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Pollution cuts no good on our own
article, The Courier-Mail, 21 July 2008

The proposed carbon trading scheme is already a failure, writes Des Moore

Climate Change Minister Penny Wong

Much disagreement exists within the scientific professions on the causes of increased global temperatures since 1975 and, in my view, based on long experience of assessing projections about the future related to the past, no case exists for government action to reduce CO2 emissions.

Yet the Rudd Governmentís Green Paper, delivered this week by Climate Change Minister Penny Wong, right, unequivocally endorses the flawed assessments in the United Nations Intergovernmental Panel on Climate Change (IPCC) reports that early action is needed to prevent damaging future temperature rises.

Perhaps there is some realisation the science is uncertain. This might help explain why, although the Green Paper sticks to a 2010 start for an emission trading scheme, it envisages an initial softly, softly approach. References to a possible initial carbon price of $20 per tonne and a one-off increase in consumer prices of 0.9 per cent reek of testing-the-water, as do the promises of extensive compensatory measures designed to calm business and households.

With only 1000 businesses initially subjected to emission controls, the Government also hopes to avoid upsetting the wider business community. Overall, it will be surprising if there is any significant initial reduction in emissions.

The basic strategy is to get community acceptance for reducing emissions before pursuing the really hard yards involved in a 60 per cent reduction by 2050.

Once the 2010 election is out of the way, the initial offsetting of any petrol price increase by reduced excise rates can be reversed and further increases in carbon prices allowed even though they then would have inflationary and interest rate implications.

Another reason for the cautious start is that the largest CO2 emitters, developing countries, are not taking reducing action and, contrary to Government claims, early Australian action is unlikely to seduce them. Both China and India (sensibly) already have rejected such action and developing countries generally want faster economic growth to catch up with developed countriesí income levels. They will continue with large emission increases and a not improbable outcome would be that, even if developed countries reduced their annual CO2 emissions by 20 per cent by 2030, total world emission rates would still then be over 20 per cent higher than now.

As developing countries are major competitors in international trade, whether businesses accept or reject the IPCC science, they should press the Government to delay introducing any Australian emission reducing scheme until all major emitters accept an international agreement. Starting with the only (modest) one now in operation (in Europe) would mean that, unless exempted from reducing emissions, our exporters and import-competing industries would face immediate and growing threats.

Of course, the Green Paper indicates 20 per cent of permits will be provided free to those vaguely defined as the most emissions-intensive tradeexposed activities. But permit availability will vary from industry to industry. While this initially may limit the undermining of competitiveness, the potential for future exposure will deter investment. In presenting his draft report, Professor Ross Garnaut acknowledged we will be somewhat poorer because of the programs.

How much, no one really knows and the Green Paperís failure to present Treasury modelling only heightens the uncertainty.

But much uncertainty will continue because modelling itself cannot incorporate more than guesses about the reactions of individuals and businesses to the fundamental structural changes that will occur in greatly changed economic circumstances involving a much increased government role. If the scheme pursues the stated aim of reducing emissions by 60 per cent by 2050, our living standards could grow at a considerably lower rate.

The Governmentís limiting of the direct emissions reduction also involves replacing by 2020 energy from fossil fuels with 20 per cent of energy from renewable sources, such as clean coal, wind and solar power. But while this lesser ETS role limits the possible overall rise in prices, government subsidies for renewable energy projects will increase, resulting in higher taxes and a less efficient economy.

The proposal to cap the carbon price for at least five years makes something of a mockery of claims the scheme will be market-determined. The forcing of 1000 businesses to buy permits they never wanted will be as good as a tax. Des Moore, a former Treasury deputy

Des Moore,
a former Treasury deputy secretary, is director of the Institute for Private Enterprise.

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