Australia’s Carbon Tax Battle: Where it Fits into the Global War

Next week Australia's Parliament is set to pass a carbon tax that has proven so divisive it may bring down the Labor-Green government. By setting a low price on carbon, returning the money raised to industry and consumers, and relying so heavily on offsets, the legislation is further proof of the iron law of climate policy. A better way forward would be for Australia to impose a modest fee on coal mining and use the money to support its advanced manufacturing industries and innovation to make clean energy cheap. Below is our take on the legislation in Australia's news magazine, Crikey.

As two Americans watching from the sidelines as Australia tears itself apart over a carbon tax, it is impossible not to be reminded of our own country’s self-destructive battle over cap and trade in 2009 and 2010. And little wonder why: the Left and Right parties in Australia have adopted virtually wholesale the positions taken by Left and Right parties in America.

The Labor Party has borrowed from American Democrats the strategy of giving out money to win over consumers, powerful industries, and unions. The Liberal Party has borrowed from American Republicans the strategy of attacking climate scientists and mobilising a populist backlash.

Of course, the great difference is that while Democrats did not get their cap and trade law, it now seems that the Australian Labor-Green coalition will get its carbon tax. But Australia’s populist backlash against the legislation will, at minimum, slow its implementation and, at most, result in a change of government and its ultimate repeal.

Not that its rapid implementation would have any effect on emissions. The carbon tax will be far too small to make clean energy cost-competitive with coal. And the government has announced it will give back to consumers more than it collects through redistributive tax policies. As in Europe, Australia can meet its emissions targets only by purchasing dubious carbon offsets.

While the Liberal Party has, like the Republican Party, behaved badly and rejected good science in reaction to bad policy, the real blame for the inevitable policy failure lies with the green movement. In Europe, the US and Australia, environmental NGOs and the center-left generally has grossly oversold the impact of pricing carbon, the readiness of renewable energy, and the political sustainability of their schemes.

Though some greens try to fudge the numbers, no climate or energy analyst today can credibly claim that renewables are cheap enough to compete broadly with fossil fuels. Solar is three to five times more expensive than coal, and that’s not counting the high cost of storage and transmission. No nation — not Australia, not Germany, not China — will raise carbon prices significantly enough to make solar and wind competitive with coal, much less natural gas.

For this reason, every framework to mandate emissions reductions — whether Europe’s Emissions Trading Scheme (ETS), cap and trade, or Labor’s carbon tax — contains numerous loopholes designed to rebate or otherwise blunt higher energy costs to industry and consumers, greatly lowering the effective carbon price.

The right-wing everywhere blusters that efforts to price carbon will destroy the economy. This is nonsense. Everywhere the carbon prices have been too low to have any discernible impact. Australia’s carbon price would cost households less than $5 per week more in groceries. Many households will get back in assistance more than the carbon tax costs. If the plan applied to petrol, it would raise the cost per litre by a few cents. In any case, in recent years the price of most fossil fuels has already increased by much more than any proposed carbon tax, and we still see economic growth coupled with increasing use of those fuels.

Climate analyst Roger Pielke, Jr. calls this “the iron law of climate policy.” Governments might impose a carbon tax, but never high enough to actually send the “market signals” the Labor-Green alliance has come to believe it will. That would be political suicide.

Europe has convinced Labor and the Greens that it has reduced its emissions, but it can only make this claim because it arranged for Kyoto to count reductions beginning in 1990, not in 2000, when the treaty was implemented. This allowed Britain to count as part of its reductions its move to natural gas and Germany to count the closure of inefficient Eastern Bloc coal plants — both of which happened for reasons that had nothing to do with global warming.

To avoid the economic pinch, the carbon tax legislation will allow half of emissions reductions to come from offsets. But it is hard, after more than three years of investigative reporting and reports by independent auditors, to conclude that carbon offsetting is little more than an elaborate scam — some companies and landowners get paid for doing what they would have done anyway, and others game the system.

Advocates for the carbon tax defensively insist that, though Australia’s contribution to global emissions is, for all practical purposes, nil, it is important to join up with the international community.

But the international community is more divided than ever, with China, the world’s largest emitter and energy user, insisting that only rich countries should be required to reduce its emissions, so it supports extending the Kyoto protocol, which exempts China from making any reductions. Europe mostly sides with China on extending Kyoto, but Japan and Canada side with the United States on the need for any agreement to include China.

These differences will not be resolved in Durban, later this year. The idea that the United Nations will oversee shared economic sacrifice through higher energy prices — the idea that captivated greens in the developed world over the last decade — is dead.

While the carbon tax allows the Labor-Green coalition to show Australia’s cosmopolitan face to the world, the loopholes and carve-outs reveal the reality of Australia’s mining economy. Australia exports more emissions every year in the form of coal sent to Japan, China and elsewhere than it generates domestically. Given the importance of coal to the Australian economy, it’s little wonder that Labor will allow coal exports to double over the next 10 years.

But Labor need not worry that Europe will make note of its hypocrisy. The German environment minister famously boasted that the great thing about carbon offsets is that they allowed Germany to keep building coal plants. Over the last decade Germany has brought 11 gigawatts of coal-fired generation online, about six times the electricity it gets from its much-vaunted solar panels. Today, having shut down its nuclear plants in a reaction to Fukushima, Germany’s dependence on fossil fuels will only deepen.

There is a better way. Instead of trying to make fossil energy more expensive, Australia should work to make clean energy cheap. This can be done through a concerted R&D and innovation push funded by the government. A much smaller fee levied on coal production could generate $10 to $20 billion a year for Australia to spend on research labs, prizes, and procurement contracts with private firms, all aimed at getting the technological breakthroughs needed for renewables to be in a position where they can compete with fossil fuels. Such a strategy might also help Australia reduce its dependence on mining and start to engage in more advanced technology manufacturing and innovation.

The climate war between greens and skeptics will rage on, but there is no reason a reasonable bloc of centrist thinkers inside and outside of the Labor and Liberal parties cannot put forward a new, more pragmatic approach. Perhaps Australia can be the first to move the international focus away from unrealistic dreams and economic sacrifice and toward technological innovation and economic opportunity.

Shellenberger and Nordhaus are co-founders of the Breakthrough Institute, a leading environmental think tank in the United States. They are authors of Break Through: From the Death of Environmentalism to the Politics of Possibility, and will be appearing at the Adelaide Festival of Ideas, which runs Oct 7 – 9. Check out the full festival program here, most sessions are free.

Photo by Jarrod Carruthers