How Our Stupidity On Climate Change Will Cost Us More Money

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Kevin Rudd today announced he would bring the Emissions Trading Scheme forward by a year. Currently, around 500 big businesses pay about $25 for every tonne of carbon dioxide they emit. This fixed price will now be scrapped a year earlier than planned. Instead they will pay what the European market dictates, currently about $6.

The fixed price was determined by looking at what the actual human and social costs of pollution are. It's not arbitrary, it's to compensate us, humans, for the crap we breath in and to compensate the planet for what industrial development has done to it. It was economists who came up with the price, not nature freaks. The money raised has gone to taxpayers, who now have higher electricity prices, and  programs that help develop clean technology.

The main differences between a carbon tax, which is essentially what we've had, and an emissions trading scheme, which we will have from July next year under Rudd, are important:

• With a carbon tax, the money raised goes to the Government, whereas under an ETS money is traded by businesses as they buy and sell permits
• Under a carbon tax there is no limit to the amount of pollution companies create, as long as they're willing to pay for it, whereas under an ETS the Government sets a limit and if one company wants to go above that limit they have to buy enough permits from another company, which then has to cut back its pollution.
• While both carbon taxes and trading schemes have been shown to reduce emissions, it's only with an ETS that the reduction is guaranteed. The higher the target, the more expensive permits become.

In contrast, Tony Abbott would scrap any involvement in an Emissions Trading Scheme. Instead, he wants to reward big businesses that cut back on emissions. The problem with this is that it's mightily expensive, and it's unlikely that the future Government, if Abbott wins, could afford to pay for anything more than the minimum 5 per cent reduction that we've agreed to under the Kyoto Protocol. It's also inefficient – under figures included in the Coalition's Direct Action plan they (ie we the taxpayers) will pay anything from $8 to $40 a tonne to the big businesses. Who will probably still pass on the costs of converting to renewable energy to us. Double lose.

Either way, it's clear who wins out of today's announcement – big business. They will either pay less than they expected from July next year, or they'll be given the option of continuing what they're doing or getting free money from the Government.

The Gillard/Rudd plan is decidedly pro-market, while Abbott's plan is interventionist and protectionist. If you have any emotional links to the foundations of the Labor or Liberal parties you can be forgiven for being confused about who to vote for.

The difficult part of the ETS is yet to come. When Europe moved to an ETS they set targets far too low and handed out too many permits – that's why the price is so low at the moment. If Australia moves to an ETS as currently planned, a lot of economics nerds will have the task of working out firstly what the target should be – the minimum is 5 percent of 2000 levels by 2020, but environmental groups are pushing for up to 25 percent - and then working out what proportion of that target amount should fall under the scheme. They will end up with a number of tonnes, each with a permit attached to it. Then, they need to work out how many of those permits will be given away for free. The reason they'll do this is to compensate high-polluting companies that will be affected so badly it could put them out of business or affect their international competitiveness. Then they have to work out a way to auction off the remaining permits. This is the only time the Government will raise money from the ETS, so they want to make sure they get a good price. They also need to set a low and high 'floor' – a minimum and maximum price – which will be in place for four years to protect Australian businesses from fluctuations in Europe. All of this needs to be done by about February next year, so the scheme can start in July. Given how quickly this all has to happen, Rudd will either have to recall parliament this year, in which case it's an actual Government policy, or wait until after the election, in which case it's an election promise.

Today's announcement by Kevin Rudd was the result of Tony Abbott's successful campaign about Labor's 'carbon tax lie'. Australians are pretty dumb for listening to him, but they did. If they thought about it, they'd ask how Abbott plans to cut emissions by 2020 without a carbon tax. The answer is by taxing us in other ways. To pay for this 'win' Labor has had to cut back a range of programs, not just the environmental programs put in place a year ago but also fringe benefits on work cars and more efficient purchasing of software for government agencies. Both of which should probably have been done anyway. They'll also sack 800 public servants. If they're not needed, then why are they there?

Rudd was faced with either losing the election, in which case the scheme would be scrapped anyway, or foregoing the billions of dollars that would have gone to worthy programs. All so that Australians can have an extra $3 a week. Next year. Maybe. Shame, Australia, shame.

Follow Carly on Twitter: @carlylearson

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