Monday, May 23, 2011

Why did Julia Gillard rule out a carbon tax last year?

During the "cut and thrust" of a close Australian federal election campaign in 2010, Julia Gillard, the Australian prime minister said something remarkable.

The election was characterised by the usual claims and counter claims about a variety of the "usual issues" such as health, education, the economy, taxation and budget deficits.  There was also contention about some tentative Government policies designed to help us move to a low-carbon future such as the poorly implemented and managed home insulation scheme, green loans and solar panel rebates.

Climate change was the elephant in the room.  The Labor government's previous attempt to push through an Emissions Trading Scheme (the CPRS) had failed for two main reasons:
  • The Liberals broke their bipartisan support for it when Tony Abbott rolled Malcolm Turnbull as opposition leader.  Abbott's basic position was a mixture of denial that climate is happening and obscure objections to the proposed market-based mechanism for limiting carbon pollution.
  • The Greens and other independents did not support the CPRS because they judged it was far to generous to the big polluters and would not have been effective in reducing carbon pollution.
Kevin Rudd, who was prime minister at the time, lost his nerve and didn't call a double dissolution election on this issue.  Instead he back-flipped and delayed the introduction of the CPRS, an action that he had strongly criticised the Liberals for during the 2007 Federal election campaign.  The so-called "gang of four" - Julia Gillard (Deputy PM), Wayne Swan (Treasurer) and Linsday Tanner (Finance) along with Kevin Rudd collectively agreed to go soft on climate change.

Julia Gillard then rolled Kevin Rudd and became the prime minister in the run up to the election.  She was supported by some strong factional players, including Paul Howes (secretary of the Australian Workers Union), who has subsequently stated that "climate change policy must not cost a single worker's job".

Back to the question.  Tony Abbot was running (and still is) an effective misinformation campaign about climate change and carbon pricing that Labor party campaign people felt was getting significant traction with voters.  He was claiming that the CPRS was a "great big new tax" and that Labor would bring in a carbon tax.

With the failure of the CPRS (ETS), a carbon tax was the only quick and effective means of pricing carbon pollution left.  It was worthy of immediate consideration.  However, Julia Gillard specifically ruled it out in the closing weeks of the election campaign by stating "there will be no carbon tax under the government I lead".  

I thought at the time that this was an ill-considered statement designed to take the wind out of Tony Abbott's sails.  In short, political considerations during the election campaign ruled out a viable policy option that had been suggested and endorsed by Professor Ross Garnaut, the government's own advisor on climate change policy.

Fast forward to 2011.  To form a minority government, Julia Gillard had to gain the support of the Greens and two out of the three lower house independents.  Part of the deal was formation of the Multi-Party Climate Change Committee.  The Liberals and Nationals, still stuck in a degree of climate change denial,  "spat the dummy" and refused to participate.  The others on the committee, a mix of Labor, Greens and independent MPs, resolved during 2011 that a carbon tax was indeed a valid and effective mechanism for pricing carbon.

Julia Gillard is now been constantly and relentlessly criticised by the Liberal National coalition for breaking her promise about never introducing a carbon tax.   Yes, she made a stupid promise.  However, a price on carbon is one essential measure for reducing carbon emissions.  But it is only one of many needed.  

It is also subject to the same corruptive influence that fatally compromised the CPRS - industry groups lobbying for special consideration, financial assistance and low carbon tax price - which of course means they just keep polluting.  The fact that many large industry players are opposing the carbon tax is a good thing.  We need to curb excessive profits reaped from carbon pollution and transition to a lower carbon economy.

The proposed carbon pricing mechanism is not even actually a tax.  It is set price on carbon that is likely to only apply to the top 100 listed companies in Australia, which could face an annual carbon cost of $3.3 billion if the government imposes a $25 per tonne price on carbon.

Low income households are already suffering from large increases in their energy bills without a carbon price.  Part of the proceeds of the carbon price will be directed to compensating them for their energy costs so they will end up better off when the carbon price is in place.

Along the journey to carbon price, presumably in response to some agitation by industry and some right-wing unions such as the AWU, Julia Gillard also decided to criticise the Greens at the Gough Whitlam oration in April 2011 with the following statements: 

"The Greens wrongly reject the moral imperative to a strong economy. The Greens have some worthy ideas and many of their supporters sincerely want a better politics in our country. 

"They have good intentions but fail to understand the centrepiece of our big picture - the people Labor strives to represent need work.

"And the Greens will never embrace Labor’s delight at sharing the values of everyday Australians, in our cities, suburbs, towns and bush, who day after day do the right thing, leading purposeful and dignified lives, driven by love of family and nation."

This is just more nasty, spiteful and divisive poll-driven politics. It demonstrates a basic failure of leadership by Julia Gillard and alienates a lot of people who voted for Labor either directly or via their preferences with the expectation they would deliver real action on climate change. 

The right wing media in Australia - most notable the Murdoch press including the Australian and the Herald Sun - jumped on these comments and have embarked on their own campaign to attack the Greens, Labor and any sort of price on carbon.  They are clearly in the thrall of large polluting industries who don't want to change, and are aligned with and supporting the Tony Abbott-lead conservative opposition in this regards.  This is not news - it is ill-informed opinion, and a public relations smear campaign.

A carbon price in excess of $50 per tonne is required to shift investment decisions towards renewable energy rather than natural gas.  A lower carbon price will result in a massive investment shift from coal-fired power to gas-fired power.  Unfortunately, while gas is more efficient than coal as an energy source, it will still produce huge quantities of carbon emissions.  I predict that the Gillard Government will announce a carbon price of $15 per tonne, which would be an abject failure.

