It might be argued that emissions trading with a soft start can still provide a framework for stronger efforts later. Perhaps. But the history of these types of policies is that poor initial design choices can prove very hard to get rid of, and “transitional arrangements” can create a sense of entitlement that is hard to remove. The fact that the government’s flawed design only got worse between the green and white papers doesn’t inspire much confidence in this regard. And bad policies risk taking us backwards. What could be worse than business as usual for the climate? Business as usual with a government guarantee, for one thing….
That’s Regina Betz and Iain MacGill at Inside.org.au. Read the whole thing. For the wonks who want more detail on the claims about the problems with free allocation in the EU ETS see Regina’s work here [pdf]. Disclosure: I’m a researcher with CEEM.
Update: Iain responds in comments
Isn’t this a case of the excellent being the enemy of the good? I reckon that the general libertarian socialist rule that the market can provide a superior service than the state in most cases still holds true – even for carbon trading.
Nothing to stop Greens buying up retirement blocks! Look what the power of small net contributions just did for US politics. The rest of the world will sure keep us honest on overall reductions anyway…these permits will be anything other than papal indulgences.
If the bourgeois micro-managerial class decide that climate change warrants a ramping up in the size and power of the state then I put it directly to them that where the hell is our trade-off?
I don’t think I’m alone in not wanting to see any overall rise of state power.
In fact I think I’m in the majority. The state that can give us everything can take it all away.
Hmmm. I’m not sure I agree with a key point in their argument – that the CPRS won’t make a great deal of difference to emissions anyway:
As I understand it, official government estimates have emissions in 2020 to be around 650 million tonnes of CO2e, even taking into account measures like the MRET and whatnot. That’s well above where we’ll be even if the weak 5% reduction target proposed by the CPRS ends up being adopted.
Yes, that doesn’t include the effects of the GFC, but it remains to be seen whether that makes much long-term difference.
But why should we take those counterfactual figures at face value? Isn’t the whole point that the scheme should
1) Drive changes in energy infrastructure investment to the level that would
2) have flow-on effects in household and firm level decision-making
There seems little doubt that (2) is never going to happen with both a target that low and household assistance measures that that mask the price signals! Changes in electricity prices for firms probably won’t drive significant structural changes in the economy, so we’re left with the question of (1)
As they point out, the culture of special pleading and handouts has, historically, proven extremely difficult to shake.
But the main point is that no governments have implemented a carbon tax or ETS effectively. Why believe Australia will be any different?
“Why believe Australia will be any different?”
Indeed.
It is more amd more resembling a local political stoush with little relevance to the sorts of outcomes which we should all be trying to achieve.
Peter C said that democracy has failed on a thread a few weeks back and while I think that response is inaccurate the effectiveness of special pleadings may so undermine the eventual plans that it may as well not exist.
The DCC projections (which are just projections) are for 2020 emissions (without other measures) to be 660 Mt. The CPRS with a 5% target would reduce this by 140 Mt. Now these projections are from before the financial crisis, and before Rudds announcement to invest money in retrofitting buildings to make them more efficient. So the actual emissions reductions from the CPRS are highly likely to be less than that.
I agree with Regina Betz and Iain MacGill that some target policies could deliver a similar level of emissions reductions to the CPRS. I also strongly agree that a major problem with the CPRS is that it locks in bad policy. If you read the White Paper, it is very focussed on “providing certainty for investors”. An ETS that locks in bad policy doesn’t provide certainty for anyone, because the credibility of the scheme is seriously undermined.
I disagree with dk.au that household assistance measures will mask price signals though. The household assistance measures will not change the marginal benefits of reducing emissions. The household assistance measures are poorly set-up however, because they are mainly targeted at middle-income households rather than low income households.
The reason that no governments have implemented a well designed ETS or carbon tax is that none of these governments have been serious about addressing the problem of climate change.
Peter the insulation is great, but IIRC it’s well under 5 Mt per year averted.
Frankly, I’m unconvinced that the proposed alternative of a piecemeal collection of targeted policies is going to result in a better outcome. Piecemeal targeted policies are also often bad. For a great example (albeit from the USA) I point you to the CAFE fuel standards, the least successful environmental policy of all time.
