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Wednesday, October 12, 2011

As Australia moves to price carbon, 3 things you need to know

A carbon price scheme in Australia is close, at last, but shaky too. Today marks the crucial vote (74 to 72) in the House of Representatives, the lower house in the bicameral Australian Parliament, with the way already prepared for passage through the upper house Senate too.


Barring not entirely unlikely political disaster befalling the ill-fated minority Labor Government, the Clean Energy Future scheme with fixed $23 a tonne of CO2 pollution price attached will start on July 1, 2012. There'll be the fixed price for three years, then real carbon trading with the market setting the price will begin in 2015.


Unfortunately, this is all inherently shaky still. The legislation is set to become law via an alliance of minority Labor Government, progressive Independents and Greens. It is opposed absolutely by the conservative Opposition, whose leader has 'sworn in blood' (his actual language was 'a pledge in blood' ) to repeal 'this toxic carbon tax' (also his language), and public opinion polling for the Government is dire.


Many words will be written about this in the minutes, hours, days, weeks, months and years ahead, but here are 3 things you need to know.


1. Pricing pollution is the conservative way


A market solution in any normal world is the climate solution political conservatives in a market-based democracy would support (unless they are really skeptics). Indeed, at the Kyoto Climate Summit in 1997 that's what was supported by the then conservative Australian Government of Prime MInister John Howard, which supported the US Government's advocacy of a carbon trading approach over howls of protest from the European Union bloc and green groups. Now Europe has a carbon trading scheme, most environmentalists and political Greens support it. Go figure.


2. Uncertainty can still kill the value of carbon pricing


Business champions of carbon trading have long feared the position we've now arrived at. This is because the certainty they are seeking from a carbon price - to allow them to make with confidence large long-term capital investments that are sensitive to carbon price and policy - is being denied to them by the vicious politics in Australia (and America too). It seems inevitable that there will now be a future election 'referendum' on the carbon scheme, and possibly a further Double Dissolution poll as well to force through repeal of the law. Business will be put on the spot: does Australia keep going with the Clean Energy Future scheme, perhaps with modifications, or does it plunge back into prolonged carbon indecision?


3. A price on carbon is not a magic cure for climate change


For all the incredible effort and bitter public and political division that has gone into arriving at today's historic votes in Australia, including the destruction of the leadership of at least two Australian Prime Ministers and two Opposition Leaders in the past four years, carbon trading is only part of the solution. It's a good tool, harnessing market forces, but we need other market levers and lots of old-fashioned regulation too. You don't just set and forget a carbon scheme, somehow magically arriving at a clean energy future with a low-carbon economy in 2050. The next crucial thing to chase is a national energy efficiency scheme for Australia, which means this is no time to take the pressure off our political and business leaders.


And what now?


I reckon a new era of real action on climate change is now possible if not certain, and that everyone who has worked for this for so long should take a few moments to reflect on the years it has taken, indulge in modest self-congratulation, then brace for all of the hard work still to come. What do you think? 























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