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What We Know About the Carbon Tax

30 June 2011

This is just a quick post recapping the background of the carbon tax debate I will be commenting on.

2011 is probably our best hope of getting meaningful action from the Australian Government on climate change. Four months ago it announced its new carbon price policy framework. It’s a framework because the policy is in the process of being designed by the Multi-Party Climate Change Committee (MPCCC), set up by the Labor minority government to secure the support of the Greens.

Only two things are definitely decided:

  • The introduction of a carbon price before the next election. The legislation is intended to be introduced to the House of Representatives in August, the Senate in October or November, and come into effect on 1 July 2012. The Government says the start date is not negotiable.
  • The mechanism: a hybrid tax/cap-and-trade scheme. It will begin as a simple carbon tax that rises over time, and is intended to transition to a cap-and-trade scheme in three to five years.

The interim carbon tax was advocated by the Greens at last year’s election, to break the deadlock while emissions targets are negotiated. As a Greens voter, it is part of the platform that I voted for, and I hope it will be an effective deadlock-breaker. However, the devil is in the details which are still being negotiated.

It’s only through an unlikely combination of circumstances that we’ve got this far. For as long as anyone can remember, Australian politics has been dominated by a two-party system, and both of the two major parties have represented the interests of industry.

Labor’s previous attempt at a carbon price, the Carbon Pollution Reduction Scheme, was aptly nicknamed the “Continue Polluting Regardless Scheme” (in future posts I’ll explore the problems with it and how to prevent the same thing from happening this time around). In contrast to the current situation, the Government refused to negotiate with the Greens and instead negotiated with the right-wing Liberal-National Coalition, who watered it down even further. At the last minute, the Coalition was taken over by global warming denier Tony Abbott, leaving the policy opposed by all sides except the Government. It was blocked by the Senate and quietly “delayed” by the Government.

If either Labor or Liberal had won a majority, there probably would have been no carbon price, or any other substantial climate policy, for the foreseeable future. Very unusually, Labor needed the support of crossbenchers to form a minority government, and it so happened that the crossbenchers in question were a Greens member and several independents in favor of a carbon price. While the minority government has received a lukewarm reception, I think it is the best thing that has happened in Australian politics for a long time. It has temporarily broken the dominance of fossil fuel interests, and allowed us a rare opportunity to get a real climate policy in place.

The Multi-Party Climate Change Committee is chaired by Labor Prime Minister Julia Gillard and consists of Deputy Prime Minister Wayne Swan, Climate Change Minister Greg Combet, Greens Senators Christine Milne and Bob Brown, and independents Tony Windsor and Rob Oakeshott. The MPCCC is receiving expert advice from Ross Garnaut, Will Steffen, Rod Sims, and Patricia Faulkner. The government is also holding regular roundtables with industry leaders and non-government organisations. The Liberal-National Coalition is not part of the negotiations because they oppose a carbon price. The current situation is basically the reverse of what it was in 2009 – now it is the Greens negotiating with the Government and the Liberals protesting on the sidelines.

To the Government’s credit, it continues to push onward with the negotiations despite daily attacks and negative polls. Gillard says the Government is not about to give up even if it will “get even tougher before it gets easier”. I started out rather cynical about Gillard’s motives – historically she’s changed her mind on carbon pricing depending on the political circumstances – but I have to admire her current determination. Nevertheless, we supporters of climate action must keep the pressure up to prevent the Government from changing its mind and dropping the whole thing entirely.

So how are the negotiations going? Each day there are reports in the mainstream media that the committee is considering this or that, but it’s not clear how much is accurate and what is mere rumor. We won’t know the exact outcome until the full policy is announced, which will be sometime in the next month.

Yesterday Rob Oakeshott said the deal could be sealed “in five minutes” if three details were settled: compensation to households, compensation to exporters, and the amount of renewable energy funding. I’m surprised that he mentioned the first two – I was under the impression that everyone on the committee agreed about compensating households, and had more or less settled on Garnaut’s approach to compensating exporters. (I intend to discuss all these matters in future posts.)

Today it was reported that the committee has reached agreement on some key points and is expected to clinch the deal within a week and a half. Garnaut proposed an independent committee to recommend an emissions target when the switch to an emissions trading scheme occurs (2015 at the earliest). Labor and Greens previously differed on what should happen in 2015 if the Parliament disagrees with the independent committee’s recommendations – Labor wanted a default target of 5%, while the Greens wanted the default to be continuing with the fixed price. Now they have reportedly agreed on a compromise: the switch will occur in 2015, but the independent committee will review the target each year. Assuming the reports are accurate, I think this compromise will go a long way towards getting a deal.

In future posts I’ll cover the issues in much more detail, and offer my opinions on why we need a carbon price, what a carbon price should do, and how best to design it.

It looks like the coming weeks will be exciting. Stay tuned for updates.

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