To give an example of the loopholes that come with the CPRS, the Treasury projections (in Dec of last year) were that while the 5% cut on 2000 emissions amount was 525 Mt, our actual projected emissions would be 585 Mt because polluters could obtain unlimited permits from overseas. Treasury expects that though polluters will be conforming to the CPRS rules mandating emissions reductions, our emissions will actually continue to grow.
Of course, its correct that a Mt less emitted anywhere on the globe is good, but it hardly looks convincing in international negotiations that our emissions can actually keep growing when we’re asking developing countries to rein theirs in.
This looks more to me like Peter’s description of
Robert – what’s so bad about CAFE standards exactly? Sure, manufactures have done everything in their power to get round them and lobby to keep them almost pointlessly lax, but in what way have they been “the least successful environmental policy of all time”?
Because they actively encouraged the SUV boom in the United States, which not only negated the environmental gains and then some, it’s a not insubstantial contributing factor to the woes that the American automobile industry finds itself in.
Robert, I don’t have much faith in piecemeal collections of targeted policies either. Some sort of carbon pricing is essential for achieving emissions reductions anything like what the science suggests is necessary. But I do prefer a bunch of ad hoc policies to legislation that essentially rules out Australia reducing its emissions by more than 15% by 2020. If this problem were to be addressed, then even with its other flaws, the CPRS would probably be better than an ad hoc approach.
“set of targeted policies” is no good – this is what we have been doing (e.g. under the Howard Govt) for the last 10 years – we’ve had a load of policy development on appliance standards, energy efficiency, housing standards, commercial building standards, industrial efficiency and grants for renewable energy and new approaches. My skepticism after seeing this for the last decade is part of what leads me to support the CPRS, and think the best course forward is to incrementally improve it rather than start again.
Piecemeal collections of targetted policies are no good because it is easy for lobbyists to knock over any individual policy they don’t like, and its also very likely that the “targetting” to be more along the lines of pork barrelling or flashy media releases than effective emissions reduction.
The criticism that the CPRS might be “locking in bad policy” is only meaningful if there exists a strong possibility of otherwise locking in “good” policy. But of course, any other policy or policies we might try – as well as delaying things by 2-5 years – will also be fraught with compromise and loopholes and be influenced by lobbyists just as the CPRS was. Said it before – its about what you can *implement* not just about what you can dream up in isolation from any dissenting view.
The veracity of McGill and Betz’s article was diluted by the handwaving they did to alternatives to a CPRS – thinking of better alternatives and explaining how they would be better in practice is the hard part. Criticising the CPRS without going into detail on alternatives is easy.
Ten problems with the CPRS (as I see it) are here. In my opinion, one of the best alternatives to the CPRS with a bunch of problems is a CPRS where these problems are fixed. This would be much more effective at reducing emissions than a set of ad-hoc targeted policies.
Many thanks for these comments – I’ll try to address them in turn.
# professor ratNo Gravatar
Mar 4th, 2009 at 1:07 pm
IM: We’re certainly not arguing against the view that the market can provide a superior service than the state in most cases. Climate change represents an extraordinary challenge and in our view doesn’t appear amenable to a purely market-driven solution – too much uncertainty and too many externalities. We don’t expect market-based solutions to deliver everything required in other challenging policy areas like health care or foreign aid or energy security – why would climate change be different?
You’re right that environmentally concerned people can buy permits and retire them. However, the impact of their voluntary action then entirely depends on the effectiveness of the CPRS, and this is questionable. For example, concerned members of the public were buying EU ETS permits during the first phase and retiring them… unfortunately governments set too weak a cap and, once this was revealed, the value of the permits and their impact on emissions both quickly fell to zero. The public was let down by scheme governance.
# 2 Robert MerkelNo Gravatar
Mar 4th, 2009 at 2:09 pm
IM: agree with dk’s nad Peter’s comments on this and note more generally, I don’t need to be sure that the CPRS targets are too weak to argue against the scheme – a significant risk is sufficient. We don’t have the time or atmosphere to build our entire response around a promising but unproven policy measure that has generally performed poorly in other jurisdictions to date.
