There’s already a great deal of insta-reaction to the Clean Energy Future online – you can try Climate Spectator or Crikey for some analysis if you like. Or you could start by reading the actual policy document.

There is a great deal of pork here directed at the coal, steel, and coal-fired electricity sectors – though some of the direct “industry assistance” is actually outside the multi-party climate change agreement, and as such will presumably require the Opposition to get it through Parliament. Farmers get all of the upside of carbon farming, with none of the downside of paying for their own emissions. The exemption of transport fuel is a distortion which will have to be dealt with later – as the plan stands, diesel used for rail transport is covered by the carbon tax, while diesel used in trucks and buses is not! And so on.

But the pork is temporary. The pricing of carbon is – unless we get an Abbott government with control of both houses of Parliament in 2013 – permanent.

Elsewhere: Garnaut’s statement on the package.

More: Quiggin’s insta-view – generally favourable, and making the point that the industry assistance doesn’t remove the incentive for those companies to decarbonize.

Tony Abbot has opened up the emissions action debate by declaring that he is not going to support emission trading or carbon taxes. Instead he is favoring “direct action” to meet our 2020 emission targets. This post looks at how a simple action plan that largely depends on direct action might work.

Part of the problem with emissions trading is that it is a comprehensive scheme that, in its simplest form, sets out to put price pressure on all forms of greenhouse emissions. The first problem with comprehensive schemes is that they inevitably have to depend on clumsy, “one answer fits all” strategies such as “putting a price on carbon”, rationing etc. to drive the reduction of emissions. The problems with ETS, “one answer fits all” and putting a price on carbon have been discussed in more detail here.

The second problem is that it is easier to do something about some sources of emissions than others. In many cases it will not be technically or commercially practical to do much, if anything to reduce the emissions. Including these cases in an emissions trading or comprehensive carbon tax scheme will simply result in the pain of price increases without any emission reduction gain. In other cases there may be economic, social or other impacts that make it wise to defer action or at least manage the introduction of the change instead of relying on crude market pressures.

Penny Wong has dealt with some of these too hard cases by using free permits, compensation, etc. to reduce this unproductive pain. In effect, she has set up an “exclude by exception” system. However, the end result is a complex, difficult to understand and comes with high administration costs. Other comprehensive systems, such as the use of carbon taxes to put a price on carbon, will require similar complexities to minimize unproductive price pain.

It may make a more sense to take the opposite approach: Use a simple “include by exception” climate action plan that only sets out to do something about a limited number of emission sources at any one time. The following gives one example of how an “include by exception” approach might be used to reduce emissions by 25% by 2020.

The simplest plan would be to focus on the partial cleanup of power generation alone. In this case, a 25% reduction in total emissions would require conversion of all coal fired generation to gas, replacement of half coal fired by a clean technology such as wind or an appropriate mix of these strategies. Any realistic approach will have to be able to deal with a range of technical, supply, location and commercial issues. (It should also be noted that recent drops in the price of MRET credits are causing clean power providers to reconsider their investment plans. It is not sufficient to simply ramp up this system to drive the cleanup.)

Ideally, the cleanup plan needs to give the government the ability to drive the rate of change and to set boundaries on the acceptable mix of technologies, location etc. In addition, the plan should give price and supply certainty to consumers, potential investors and the operators of fossil-fuel-fired power stations. (See here for a more detailed discussion of the issues and alternative strategies for driving investment in the cleanup of major power generation.)

My preference would be to leave the price of dirty electricity unchanged while setting up a series of contracts for the supply of clean electricity combined with regulations to ensure the preferential use of cleaner electricity if offered at the contract price. The contract price and other agreements may vary from contract to contract. In addition, the government may need to issue contracts for the conversion of coal-fired to gas and the supply of standby power, as well as setting out an orderly plan for the ramping down of coal-fired power.

The outcome of these contracts and regulations would be to give appropriate control to the government, more certainty to potential investors, existing operators and workers as well as more supply and price certainty to consumers. Best of all, the average price of power would only ramp up slowly as the proportion of clean power increased thus giving business time to adjust and demands for special treatment to be deferred until actual impacts are known

The above base plan would allow the 2020 target to be easily met. However, it may be smarter to replace some of the cleanup of electricity with other options that cost less per tonne emissions eliminated. For example, we could go close to reducing total 2020 emissions by 5% by leaving the price of fuel unchanged and simply regulating to keep the average fuel consumption of new cars below the equivalent of 5 litres petrol/100 km starting 2010. Even larger reductions could be achieved by ramping down this target further over time and using subsidies or regulation for other efficiency measures such as the retrofit of older cars with plug in hybrid or the use of low rolling resistance tires. Other options might include regulations/subsidies aimed at improving the efficiency of computers and other electrical equipment, reducing building energy needs etc. Other changes might be made later as the homework is completed for other action or in response to changes to international agreements or the availability of new technology.

