Australia Shelves Cap and Trade

As we predicted back in March, Cap and Trade is going under Down Undah. Several outlets are reporting that Australian Prime Minister Kevin Rudd has promised to shelve the implementation of his proposed cap and trade system until 2011 in an apparent effort to quell concerns that the carbon pricing plan will impact the Aussie economy and shore up support for the controversial proposal in the testy Australian Senate.

To date, Rudd and his center-left Labor Party have already offered numerous industry-friendly concessions, including free allowances for major polluters as part of a so-called "global recession buffer." It wasn't enough to find the necessary votes, so today, Rudd announced even more concessions, including: more polluter giveaways; a delayed start for the program's cap and trade scheme, which won't go into effect until July 2011; and a fixed price for carbon emissions permits of just $10 (AUS) per ton of CO2 for the first full year of the program after that (through July 2012).

Since Australia's electoral system ensures a place for third parties in their Senate, Rudd's cap and trade scheme has always had to play a tricky game: keep industry quiet enough to secure needed votes from the center and right (including two swing independent Senators) while trying not to alienate the Greens who's votes are also critical to passing any plan through the legislature's upper chamber. To try to convince Greens that his latest move wasn't a complete industry-friendly cop-out, Rudd promised more aggressive mid-term reduction targets if a global deal on climate is eventually reached. As SolveClimate reports, Greens aren't buying it:

[Rudd] called the new scheme a "slower start" but with better "green outcomes." ... Originally, the CPRS pledged to cut carbon emissions by a feeble 5 percent from 2000 levels by 2020, with a stipulation that the target would rise to 15 percent if the world comes to an ambitious agreement at Copenhagen in December.

The new scheme keeps that anemic bottom goal. The upper limit would increase to 25 percent below 2000 levels in the event of a global deal. ... Needless to say, the Greens, who want an unconditional 25 percent cut by 2020, weren't impressed with Rudd's "pay off:"

The decision to lift the upper limit was an "almost irrelevant green distraction," Greens senator Christine Milne said. "If you add a little bit of green to brown, you still get brown."

Despite all the concessions and wrangling, the Australian cap and trade program may still not secure passage in the Senate, the Australian Herald Sun reports.

"The Government's [Carbon Pollution Reduction Scheme] is fundamentally flawed," said Senator Nick Xenophon, an Independent from South Australia and a swing vote on the climate bill. "The model is unfixable and the changes announced today are simply window-dressing. If you give a lame duck a hair-cut, it's still a lame duck."

Today's events are proof-positive of the political dynamics I wrote about back in March:

The story is fundamentally the same everywhere carbon pricing programs have been attempted. Carbon pricing plans run smack dab into an unshakable reality of the political economy of climate and energy: the public and policymakers (not to mention industry) are resistant to efforts to significantly increasing the price of dirty energy. That resistance is clearly even stronger in the midst of the worst global economic crisis in decades.

The result: even when shot through with loopholes and industry giveaways, cap and trade and carbon pricing schemes are still not able to pass political muster, especially in coal-heavy economies like Australia (or much of the United States... or Eastern Europe... or China or India... or just about everywhere we need to reduce emissions most!).

And if a carbon pricing plan does manage to squeak through the legislative process here or there, they're pretty much guaranteed to include so many efforts to limit their impact on dirty energy industries that the carbon price signal they are supposed to implement is far too impotent to drive the critical transition to a clean energy economy we need.

In fact, that may be exactly where things are headed for cap and trade in the U.S. Congress, as House Democrats struggle to find votes from within their own party for the proposed Waxman-Markey climate and clean energy bill. The crazy thing is that after getting front-row seats to preview the political challenges and environmental impotency of cap and trade and carbon pricing in Europe, Canada and now Australia, American climate advocates still see cap and trade and a price on carbon as priority number one. In moments like these, I'm not sure whether to laugh or cry... (and given what's at stake, the latter is usually where I come down).

How many signs do we need that a new strategy is urgently needed to drive the rapid transition to a global clean energy economy? Does cap and trade in the U.S. need to complete the transformation into the same kind of spectacular mess it has become in Australia? Or will climate advocates see the writing on the wall in time to stage a tactical retreat and mount a new offensive equipped with a new strategy that breaks out of these tired, tragic dynamics?

We'll find out soon enough. Obama is talking to swing Democrats of the House Energy and Environment Subcommittee tomorrow to try to whip up support for the Waxman-Markey bill. Assuming a deal can be struck to secure votes from the subcommittee's fossil fuel friendly swing Democrats, the proposal will likely be debated, amended, and voted on soon after. Australia's gloriously compromised Carbon Pollution Reduction Scheme may be a preview of the shape the Waxman-Markey bill will take at that point. Stay tuned...

Comments

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The difficulties facing cap-and-trade in Australia are overwhelmingly due to political contingencies rather than properties of the policy itself. Both major parties, while in power, have supported cap-and-trade. (I wrote a longer comment providing the details, but it won't get through.)

By mitchell porter on 2009 05 08

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Well it looks like somebody Down Undah gets it (and got the message we've been advancing): http://business.theage.com.au/business/time-the-sun-set-on-carbon-scheme-20090503-ardz.html?page=-1 Note to the Age's Kenneth Davidson though: Michael Shellenberger and Ted Nordhaus are neither "conservative" or "economists." But glad you like our thinking. Also: though the stimulus was a great start, President Obama has yet to truly propose "massive public investment to bring the price of renewables down to that of fossil fuels." At least not yet. We're hoping though, and hope to see new thinking like this coming from Australia as well.

By Jesse Jenkins on 2009 05 05

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Hi Mingus, thanks for the comment. And thanks for the correction! My ignorance of Australian Senate figures is apparent. My apologies to our Australian readers. Post is now corrected.

By Jesse Jenkins on 2009 05 05

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good piece. i should note however that the independents in the senate are not left wing- one is decidedly right wing and the other moderate.

By Mingus Drake on 2009 05 05