5
Apr
2019

The challenge facing Labor on climate change

by Tony Wood


Published by the Australian Financial Review, Friday 5 April

Australia needs a credible and predictable climate-change policy to ensure affordable and reliable electricity while contributing to the global task of avoiding catastrophic climate change.

Sound policy and winning politics have been horribly out of alignment since Kevin Rudd failed to implement his carbon pollution reduction scheme. Whoever is prime minister after next month’s election must not squander the opportunity to finally forge a coherent climate-change policy.

The Labor policy announced this week looks sound enough, but it’s not first-best. Sadly, an economy-wide policy that tackles climate change at lowest cost was left behind on the battlefield of the climate wars.

Labor is basically proposing to take the Coalition’s policy vehicle, put its own badge on the bonnet, and then drive it faster. Bill Shorten’s policy looks a bit like what an earlier Coalition would have done had its own internal politics not destroyed coherent policy.

It’s a combination of the National Energy Guarantee (NEG), the Emissions Reduction Fund and the so-called Safeguard Mechanism. It’s a workable model that could encourage investment without getting bogged down in unco-ordinated and incoherent federal and state subsidies and threats.

No matter who wins the election, their task is enormous. Australia’s total emissions in 2018 were 534 million tonnes, down from 605 million tonnes in 2005. The Coalition’s target implies emissions will come down to 448 million tonnes in 2030. Labor’s more ambitious target implies emissions will be down to 333 million tonnes by then. And whoever is in government would need to keep going from there.

The overwhelming contributor to the fall in emissions since 2005 is a dramatic reduction in emissions from land clearing. The effect of this “windfall” for Labor’s target is that, if the electricity sector is set a 45 per cent emissions reduction target, the target for the rest of the economy would be closer to 30 per cent.

The Coalition has no overarching policy and no specific emissions-reduction mechanism for the electricity sector. The biggest weight in the Coalition’s saddle is its track record, highlighted by the dumping of both its prime minister and its preferred policy in 2018.

Labor proposes a combination of approaches for the various sectors that contribute to Australia’s emissions.

This avoids a rerun of previous climate battles over an economy-wide carbon tax, but it leads to selective targets and tougher fights with each sector.

Additional safety valve

Under Labor, the key mechanism for the electricity sector would initially be the NEG; for large-scale industrial emissions it would be the Safeguard Mechanism; for agriculture it would be tightened restrictions; and for the transport sector it would be emissions standards that tighten over time. Domestic credits would become the tradeable commodity across industry sectors, with international credits an additional safety valve.

Simple logic reveals the extent of Labor’s challenge. Every tonne of emissions conceded to one sector is a tonne that must be picked up by someone else. If agriculture is excluded and large trade-exposed businesses are substantially shielded, then other sectors such as electricity and transport will have to pick up that load.

None of this is likely to be simple. Although much of the business community now supports action on climate change, if Shorten wins the election then business will stride through the door that Labor has opened for negotiation. The Coalition will argue that Labor’s target is economically irresponsible. The Greens will argue that it is environmentally irresponsible. The Coalition and the Greens, in an unholy agreement, both intend to reject the use of international credits. It would truly be a tragedy for Australia if the Greens once again let pursuit of the perfect prevent implementation of the good.

If Labor wins, Mark Butler as the new Energy and Environment Minister will have the further, non-trivial task of securing agreement from the states and territories to integrate their various climate-change and energy policies into a coherent whole.

Moral high ground

Between now and polling day, Labor will claim the moral high ground on climate change. It will point to official figures that show Australia is not on track to meet even the Coalition’s less-ambitious target. Labor will also highlight modelling that suggests more renewable energy means lowerelectricity prices. The Coalition, for its part, will highlight other, recently published modelling that suggests much higher prices under Labor’s more ambitious emissions-reduction target.

Labor appears to have decided against providing design details or costings for its climate-change policy. That political judgment may be vindicated, but it provides the opportunity for a scare campaign. The Coalition, and sections of the media, will not miss that opportunity.

Climate change is upon us. Australian businesses and voters are looking for credible action on emissions but want reassurance that electricity will remain reliable and affordable.

Let the climate-change election campaign begin.