Trouble “down under”

As an Australian living in London and subject to the market forces that an emissions trading system brings to the economy, I watch with great interest as Australia wrestles with the Carbon Pollution Reduction Scheme (CPRS), or “cap-and-trade” by another name (or emissions trading by another).

Since Kevin Rudd became Prime Minister just days before the Bali UN Climate Change Conference in 2007, he has ratified the Kyoto Protocol and tabled legislation to introduce an economy wide cap-and-trade system. The legislation has passed through the House of Representatives but is now stuck in the Senate where the Rudd government does not have a working majority. Over recent weeks the government has been negotiating with the leading opposition party to try and find a workable consensus and deliver the bill before Copenhagen.

This week that failed spectacularly. The nature of the legislation has also split the conservative opposition, with the result that the parliamentary leader of the party was deposed by a one vote majority and the new leader, Tony Abbott, has now made it clear that no immediate deal will be done and as expected, the legislation has now been rejected by the Senate. This potentially paves the way for a double dissolution of parliament and what could truly be the world’s first “climate change” election, although the government has indicated that it will reintroduce the legislation in February after Copenhagen and the summer recess of parliament. Abbott has also been labelled by some media outlets as a “climate sceptic” .

Australia has seen a number of weather extremes in recent years. A prolonged drought has brought despair to much of the rural sector, water restrictions are now common in places such Adelaide, temperatures in Melbourne hit a record 47 degrees C last February, the list goes on. Whilst all or none of these may be related to a changing climate (and Australia is a country of climate extremes), there is little doubt that they have raised the awareness of the issues we may all face in the decades to come. Both party leaders now claim the ear of the public on the issue, with the government arguing that the majority of Australians want to see the country act on climate change and the opposition leader claiming that the majority of Australians are opposed to the cap-and-trade legislation. Contrast all this with the reality that, according to the International Energy Agency, Australia has the highest per capita emissions in the world (apart from a handful of countries with small populations and a particular concentration of industry). It is also a country with huge solar resources, significant wind opportunity, ample uranium and over the last few years a very aggressive development programme for carbon capture and storage.

Whilst there will doubtless be short term political winners and losers in Australia, the real issue here is that there may be significant impairment to the long term policy solution set for managing emissions – with cap-and-trade at the heart of it. In turn, the environment itself suffers as widespread policy action is weakened. The development of a global carbon market, built by linking together various national trading schemes, is arguably where the world needs to go. Energy pricing is global, so injecting a carbon price into the mix will, over time, deliver change at a global level. Whilst there are many ways of creating a carbon price, cap-and-trade is designed to do it through a market based approach at lowest cost to the economy – things that should be attractive to legislators in market based economies.  It’s really that simple, although as Australia is showing, simple is not always as simple as it seems.