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Climate of discontent

By Des Moore - posted Thursday, 21 April 2011

Prime Minister Julia Gillard now faces a raging controversy over her decision of 24 February to impose a tax on carbon (or more accurately on carbon dioxide emissions) for three to five years from July 2012.

The controversy extends into the union movement and to an increasing number of individual businesses and even to business organisations. As Gillard had indicated on becoming Prime Minister last June that she supported an emissions reduction policy, the emergence of such a strong controversy within less than two months appears at first glance rather puzzling. There had seemingly been no controversy within the Multi-Party Climate Change Committee established to advise on how to introduce a carbon price and, while Tim Flannery appeared a rather weird appointment as "climate commissioner", Australia seemed to be proceeding on the basis that the "science is settled".

But Gillard's decision to completely change the frills on her bonnet from no taxes in August in order to impress "the proudest fellow in the Easter Parade" (Green's leader, Bob Brown), has raised serious questions about both her leadership capacity and community support for policies to reduce emissions. Opposition Leader, Tony Abbott, has been given increased opportunities to enhance already existing concerns about Labor's policy stance. Although the Coalition itself continues to support action to reduce emissions, Abbott's visits to workplaces has undoubtedly helped stir debate about the dangerous warming thesis as well as encouraged opposition to the tax decision itself.


With the continuing shift in Australian opinion polls on the attitude to the causes of warming, it is now becoming conceivable that, like the Finnish political leader participating in the current Finnish election, Abbott might even dare to describe global warming science as a scam. Surveys taken since 24 February show the proportion who believe warming is due to human activity is now down to 44% and that 59% are opposed to a carbon tax. Surveys of Australian opinion are still more supportive than (for example) US ones of the need for government emission-reducing action, but the Gillard tax decision might move opinion here closer to the US.

The question that is unanswered is whether any serious consideration by Cabinet was given to the implications of imposing a carbon tax. Gillard's statement of 24 February gives no substantive reason for taking the tax route ( I do not count as substantive the nonsense that Australia should play a leading role). Nor does it make any mention of the possible adverse implications for international competitiveness of Australia taking such action on its own. True, the document accompanying the statement by the Multi-Party Climate Change Committee does have a heading "Assistance on 'other matters' still to be determined" (under which it says "the principle of competitiveness recognised that the overall package should take appropriate account of impacts on the competitiveness of all Australian industries"). But taking "appropriate account" of international competitiveness effects scarcely offers a feeling of confidence in circumstances where Australia would be one of few with a carbon tax as such.

In his Press Club speech on 13 April Climate Change Minister Combet claimed that:

many countries are taking action to reduce their emissions and their emissions intensity in line with pledges they have made and in the absence of global agreement ... the overall message from all information that is available is that Australia is not acting alone.

But he failed to acknowledge that no major emitter (China, the US, Japan, India, European Union) has a carbon tax or that those few small European countries that have one seem to apply it to only a limited range of products, such as oil/petrol. (In Sweden, for instance, a tax of $E150 per tonne applies to oil, coal, natural gas, lpg, petrol and aviation fuel used domestically but, with exemptions, 96% of revenue comes from oil). Nor did he mention that, for the first two phases of the EU Emissions Trading Scheme (2005-12), permits to all firms covered by the scheme have been virtually free. Coincidentally, on the day of Combet's speech the EU did announce plans to introduce a carbon tax but to apply it only to those sectors not covered by the ETS and reports suggest the plan may be vetoed by the UK. Combet's reference to pledges made by some countries arising out of the Copenhagen/ Cancun meetings included China but was limited mainly to "definitely reducing the carbon intensity of its economy". There was no acknowledgement that estimates by three experts for the Brookings Institution and Harvard indicate that China's emissions in 2020 will be nearly 500% higher than in 1990.

In short, Combet presented the Press Club with what might in other circumstances be described as an ambit claim. Needless to say no media analyst provided a critique of his claims or pointed out that a carbon tax of any size in Australia would expose businesses to serious international competition. Nor it seems is it understood that this competition will apply to imports as well as exports. Chinese businessmen will be rubbing their hands and waiting for the legislation which Combet has promised later this year.


What is likely to happen now? Apart from abandoning or postponing the introduction of a carbon tax (either of which would now seem politically unacceptable for Labor), there seem to be two options or combinations thereof. First, announce a tax that is so low that it will have minimal adverse effects on businesses exposed to international competition. Second, create very wide exemptions along the line that the EU appears to have done under its ETS. Either way Australia would have an emissions reduction policy that would do very little to actually reduce emissions but would add considerably to bureaucracy in Canberra.

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This article was first published on Quadrant Online on April 14, 2011.

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About the Author

Des Moore is Director, Institute for Private Enterprise and a former Deputy Secretary, Treasury. He authored Schooling Victorians, 1992, Institute of Public Affairs as part of the Project Victoria series which contributed to the educational and other reforms instituted by the Kennett Government. The views are his own.

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