An inconvenient policy


2013-04-24 04.49.50 amNICK CATER

The Australian, 16 December 2014


IT took the ABC’s Chris Uhlmann three goes, but eventually he managed to squeeze an answer out of Bill Shorten.

Uhlmann: “Will you campaign to reinstate a carbon price at the next election?”

Shorten: “Labor believes that, in 2009, the parliament …”

Uhlmann: “So you’ll campaign for an emissions trading scheme at the next election?”

Shorten: “I’ll try to be as concise as I can, but it’s an important issue and I think all of Australia wants to see us move beyond 10-second sound bites …”

Uhlmann: “So, to be clear on that, you will campaign at the next election to introduce a carbon price by way of an emissions trading scheme?”

Shorten: “Yes,”

It is extraordinary call. Having lost last year’s election in no small measure because of the carbon tax, Labor now hopes to win the next election with the same losing argument. Perhaps the people will come to their senses and realise that if they want to be regarded as good global citizens they will have to pay more for electricity and almost everything else.

Or perhaps they won’t. In 2011, about one in five Australians thought the environment was the most important challenge facing the country; today it is about one in 20, according the Scanlon Foundation’s Social Cohesion report. From which we can conclude little about the state of the planet but a lot about the state of mind of Australian voters. They have not, broadly speaking, embraced the climate change gospel with excitement and they are reluctant to make big sacrifices in its name.

This time Labor will not be fixing the price of carbon at $23 a tonne as it did in 2012, a decision that increased the cost of electricity by about 10 per cent. Instead it will tie the Australian ETS to the European carbon price. In May last year it fell to €3.73 or $4.86, a level that would have added a mere 2 per cent surcharge electricity.

The problem with a floating price, however, is it that it floats. Since the Opposition Leader re-embraced this inconvenient policy, the EU has changed the rules. It has altered the mechanism regulating supply in the carbon market to correct the over-allocation that was keeping prices low. At the same time the Australian dollar has been falling against the euro. The result is the carbon price has risen. A week ago the European carbon price had risen to €6.74, breaking the $10 barrier in Australia. That in itself would be enough to increase power prices by about 5 per cent under Shorten’s plan, and add 0.3 per cent to the cost of living as a whole.

Where will it stop? Swiss investment bank UBS predicts the European carbon price will reach €13 a tonne by the end of next year, almost $20 at the current exchange rate, and who knows where it goes from there.

So, to summarise, in 18 months or so, Shorten will campaign to be the 29th prime minister of Australia promising to introduce a tax to fix a problem that a significant proportion of the population suspects does not exist. The ETS is not strictly speaking a tax, but good luck to Shorten if he intends to pursue that argument. Better to adopt Joe Hockey’s line: “You want to call it a tax, you can call it anything you want, you can call it a rabbit.”

By the 2016 election it is not inconceivable that the European price could be $25 to $30 a tonne, adding between $150 and $250 to the annual electricity bill. The Commonwealth of Australia will have no jurisdiction on the level, which will be influenced (but not controlled) by policies of 31 separate European governments and the contrived pan-European institutions in Brussels and Strasbourg.

Imagine the press conference. Mr Shorten, can you guarantee that the cost of living will not rise above the 0.7 per cent you predicted last time? Can you tell us how much it will add to the cost of the average electricity bill? And by how much will it reduce global emissions in 2050?

It will make John Hewson’s birthday candles look like a piece of cake.

One suspects, from the tenor of the Uhlmann interview in July, that Shorten knows he has a problem. As Malcolm Turnbull, once an ETS advocate, said on the ABC’sQ&A last month, “emissions trading schemes have worked better in theory than in practice”. The European experience of uncertain emission reductions, widespread fraud, unfair distributional effects and carbon leakage means the EU scheme has little to recommend it.

President Barack Obama’s $30 billion will go towards direct action. The chances of the world’s two largest economies — the US and China — introducing a credible trading scheme, or even a discreditable one like Europe’s, are close to zero. If Labor were to follow economic and political logic, it would simply let the ETS go.

Carbon reduction, however, is no longer a policy that bends to common sense. It has entered the realm of identity politics. Never mind the economics; a market-based mechanism is clearly the best solution since it is a matter on which upright citizens agree.

Today, the people who think like this are Labor’s people. Under Labor’s leadership plebiscite reform, the branches have grown in influence. The branches are disproportionately strong in the inner-city suburbs where tertiary-educated professionals predominate. When their views on the world take precedence over political pragmatism, the party’s leader has to deal with the mess.

Shorten may yet be able to fudge it, and win election anyhow, by promising to carve out those aspects that cause most grief and creating diversions elsewhere. Or he may not.

Either way, the global action advocates find themselves in the same position as the Socialist Left in the 1960s and 70s, railing against the false consciousness of the proletariat while comforting itself that while the Labor may be impotent, at least it is pure.