Action plans such as the one described above have a number of advantages over CPRS. They are simple enough for most of us to understand and don’t need the high administrative costs associated with something as complex as CPRS. There would be more price certainty since price increases would be driven only by real increases in costs, rather than by fluctuations in the price of carbon permits. Best of all, there is no reason why action could not be started before the next election.

It would be interesting to have suggestions and details for other actions that might be added to the 2020 plan.

The government would be smart to use the Senate rejection of CPRS as an excuse to put CPRS to the side for the time being while concentrating on tangible action to start the reduction of emissions before the next election. It is ridiculous for Kevin to be talking about the need for urgent action while supporting a scheme that won’t have any serious effect on emissions for a number of years.

Tonight’s Lateline had the New South Wales National Senator, John Williams, orating about “global control” and declaiming “carbon is not a pollutant”. Then we saw Kevin Andrews, of all people, in effect refusing to rule out a leadership bid. Very hard to say which is more insane…

Earlier on LP: Previous post and discussion on the politics of the Liberals’ divisions over the CPRS.

Update: D-Day developments covered here.

Penny Wong as the special guest on Insiders this morning said it showed that they were serious in wanting to get the CPRS passed, that they either had to negotiate with the Greens and the minor senators. Their judgement was that negotiating with the Coalition was their best chance. Given the attitude of Senator Fielding this is probably true.

But as Fran Kelly pointed out on Insiders, farming was only one hurdle; there will be others. And granting this concession will leave the Nationals unmoved. Apart from their climate change denialism, they see the CPRS as a gigantic tax and an unnecessary impost on Australian industry and commerce.

The decision, if implemented, would bring us into line with our major competitors, such as the US, but in truth the treatment of farming is still a contested issue there.

The decision would still leave farmers exposed to cost increases on inputs, such as fuel and fertilizers. Also the details on how the granting of credits or offsets for farmers would be implemented is still unclear. Penny Wong made it clear that more work needed to be done on the science of this aspect, and more discussion was needed with stakeholders.

It’s interesting that one peak farming group, the American National Farmers Union (NFU), see the need for long-term mitigation of global warming. President Roger Johnson

urged committee members to take into account the costs of inaction. “Models of climate change scenarios demonstrate increased frequency of heat stress, droughts and flooding events that will reduce crop yields and livestock productivity,” Johnson said. “Estimates provide that for every one degree increase in temperature, Celsius, we will see up to a ten percent reduction in agriculture production worldwide.”

There is a similar attitude in the Australian NFF, whose site told us as far back as February 2007 that Climate change threat must be tackled ‘head on’. February 2007 was after the publication of the Stern Review and at the beginning of the release of the IPCC AR4 documentation which went on throughout 2007. It does follow the release in June 2006 of a study for the NFF by the Allen Consulting Group, ‘Emissions Trading and the Land’. That was in retrospect quite a foreward-looking and strategic move on the part of the NFF.

For Malcolm Turnbull not much has changed. As one leading commentator said recently there is a battle going on for the soul of the Liberal Party. Those on the right are telling him that he can be leader if he likes, but it is their party.

As the climate change debate rumbles on towards a possible denouement in Copenhagen, it’s comforting that at least one of Australia’s political parties is taking the issue seriously.

You can read the whole article here.

Andrew Murray in the AFR on Monday reckoned the Libs are all over the shop on political and policy options in relation to climate change. If they are going to have the swing vote they really ought to sort out what policy they actually favour. He says they should think about a carbon tax.

He’s not saying there should be a carbon tax. He’s saying that no-one in the political arena has given any serious thought to the matter. And they should.

This is what he says about a carbon tax:

It is more easily understood by voters and businesses, while an ETS remains incomprehensible to most – the effects of a carbon tax are immediate and much more easily measured than an ETS.

A carbon tax can be more easily calibrated than an ETS – it can be set low and rise as needed.

An ETS is indirect, while a carbon tax is direct.

An ETS is a complex uncertain market-based system (its European trial has hardly been encouraging). But a carbon tax is a simple certain price signal.

An ETS hides the true cost to consumers, like the wholesale sales tax, whereas a carbon tax shows true cost, like the GST.

An ETS will compensate polluters; a carbon tax can compensate low-income consumers.

An ETS taxes production; a carbon tax taxes consumption.

An ETS advantages imports and cannot exempt exports (but can compensate them in a complicated and costly manner); a carbon tax can exempt exports.

