Garnaut’s scary report a disappointment: Kohler

Ross Garnaut’s draft report has certainly achieved one of its aims – it has scared the crap out of everybody – but perhaps not in the way intended. We’re all now more frightened of the scheme than the effects of global warming.

Ross Garnaut’s draft report has certainly achieved one of its aims – it has scared the crap out of everybody – but perhaps not in the way intended.

We’re all now more frightened of the scheme than the effects of global warming. Up to Friday most people had only watched Al Gore’s PowerPoint film An Inconvenient Truth, been duly alarmed about the fate of the planet and voted for Kevin Rudd so he could sign the Kyoto Protocols to warm applause.

Now anybody who reads the Garnaut draft report – just chapter one will do – won’t know what to be more scared of – the disease or the cure.

Garnaut’s draft report is a deeply disappointing document in many ways. It is quite disconnected from the real world, and will be almost completely ignored.

Garnaut has a horror for all – for the Federal Government it’s the idea of fixed price permits for two years, so Kevin Rudd and his ministers can’t shift the blame to the “markets”, they would have to tax companies directly; for the states and power generators it’s the proposal to make ALL polluters buy permits – none get handed out for free; for motorists it’s the inclusion of petrol; for exporters it’s that only 30% of the money is earmarked for them; and for the rest of us it’s the fact that it’s really all about China, and it’s too late anyway – the Murray Darling Basin and the Great Barrier Reef are buggered already.

It’s not entirely Garnaut’s fault, he has the enthusiasm of a recent convert and began the task when the world was a different place.

He also walked into a trap. The use of the term “emissions trading scheme”, or ETS, is actually just a piece of political spin – something that will become clearer as time goes on.

It should be called an emissions permit scheme because that’s the key thing that will happen. The fact that these permits can be traded on a market is not significant.

Politicians around the world are calling it an ETS to try to make it seem like it’s not their fault – that some all-powerful deity called The Market is making us pay for carbon emissions. And patsies like Ross Garnaut are being set up to take the blame.

Carbon dioxide emissions must be controlled either by taxing them or limiting them with legislation, through the issuing of fewer permits, overall, than are needed for current emissions.

It must be one of those two and the Government must do it. Most politicians, naturally enough, go for the latter – except in Scandinavia where they don’t mind taxes much at all.

The market for permits is simply a place where the desperate meet the favoured and pay cash to pollute.

Up to now the weight of public opinion has favoured “doing something”, thanks largely to Al Gore and the international wave of concern he fostered.

Now it is swinging towards self-interest as the “something” that is to be “done” collides with the collapse of credit markets, as well as a doubling of the oil price in two years.

For Australia it’s all about petrol and coal. Petrol can probably be excluded (absurdly), as food was excluded from the GST, but coal cannot. If coal-fired power stations were given free permits equivalent to their current carbon emissions, Australia would not meet the softest emission-reduction targets, let alone those to which the Government is already committed.

Therefore carbon capture and storage (CCS) must be accelerated, and it must be made to work, in order to keep the lights on in Melbourne, Sydney and Brisbane while any kind of carbon emissions reduction targets are met. Gas, wind and solar will not do it.

But the most powerful issue will be international inequality, because sovereignty is absolute.

If Robert Mugabe can get away with what he’s doing in Zimbabwe, how easy will it be for countries to quietly, or loudly, subvert a new set of global warming protocols to replace Kyoto? Even the largest emitter, the US, and the fastest growing emitter, China, are a long way from joining in. And even if they join in, what are their targets? How many permits will they issue?

This is not just an intangible issue of equity, where we tut-tut about China or the US not joining the global effort to save the planet.

Once a permit scheme has been legislated in Australia, the question of whether other countries have done the same and whether they are using the permits to choke off emissions or simply legitimise the current level is a matter of life and death for exporters or import-competers.

Garnaut joked on Friday about how every company he has met during the consultation is a “trade-exposed, emission-intensive” business. It’s not funny.

Here is Garnaut’s prescription for dealing with this: “In the absence of (a comprehensive international) agreement, we suggest that simple rules be established to govern payments to trade-exposed, emissions-intensive industries. General analysis should identify a maximum proportion of permit value appropriate for handling the ‘carbon leakage’ problem. (That is, where companies are driven out of business by competitors that are allowed to pollute by their governments).

“The ratio would be less than or up to 30%. Simply administered rules of thumb would be constructed around the principles for payments to trade-exposed industries articulated in the discussion paper and in chapter 15. The rules would define a threshold of loss on an industry basis, with payments being made to offset costs of permits above that point, on a similar basis for all firms in an industry. To the extent that the sum of payments under the rules of thumb fell short of the value of permits under the defined ratio, the difference would be returned as tax cuts to business in some efficiency-raising way, focusing on reduction of distorting input and transaction taxes.”

Got that? Hoo boy, this is going to be fun. A new federal bureaucracy, based in Canberra, will be created to ladle out the money.

This first appeared on Business Spectator

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