A whole new level of crazy

If Australia is left to itself, and to judge from the various reports produced by the government’s advisor on these matters, Professor Ross Garnaut, there is little doubt this country will be able to put together a decent Emissions Trading System (ETS).

Our own ETS is likely to start off better than the established European system, although that is not saying much, and may even reduce Australian emissions, which the European system arguably has yet to do. Just how much it will reduce emissions will depend on the settings the government opts for, and the political pain it is prepared to inflict on the electorate - all in the name of the environment.

The problem is that the Australian ETS will not be in isolation. If it is anything like the European ETS, emitters here should be able to buy offsets or permits of Certified Emission Reductions (CERs) from overseas under a program called the Clean Development Mechanism.

The people behind the CDM have the best of intentions - and with a name like that, how could it be wrong - but one notable, and widely reported result of the program is to give windfall profits to Chinese dam developers.

This is another strange twist to a bizarre tale in which the world is spending untold billions of dollars on little more than a suspicion that because the earth is in a high part of a well recognised climate cycle, human activity must have something to do with it, and a bunch of dodgy computer models that have failed to forecast anything much.

But it seems this madness must continue, we are to be dragged deeper into it, and we must pay for the privilege. As can be seen from the payments to dam developers, the next level of madness is likely to be even stranger.

Although the characteristics of the local ETS have yet to be announced, it is widely expected that the Government will sell or auction permits to major carbon emitters, to gain a multi-billion dollar windfall.

Industries that are exposed to major international competition are likely to get an easy ride, at first, so most of the burden is likely to fall on major power stations, and perhaps on fuel consumers. The power stations will have to push up electricity prices; and service stations will have to further increase petrol prices (if the Government is prepared to take that step, given present complaints over prices).

The amount by which prices will increase is anyone’s guess at the moment, but the end result will be that consumers will pay out and that the government will suddenly have an additional pot of money.

The bizarre point about this is that the government will be instrumental in setting the underlying price of the carbon market, and setting it by political considerations, and will then have to decide what to do with the funds gained through its decisions.

That money should be used to alleviate the pain of higher energy prices for consumers perhaps through lower taxes - always a nice thought - but whenever a pot of money is opened, lobbyists swarm in. And in the current ideological climate (pun intended), those lobbyists will want money for every crack pot green energy scheme ever devised - from burning wood pulp in Melbourne, through to harnessing wave energy in the Gulf of Carpentaria. Some of those schemes may be of use, although there is a lot to be said for letting the market sort through them. But even if the government avoids the temptation of flinging billions of dollars at alternative energy projects, there are plenty of other bright, socially-responsible ideas that will cost only a few billion.

While this lobbyist feeding frenzy is going on the corporate sector will be striving to meet its commitments including buying CERs, or whatever they will be called in the Australian system. If there are not enough carbon permits in Australia, or they company wants to get them more cheaply, they may be able to buy them overseas through the UN-run CDM program.