Tuesday, June 28, 2011

Tax on carbon won't break us

IN SOUTH Korea, government and opposition have reached agreement on the design of an emissions trading scheme, to start from 2015. It shows us that others are acting to stop climate change, and that political rivals can work together to create big reforms.

It could have been that way here. But the Rudd government, rather than work with the Liberals to create an emissions trading scheme that both parties would own, tried to use climate change to divide them. It succeeded. By the time it finally sat down with Malcolm Turnbull, the damage was done, and it ended up with Tony Abbott, sworn enemy of any carbon price.

South Korean President Lee Myung-bak is a conservative, a former chief executive of Hyundai Engineering and Construction. In South Korea, the left prevaricated on climate change, whereas the right has begun an ambitious agenda to make the country a leader in ''green growth'', and the technologies and skills that create it.

In most of the West, climate change is not a left/right issue. If the science is right, global warming will wreak its effects whoever is in power. Tory Prime Minister David Cameron plans to halve Britain's greenhouse emissions by 2025 from 1990 levels. Governments of the centre-right in Germany, France, the Netherlands, Denmark and Sweden are all strong supporters of putting a price on carbon. It's a bipartisan issue in Europe, in South Korea, in New Zealand. Why not here?

Rudd's decision to play it hard when he could have negotiated with Brendan Nelson and Malcolm Turnbull is one reason. Abbott's decision to play it hard and rule out any price on carbon under his leadership is the other. Rudd's hardball play ended in unexpected, fatal consequences for him. What will be the ultimate impact of Abbott's hard line?

The very data source Professor Bob Carter relied on yesterday reports that from the 1960s on, every decade has been hotter than the decade before - and since 1980, significantly so. The average global temperature in the decade to 2010 was 0.7 degrees hotter than in the half century to 1950. If that trend continues, then climate change is an issue that governments cannot brush off.

Abbott promises that in government, he will deliver the bipartisan target of cutting Australia's greenhouse emissions by 2020 to 5 per cent below 2000 levels. But he aims to do so by spending just over $1 billion a year to bury carbon in the soil, plant more trees, capture waste methane gas from coal mines and tips, increase the use of composting and recycling, and pay electricity generators, industry and building owners to reduce their emissions.

Those all sound like good ideas, which his environment spokesman, Greg Hunt, has been advocating for years. But that target of a 5 per cent cut in emissions by 2020 is far bigger than it sounds. Official monitoring shows Australia is still on track to increase its emissions in 2020 to 24 per cent above 2000 levels. Add in population growth, and to reverse that to 5 per cent below will require us to cut our per capita emissions by 33 per cent - by 2020.

Scrapping a tax on carbon emissions may be a viable strategy to win the 2013 election: time will tell. But it is not a viable strategy to reduce per capita emissions by 33 per cent by 2020, which is what Abbott has pledged to do.

Treasury advice released in April warns that to meet its target, the Coalition plan will need to be ''scaled up'' and is ''likely to have major fiscal costs''. An Abbott government taking office in 2013 on a platform of tax cuts will not have buckets of money handy.

Labor is now at its low point: unable to spell out what its carbon tax will cost, what compensation will be given to households and industry, and what if anything will be invested to bring on low-emissions technologies. In this limbo, Abbott can go round Australia quoting any figure he likes on how much the scheme will cost, how much worse off it will make us, while Labor cannot refute him.

But we saw with the GST debate that once the details are settled, the tax introduced, and the compensation rolled out, the public anger whipped up by an opposition's scare campaign fades. If Labor, the independents and Greens stick to their resolve, the same is likely this time.

Treasury notes that a carbon tax set at $20 a tonne would be less than a third the size of the GST. Its preliminary estimate is that a tax of $20 would lift consumer prices by just 1 per cent - $11.10 per household per week.

If 50 per cent of the money comes back to households through tax cuts and pension rises, as pledged, the net cost would be about $5 billion a year, or 0.6 per cent of their income. That will rise over time, but it won't break us, or the economy.