The price of carbon

"The good news is that the modest carbon price announced yesterday will neither impoverish Australians nor bankrupt our economy. The bad news is that the modest carbon price announced yesterday won’t save the planet either."

- The Australia Institute, Has the PM "knocked the brick wall down"?

The minority Labor government in Australia has announced the details of a long-awaited scheme to put a price on carbon. The basic outline is quite helpfully explained in the animation above, and summarised in greater detail here.
I speak of a carbon price, because it is not a tax, but an emissions trading scheme with a fixed price for three years. This is not simply a matter of playing with words, as explained here.

The scheme is modest in ambition, with only a 5% reduction in emissions by 2020,* despite Australians having the highest per capita emissions of all advanced economies and the 10th largest aggregate emissions overall (it would be interesting to see figures on aggregate per capita emissions, but I haven't been able to find them anywhere). However, unlike Kevin Rudd's defeated ETS, this target is not locked in, but can be raised by an independent Climate Commission anytime from 2015 when the carbon price shifts from being directly set by the government to being dependent upon the auction of a set number of emissions permits. Furthermore, the target for 2050 has been raised from 60% to 80%.
*From a 2000 baseline, which Australia continues to use, despite a global agreement to use 1990 as the benchmark. Therefore, Australian targets cannot be directly compared to those of most other countries. The later baseline makes them less ambitious than a similar figure from a 1990 baseline.

The price for tradable permits will start at a set price of $23 per tonne, rising slightly until 2015, when the number of permits will be capped and the price determined by the market. Only the largest five hundred or so companies will be involved, who together emit the vast majority of Australian emissions. Agriculture and petrol are excluded from the scheme. The former because monitoring of agricultural emissions are too complex; the latter because petrol prices are too politically sensitive (despite this weakening the social, economic and ecological benefits of the scheme). Most households will receive compensation in the form of tax rebates and a raising of the minimum tax threshold will simplify matters for the tax office and for about a million Australians who will no longer need to lodge a return. Only the wealthiest households will be worse off (or rather, only the most carbon-intensive wealthy households).

Many experts see the scheme as representing a decent first step of what was politically possible with a few regrettable compromises. This piece gets into more of the details than I have time or inclination to do at the moment.

A few brief thoughts: with the vast majority of Australian households projected to be better off and the administrative burden falling on about five hundred major companies, the threat of bureaucratic and economic armageddon waved around by Tony Abbott will hopefully be quickly rejected.

Yet with all the focus (by both sides of politics) on what it will mean for the average household budget, most people don't seem to understand that the point of the system is encourage behavioural change. If you don't want to pay more for your energy bills, then switch to renewable power and implement some basic energy efficiency and conservation measures. If you don't want to pay more for your food, then switch to eating local and organic produce. If you don't want your small business to pay more for its inputs, then consider lower-carbon alternatives for your business model. Whether the price will remain too low to encourage these changes directly through the hip pocket remains to be seen. It may be that the primary benefit of the system in the short term will be to provide some needed stability to the renewables market.

From a political perspective, the claim that the Greens are not interested in environmental issues ought to be put decisively to rest, given the political costs Gillard has borne over the last few months during negotiations. What these demonstrate is that without the Greens pushing her, she would not be here of her own free will. This was the price the Greens and independents demanded of Gillard after the hung parliament, and it is clear that this is therefore at the heart of what the Greens hoped to achieve with their new-found political influence. Whether they were right to block Rudd's proposed scheme back in 2009 (which was superior in a couple of ways to the current proposal, though clearly inferior in many others) is a more difficult question. Hindsight offers a perspective of the enormous fallout of that earlier decision (change of leadership in both parties, an early election, a protracted chance for the opposition to pursue large swings in popular support for a carbon price), little of which was obvious at the time.

The Greens' shift from principled opposition to pragmatic support of a least worst viable option represents a difficult yet crucial debate. The proposed scheme may represent the best that was actually available, that is, politically palatable, under current conditions (and so requiring plenty of sweeteners for some of the worst polluters), yet it is important to admit and repeat that it falls far short of what is necessary to avoid some very bad outcomes. Under such circumstances, is a small step better than nothing? Does this represent the strategic establishment of a system that can be scaled up as the political will builds over time? Or can much ado about very little ultimately prove a distraction from or substitute for more radical change, locking in assumptions about the viability of the status quo without addressing the root causes of the problem in our consumerist idolatry and myopic pursuit of further economic growth?

UPDATE: Ethos have kindly published a version of this post on their site, and there has been further discussion over there.