An ETS discourages individual action because the cumulative carbon savings of concerned consumers just gives polluters more room to pollute.

Murray says some economists support one for good reasons, some support the other. His is a call to think about the options.

I can only agree and compliment the AFR for maintaining a lively opinion page

To put it mildly, though, it’s hardly helpful, and it’s illustrative of the despicable tactics which the globally interconnected forces of reaction are prepared to employ.

This issue isn’t directly canvassed by Nate Silver, but he has written a very interesting post at FiveThirtyEight.com on the chances of the Climate Change Bill receiving 60 votes in the US Senate (which it will need to survive a filibuster) – recommended reading.

But what’s the real issue, here, politically?

Norman Abjorensen puts his finger on it:

The real losers, however, are the environment and the people. A less obvious, but equally important, loser in all of this is our increasingly enfeebled democracy – once again trashed by the corporate juggernaut. This just one more example of what the American political scientist, Carl Boggs, has called the corporate colonisation of society. A deal has been struck between self-interested business elites and a supposedly representative government that has effectively capitulated: the public – and the public interest – have simply been excluded from the equation.

…

We must start to ask the question: whose society is it? Theirs or ours? It was Aristotle who first promoted the idea that that people were designed by nature to live and be active in the polis. The polis, as society, existed only for the sake of “the good life.”

Where is it now?

“The way the Emissions Trading Scheme is designed, every kilogram of emissions saved by a household frees up an extra permit for a big polluter,” he said.

“So while it’s true this scheme will help reduce households’ use of energy, it won’t reduce Australia’s emissions at all.

“What they do is take those permits freed up by what the individuals have done and sell those permits to the aluminium industry or the steel industry or anyone else who wants them.

This is 100% accurate. The insulation package won’t reduce emissions at all – in fact, it’ll increase emissions slightly, as the insulation will be manufactured and installed before the actual emissions caps kick in in 2012. What it does – aside from stimulating economic activity, which is the point of the stimulus package – is achieve that emissions target more cheaply and easily than might otherwise be the case. That will indeed push down the price of emissions permits for your favourite evil industry of choice (it’ll also do so for organic food shops and pensioners, but that doesn’t ever get mentioned, funnily enough…)

But there’s a simple solution to this. The reason why the government went with such pathetic emissions targets in the first place was due to the fears of the effect on the economy. But we’ve effectively bought ourselves nearly a 1% reduction in annual emissions by this measure. Therefore, as part of the deal, the government should allocate fewer permits than they otherwise would have, such that the cost of permits stays precisely where it would have been absent this measure (this will be slightly less than 1% of total annual emissions, as the government was presumably already counting on some emissions reductions from this source). Treasury should be able to run the numbers reasonably easily. The polluter industries shouldn’t be able to complain, given that it won’t cost them anything they weren’t going to have to pay. And we get actual emissions reductions out of the process.

This should be a no-brainer for the Greens to put on their list for the Senate negotiations – both as a worthy measure in itself, but more importantly to establish an important precedent. If the government takes policy measures to reduce emissions from one part of Australian society, those emissions should not be reallocated to other sectors.

Queensland’s Opposition Leader Lawrence Springborg said the comments helped highlight the faults in Labor’s scheme.

“Nobody should be surprised with Barnaby’s colourful language and original language, you always get that from Barnaby and that’s fine,” he said.

“One thing he’s actually addressed…is the cost of this to Australian families, who are already struggling in very uncertain economic times.”

So it looks like The Borg and the LibNats are signing up for the denialist club. Or sort of. Springborg’s position is somewhat obscured in the death by a thousand rhetorical questions maneouvre. And what, I wonder, does this mean for the CPRS’ path through the Senate?

Malcolm Turnbull, who is yet to announce a position on emissions trading, played down the differences between the Coalition.

He said the Coalition would speak with “one voice” on emissions trading.

“We’re very committed to action on climate change that is economically responsible and environmentally effective,” he said.

“We work as a very close coalition and I’ve no doubt that we will be responding to this legislation with one voice.”

It could be that Turnbull is hoping to pull the Nats into line. But given sentiment in many parts of his own party (including that of his Senate Leader, Nick Minchin, and of course, the recently prominent former Dear Leader), it may be that the Libs’ get pulled in the direction of Barnaby’s stand. Will the government end up having to negotiate with The Greens? This could get interesting. In a way, there’s nothing Kevin Rudd would like more – the political markers for painting the Liberals as sceptics, wreckers and denialists on Climate Change have well and truly be laid down already. But if he can’t blast the Coalition into submission rhetorically, how does his “balance” line survive having to negotiate with The Greens? … Of course, there’s always the other possibility – perhaps the most likely one – that the Coalition could split every which way in the Senate.