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A Carbon Price Policy That Continues With Twists and Turns

Carbon pricing has been front and centre in the political debate in Australia, particularly since the August 2010 election, but also in the lead-up to Kevin Rudd becoming Prime Minister, right through until he was deposed. At that stage it had disappeared from the agenda after talks failed at the Copenhagen summit after which then Prime Minister Rudd swiftly dumped his governments’ plans for an emissions trading scheme. We then had nothing in the form of emissions trading or carbon pricing when Julia Gillard became Prime Minister, until after the election where Ms Gillard had promised there would not be a carbon tax under her government.It was then, that under negotiations for a minority government, the PM, in seeking support to remain Prime Minister agreed to put forward plans for a price on carbon emissions.

From that moment on the problems started for the Gillard Government. First it was a problem of credibility, our nation’s leader had lied and her administration has never recovered from that. Then the negotiations, particularly with the Australian Greens, who wanted a lot more from the new carbon price than the ETS Kevin Rudd proposed, proved a delicate process where there was clearly a lot more giving in then taking concessions from the Greens.

Then it was time for the hard selling of the policy to the public, already let down by the lie and finding it extra hard to believe that the compensation would be enough to allay the extra cost burden under a carbon pricing regime. In recent weeks it has become clear that a significant number of people are probably less concerned about the extra costs of the carbon tax and the government would be hoping that the numbers continue to head in the right direction.

Since the fixed price carbon reduction scheme began on July the 1st though, elements of it have either been dropped or temporarily sat aside. First, just last week, in linking our carbon price with the European Union from 2015, the ALP agreed to drop the floor price. This would have meant that the cost of carbon credits did not drop below $15 dollars per tonne.

Today there was another backdown. The Labor Government gave up on talks to secure the shutdown of five of the biggest coal-fired power stations. The sticking point being that the compensation put on the table by the government was not enough. Now, this could be returned to at a later date, but the outcome of future talks would probably be more of the same without more latitude being given.

If the scheme hadn’t already been thrown into confusion over revenue with the removal of the floor price, now any thoughts of the mid to long-term reduction of domestic emissions appear dashed- not that domestic emissions would have been reduced under early years of the policy anyway.

So now, not only is future revenue with the emissions trading scheme beginning in three years time in doubt, now even the emissions reduction targets are in jeopardy if talks cannot be resumed and a mutually agreeable outcome reached.

What’s next on the rollercoaster that is carbon pricing? The story won’t end here.

Government Still Emitting Mixed Messages and Potentially Leaking Revenue

Carbon pricing is happening, it’s been legislated and that legislation has commenced. The fixed price period began almost two months ago now, on July the 1st. But today things have moved forward as far as the floating price, the emissions trading scheme which will commence in just under 3 years time after the fixed price period ends. The Australian Government has today announced that they’ve reached an agreement with the European Union to link their respective schemes which means Australia joins with 30 other nations in a common market for carbon credits.

But there’s also been a step backwards from existing Labor Party carbon pricing policy, there will no longer be a floor price, that’s gone as part of the pact with the EU linking Australia and European Union countries. This new market, though heavily regulated, will be the largest carbon market in the world, but by no means does it cover anywhere near the majority of the globe and its population. The European ETS covers ┬ájust over 500 million people and Australia will add a further 22 million people living under the carbon market.

For the first 3 years of the emissions trading scheme, Australians will have access to European carbon credits but not vice versa. European businesses being able to purchase carbon credits in Australia will be allowed to occur from 2018.

Aside from the broken promise over the carbon price, the biggest point of contention since the decision was made in minority government to pursue the carbon price was over the floor price.

The floor price was instituted by the government supposedly to provide certainty to business and to avoid the price of emissions becoming too low. This price was to be set at $15 per tonne from 2015 when the market-based trading scheme will start. We were told, just as recently as last week that the floor price would happen, though reports had surfaced that the ALP were considering backing away from this element of their climate change policy.

Essentially now, the common market with the European Union will determine the price, any price it likes, and if the EU example is an indication, that price has the potential to go quite low, well and truly under the $29 per tonne that the Treasury modelling banks on for the year 2015-16. This means the revenue projections are surely under serious threat.

But Greg Combet doesn’t think so. The Climate Change Minister today said that the long-term average over the past 4 years of the European ETS has been $23 per tonne of carbon emissions. But whether that’s enough to achieve an effective price of $29 in 2015-16 alone is fanciful. This is especially so with a European economic community in chaos financially, a common market that has seen their permits go as low as single digits per tonne of carbon emissions.

Worse still, this backdown on the floor price is in effect an admission that the Gillard Government was wrong with its legislated policy direction. Rightly or wrongly, it will be construed as the government admitting that a floor price would have hurt Australia and our competitiveness and the people dealing with the flow-on costs of the scheme and that could easily have further negative implications at least temporarily for the struggling ALP.

For an administration struggling with expectations, the mixed messaging and second backflip this month doesn’t bode well in trying to run consistent messaging in areas of public policy and that just makes the government look confused and scared.

By far the biggest damage will be to revenue and that will in turn make promises much harder to deliver, though maybe they’re not too worried about that given the chances that they’ll hold the purse-strings at the start of the floating price are slim. Oh, and the fact that the trading scheme might well not be there under a Liberal Government. But who knows, it’s certainly much, much harder to repeal now.

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