So in summary, the broad policy measures we need to tackle climate change include:
  • A carbon price on pollution in the range of $50 to $100 per tonne. 
  • 7 star national building energy ratings.  Our current state standards are lame and a dog's breakfast.
  • Mandatory energy efficiency standards for appliances in line with european standards
  • A national feed-in tariff  to boost investment in large scale 100% renewable energy such as wind and concentrated solar
  • Standard distributed local solar energy production plants of remote communities - possible based on the CSIRO parabolic solar dish system
  • Major investment in low-carbon public transport systems in both city and rural areas.  This should be mostly rail systems powered by electricity
  • Local low-carbon water storage and conservation measures such as rainwater tanks and urban storm water collection to avoid the construction and use of massive energy guzzling desalination plants.
  • Protect Australia's remaining old growth forests to keep the carbon they store safe, and allow logged forests to regrow and sequester more carbon.  Shift all timber production to plantations.
Unfortunately, or political system and leaders seem to be mired is a sideshow prize fight about only one issue - a price on carbon.  

Gillard is bad, but Abbott is worse.  His plan to hand about billions of our money (yours and mine) to large corporates without any tangible or effective carbon emissions resulting is a complete sham.

Both Gillard and Abbott really need to lift their game.



Grant said...

Sorry Peter, but I don't think the Greens are living in the real world. No Fed Gov could afford to subsidise industry, or compensate the Electorate for even a carbon price of even $40 / tonne. As an example, on ABC2 this morning, a major electricity retailer in NSW advised that at $25 / tonne, they will be increasing the average electricity cost by $300 / year. The Feds could never subsidise that across OZ, for both business and the electorate.
In relation to your summary:
a. $50/$100 / tonne would just about bankrupt the Fed Gov when they subsidised all for cost increases.
b. Good suggestion, but may take many years to slowly implement so new house prices are accepted by the buying public.
c. Again good idea, but as a good electrical appliance will last 10 years plus, this is a long term aspiration.
d. Not sure with this one, but as Australian Gov's will be watching their pennies, as long as it does not cost the Australian Gov's. Most states are currently reducing feed in rebates to house holders, as there just is not enough funds available in their treasuries.
e. Good idea, but as long as does not have large costs to Australian Gov's.
f. Major investments are required just to meet current demand, which state Gov's are having trouble sourcing. Using Melbourne for example, you cannot extend rail much past its current boundaries as long as the majority of commuters want to go into the city hub. There are major bottlenecks for commuters coming in from the S / SE with cuttings that having trouble just handling existing loads. If on the other hand you remove city hub requirements, then you could increase rail loads to a good extent, although as PM Fraser was told in the late 70's, you will never stop Australians using their cars, they will buy cheap junk food, stop paying bills, and any other actions necessary to put petrol in their cars.
g. Good idea if you can convince Australians to use it (QLD tried to get Toowoomba to use recycled water, and this was totally rejected by the community). Any implementation would have to be on a user pays system as the Gov's would be struggling to pay.

Much of what you write appears to be based on the Gov reaping huge sums from a carbon tax of $50-$100 / tonne, but if you take into account the huge subsidies / compensation they would need to pay just to remain in power, I doubt that they would have any where near enough funds to carry out half the wish list.

Remember that, for any carbon tax to survive, it must be accepted by the vast majority of both the Mr and Mrs Average / swinging electorates, and business (small and big). If major price rises occur, and both Mr and Mrs Average / business are not fully compensated, and jobs lost, then the system will be scrubbed at the following election.

An after thought. If to remain in power, you have to compensate everybody impacted by a carbon tax so they are not out of pocket, what are you going to achieve ?

Peter Campbell said...

Grant, a carbon price as low as $40 per tonne would not be such a big problem. Its effectively already in place in Europe.

The government doesn't have to subsidise everyone - just lower income households. The key is to not subsidise the very wealthy corporates who currently make a lot of money from their free carbon emissions.

Note that I have added another measure so far completely neglected by goverments - state and federal - protecting forests from destruction.

A huge investment in rail infrastructure is required, so far this money has not been allocated. The vast majority of "transport" funding still goes to roads.

Grant said...

Morning Peter
I agree that not all need to be subsidised, but a income level would need to be identified (say around $60k / year).
Most manufacturing / small businesses will also need to be subsidised for 3 reasons from the Gov's (political / electorate) point of view.
a. Most manufacturing / small businesses will have to save $1 somewhere for every $1 of additional costs (eg. carbon tax) and as staff costs are in most cases there largest costs, then staff costs will have to be reduced (ie. retrenchments - remember the bank reducing costs and sending work to India). Large corporations will be instructed by their shareholders to do the same.
b. Labor supporting unions (an example MWU) will not stand by and watch their members be laid off as companies have to offset any additional company input costs.
c. Additional costs to all households. Again the electrical suppliers were on TV last night advising that a $25 / tonne carbon tax will increase the average electricity bill by $300 / year. This may not sound much to somebody / household on $100k+ / year.

From the Gov's point of view, if these plus additional costs across the board hit the electorate, they can just about kiss the next election goodbye unless they spend billions in subsidies (ie. another Lib / Nat Gov and Carbon tax down the tubes).

As for rail expenditure, the only way I can see that the huge sums required can be spent would be to increase fares by, maybe 100%, to enable repayments to be made on loans that the Gov's would have to take out (from China and Middle East)to pay for the work required. As the vast majority of Australian use roads, and we still sell 900k+ new vehicles every year, it would be political suicide to reduce road / freeway building and maintenance.

Anyway all we can do is sit and wait.