# 5 murph the surf.No Gravatar
Mar 4th, 2009 at 3:28 pm
IM: and as noted above, we don’t need to be sure the scheme will fail in order to argue that it’s bad policy.
# 6 Peter WoodNo Gravatar
Mar 4th, 2009 at 5:09 pm
IM: largely agreed. Regarding price signals to the domestic sector, the key issue doesn’t seem to me to be whether they are masked but whether they will drive action… and the evidence is that even currently cost-effective energy efficiency options are not being undertaken. Why will even more price signal resolve the underlying issues?
# 7 Robert MerkelNo Gravatar
Mar 4th, 2009 at 6:12 pm
IM: We share your concerns about targetted policies but note that we are almost certainly going to require a wide range of policies regardless of whether the CPRS is implemented or not. And there are some useful governance precedents. Take for example Mandatory Energy Performance Standards for appliances and equipment in Australia. This regulatory approach, developed in conjunction with industry, basically creates a time table for retricting the worse performing equipment from the Australian market. Industry has certainly argued for weaker targets and slower phase-in … but they haven’t been asking Australian energy consumers to pay compensation to them for having to change.
CAFE is very complicated. I assume you are referring to the definition of car versus truck… the problem was clearly identified early but the relevant US governance arrangements were inadequate to fixing them. However, note that it was a clearly understood issue – a key problem with the CPRS is that there’s potentially little transparency in the so-called compensation arrangements.. will we even know what’s going on?
# 8 Aussie OskarNo Gravatar
Mar 4th, 2009 at 9:09 pm
IM: it’s potentially even worse than this – the CPRS may provide exactly the wrong sort of certainty … guaranteed compensation should the government eventually decide (or is forced) to try and make the scheme effective.
# 11 Peter WoodNo Gravatar
Mar 5th, 2009 at 11:01 am
IM: Not an issue for the CPRS design directly but the proposed national targets, but I agree that stronger targets make the case for a CPRS far more defensible.
# 12 SteveNo Gravatar
Mar 5th, 2009 at 3:00 pm
IM: lots of valid points. Firstly, I don’t we have seen any serious attempt in australia to put together an coherent and comprehensive mix of targetted policies – certainly under the former Federal Government.
There is certainly an argument over whether lobbyists can subvert a big economy wide policy more easily than lots of targetted policies. One of the strengths of an ETS may well be that industry really finds it difficult to know what it means for them… and that might make them less inclined to lobby against it. The problem is that there is always an obvious lobbying approach with an ETS – free permits for me please. I’d argue that at least some targetted policies are harder to lobby against than an ETS for reasons including transparency and more firmly established government processes. TAke the example of MRET – a policy that the Howard government was reluctant to implement. They made some design errors but there was nothing in it like having the public compensate the coal-fired generators for increasing competition from renewable energy, or the idea that electricity intensive industry shouldn’t have to help pay for it. Interestingly, the latter issue is back on the table for the expanded RET of the current government – governance may actually be going backwards.
I fear you are right that targetted policies will prove no better than the CPRS – that governments are incapable of delivering the policy response required. The clear need, then, is that the public understand the situation. The complexity and abstraction of the CPRS, unfortunately, makes it very difficult for the public to work out what’s going on. Might it be better to fail obviously now, rather than risk finding out the CPRS is a debacle in five years time?
# 13 Peter WoodNo Gravatar
Mar 5th, 2009 at 4:43 pm
IM: Perhaps the concept of targetted policies then, is to provide government with a BATNA – Best Alternative to Negotiated Agreement – against industry. The problem with trying to fix the CPRS right now is that industry has every opportunity to weaken it and don’t appear likely to pay a price for such behaviour. The government and the public need to have a ‘downside’ option against industry lobbying – “keep working to destroy the scheme’s credibility and we’ll walk away and directly regulate you. Your choice.” Just a thought.
Again thanks for the opportunity to discuss these issues with you all.
I have been predicting that the ETS is a lame duck for the last year or so. Only a carbon tax will have the teeth to curb carbon usage. The recent petrol price rises were the equivalent of a carbon tax on inelastic consumers of carbon. Except that the proceeds went to rich Arab sheiks.
The money would be better used by the Commonwealth to finance research and establishment of carbon-less energy sources, either at home or overseas.