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Carbon Action : The Battle Lines

July 10, 2011

Julia Gillard, Greg Combet

Labor supporters around the nation will be relieved and the government now has focus. If they are going to be defeated they will go now with a plan, attempting to do the right thing. Better than being flung out for standing for nothing.

Prime Minister Gillard has not sounded stronger in her Prime Ministership than she did announcing the package, explaining its price impact at less than one percent ( less than the GST ) and invoking Treasury modeling to bolster her case, pitching her arguments to families and defining a clean energy future. Treasurer Swan can boast that one million will be relieved of presenting tax returns as the tax-free threshold rises to over $18,000. This is tax reform that joins the measures in the recent budget as proof of the economic reformist instincts in the Gillard government.

As the coalition forms behind her it is heartening to see unions like the CFMEU, the environment movement and the renewable energy sector endorse the package. “It will put solar on steroids,” said one spokesman for the industry.

Oakshott and Windsor have demonstrated political principle and courage. They will rate more than footnotes in the history books, especially as we encounter temperatures running two degrees warmer than today – a degraded, nastier world where, too late, there will be desperate efforts to reduce carbon addiction.

One story here is the role of Treasury, going back to 2006 when its people started work on the Howard government package for a carbon price mechanism. The current departmental head Martin Parkinson did time heading the department of Environment and Climate Change.

As a result the government should win the battle of the briefing notes against Tony Abbott and Joe Hockey.

The Green Party is supporting the package instead of caviling about deficiencies. A smart call, and a decent one. That immediately resolves one question that, from the start of the year, has generated doubt about whether in the end the package would pass. Now all is resolved : Australia is pricing carbon and enacting an emissions trading scheme.

Any part of the carbon lobby that does less well out of this than out of the 2009 CPRS should reflect that they weren’t so smart to lobby against the Rudd package and defeat it. The chances were that the Labor government was going to get another term and that it would be dependent on the Green Party in the Senate. Hence there was a strong chance the next carbon package could be more rigorous at least in some respects.

Australian politics remodulates at this point.

Abbott runs the risk of sounding like a fear merchant. Labor can present itself as standing in the tradition of Labor economic reform. Gillard is even building her case for more workforce participation into this package. Suddenly the government stands for something and, if it sells its case with a bit of verve, can regain some momentum, if not an immediate recovery in the polls.

Key elements of the carbon pricing mechanism are summarized below.

Price

A two-stage approach:

  • The carbon pricing mechanism will commence on 1 July 2012, with a price that will be fixed for the first three years (like a tax). The price will start at $23 per tonne and will rise at 2.5 per cent per annum in real terms.
  • On 1 July 2015, the carbon price will transition to a fully flexible price under an emissions trading scheme, with the price determined by the market.

International linking

At least half of a liable party’s compliance obligation must be met through the use of domestic permits or credits.

Price ceiling and floor

Price ceiling and floor will apply for the first three years of the flexible price (ETS) period. The price ceiling will be set at $20 above the expected international price and will rise by 5 per cent in real terms each year. The price floor will be $15, rising annually by 4 per cent in real terms.

Carbon Farming Initiative

Kyoto-compliant credits created under the Carbon Farming Initiative can be used for compliance under the carbon pricing mechanism subject to a 5 per cent limit in the fixed price period.

Governance – new and existing Authorities

  • Climate Change Authority – to advise on pollution caps and progress towards meeting targets and undertake reviews of the carbon pricing mechanism.
  • Clean Energy Regulator- to administer the carbon pricing mechanism.
  • Productivity Commission – will undertake reviews relating to industry assistance, fuel tax arrangements and carbon pollution reduction activities internationally.

Climate Change Authority (CCA)

  • The Government has announced it will establish the CCA by legislation as an independent body to provide expert advice on key aspects of the carbon pricing mechanism and the Government’s climate change mitigation initiatives.
  • Bernie Fraser will be Chairman of the CCA, and another 8 experts will be appointed. The CCA will be made up of a total of 9 experts with an independent staff.
  • The first report on the progress in meeting national emissions reduction targets will be provided to Government by 28 February 2014, and then reported annual.
  • The first review of the carbon pricing mechanism will be provided to Government by 31 December 2016, the second review by 31 December 2018 and then each subsequent review within five years of the last.

Clean Energy Regulator

  • The Regulator will be established to administer the carbon pricing mechanism within a limited and legislatively prescribed discretion.
  • One of the responsibilities of the Regulator will include administrating the Renewable Energy Target.

4 Comments
  1. July 10, 2011 5:16 pm

    Excellent analysis Bob. The substance and the much awaited leadership position has been presented. Now the ongoing challenge of amateur communication must be addressed. Admittedly, the degree of difficulty is greater when the media tends to focus on the short term, the trivial and the hip pocket.

  2. July 10, 2011 6:24 pm

    Seems the biggest unknown is the extent to which polluter behaviour and sustainable energy innovation will actually be affected by the policy (experiment). Without behaviour change there will have been no point in tax and re-distribution.

    As to the positive household compensation message – will wait to see if it can cut through the “great big new tax” broken record.

  3. July 10, 2011 10:51 pm

    “Treasurer Swan can boast that one million will be relieved of presenting tax returns as the tax-free threshold rises to over $18,000. This is tax reform that joins the measures in the recent budget as proof of the economic reformist instincts in the Gillard government.”

    Did you notice that the bottom tax rate also went up from 15% to 19%, and the 2nd rate went up from 30% to 33% in 2015?

  4. Watson permalink
    July 11, 2011 12:48 am

    It will be most interesting to see whether this historic decision acts as a catalyst for the business sector in Australia, and for other countries that are struggling with their own greenhouse mitigation legislation.

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