The earth keeps spinning, and so do the politicians

If you are reading this item now then it means that the world did not end with the introduction of the carbon price. Sadly, neither did the political posturing.

The government said it was an economic reform that reflected fundamental Labor values. Prime Minister Julia Gillard said the government didn’t do it for opinion polls (clearly not), but for the nation’s future, even though it is clear to most that were it were not for the independents and the greens and a hung parliament we would still be sitting in a tent listening to a People’s Assembly. So, while Labor sent a minister to Whyalla in a cringe-worthy stunt to prove that the city still exists, the Coalition launched a new advertising campaign that suggested Armegeddon would be drawn out like a TV mini-series, rather than a single, Biblical event.

Radio shock-jock Alan Jones told a 150-strong crowd in Melbourne that climate science was witch-craft, 300 businesses said the carbon price was a terrific and essential reform and said the economy could not afford to do without it, and the minerals industry lamented the fact that some 18,000 jobs that did not actually exist now would not exist in the future. This statement was less existential than it seemed, and – given the industry’s commitment to cost and job reductions through automation, such as driver-less trucks – we anticipate the next innovation will be a software program to manage their lobbying efforts and make their peak bodies redundant.

Treasurer Wayne Swan issued a press release featuring one of those useless statistics often used in carbon abatement, saying cutting Australia’s emissions by 159 million tonnes by 2020 (the 5 per cent target), would be like taking 45 million cars off the road. No matter that Australia doesn’t have 45 million cars, because most of the reductions will likely take place overseas, where they have lots of cars (and cheap emissions reduction projects), which must have been the point of the statement. Which means that by 2020 we will all be driving a wind-powered electric vehicle or riding a solar charged bus. Don’t sell your bicycle.

A policy debate on semantics

The debate about climate change policy in Australia has not been more about semantics and alliteration – axe the tax, ditch the witch, etc – than it has about carbon pricing and emissions reduction targets. Julia Gillard certainly blundered by describing the carbon price – an emissions trading scheme with a fixed price to start with – as the tax she promised not to implement. Tony Abbott has vowed to axe that tax, but the question that should really be put to him is: Will he Ice the Price?

The chances are that he won’t , or can’t. But he could do a number of things to make it look like he’s acting to protect jobs and the cost of living, and not doing stuff that he said he wouldn’t do under a government he leads. That could be by slashing the fixed price, or even accelerating the move to an emissions trading scheme, a move that would be guaranteed to bring the price down by at least half, and remove the tax label. But he won’t ice the price, business won’t let him.

Finding the right price

So, working on the assumption that the carbon price was introduced to encourage clean investment, and not just to cause Labor to lose power, what price is needed over the long term? One of the more astute observers of policy and of the politics, Deutsche Bank’s Tim Jordan, suggests that Australia may be forced to seriousy look at a managed price beyond 2015 to create a reliable signal for low-carbon investments, because it is the forward carbon price that will determine its success.

Jordan says Australia’s carbon policy has been confused by twin goals. Originally, it was just to meet Australia’s emissions reduction targets in the most flexible and cost-effective way, but now it was to put to put a price on greenhouse gas emissions in a way that encourages investment in clean energy. Jordan says those two objectives are now in conflict, but it is important to remember why the clean energy investment is necessary: it’s needed to ensure that future abatement is cheap. Emissions reduction targets do not end in 2020 (and neither should renewable energy targets for that matter), and locking in a higher carbon path now simply means a more costly adjustment down the track for the likes of future prime minister such as Wyatt Roy.

Carbon Sunday and Bailout Friday

If the first day of the new financial year was dubbed carbon Sunday, then surely the last working day of the 2011/12 financial year should have been known as Bailout Friday. First, the federal government announced it was disbursing money to Alcoa’s Point Henry smelter, to ensure that 600 jobs were protected for at least two years (and maybe so the floor didn’t fall out of the wholesale electricity market), and was also making a handout to Energy Brix, ostensibly to protect jobs but possibly to ensure that the company could last another two years so that then the government could pay more money to close it down under the contracts for closure scheme.

Its signals on these buyout are confusing – the government is handing out compensation with one hand, to ensure the generators stay open, and making an offer to buy them out with another, to ensure that some of them do actually close down. Unhappily, the compensation package has caused some of these generators to have an inflated view of their own worth. On Friday, however, the government was able to hand them the latest forecasts by AEMO and suggest they stick that into their business models. That process is likely to take a few months.

The one project not to benefit from an extension, surprise, surprise, was the $1.2 billion solar thermal project Solar Dawn. That lost its funding from the state government after it failed to obtain a power purchase agreement from the state-funded utility. This, in turn, forced the hand of the federal government – who can now look back at the Solar Flagships project as a total and predictable farce. Thankfully, the funding will now be in the hands of the independent Australian Renewable Energy Agency.

And how the carbon price compares to mobile phone spending and other taxes

A wee bit of context always helps. This graph below from The Australia Institute highlights how the carbon price compares to revenue from the GST, fuel excise and other taxes, and how it compares to household spending on mobile phones, fast food and other things. It’s fairly self-explanatory.