deep contradiction of Australian climate policy.
On the one hand, there’s a swell of opposition against the proposed Adani coal-export project that would deliver first-world power to poor Indian households.
On the other hand, the election supposedly is about the cost of living pressures led by rising Australian power bills as a result of botched climate change policy.
Both sides of politics remain trapped in this policy black hole.

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