The Opposition should today recieve a report written by the Centre for International Economics chief David Pearce which will critique the Government’s emissions trading scheme.
That report will also critique other forms of carbon reduction scheme’s including different trading models, carbon taxes and more voluntary measures.
The Opposition has not given a date of release for the report, and nominally the idea is that they will receive, make comments, then send it back to Pearce for a final write up before release. I have attatched the guidlines of the review to this post.
I spoke to Pearce on Tuesday, part of that discussion appeared in a mangled article in The Age on Wednesday, which you can read here. But much of the conversation and findings of the report were left out, below is everything I understand to appear in the Pearce report.
1. It will emphasies that a strong carbon price must be part of any emissions reduction program. Pearce agrees with the Stern contention (though Stern was certainly not the first person to make the point) that carbon pollution is a market failure. That failure needs to be corrected with a cost. That quashes the long standing idea in the Coalition that emissions reduction can occur without a major transformation of economics. Essentially Pearce is calling for major economic reform when he argues for a high carbon price.
2. While Pearce did not tell me exact details of the report he pointed to a paper he wrote with ANU academic Warick McKibbin which is attatched to this post as well. That report argues first and foremost for a high carbon price. But it also travels down the road of McKibbins favoured emissions trading design, which Pearce spoke to me about at length also. That design is esentially a capped carbon price in the short term set by a independent panel, like the reserve bank. In the long term there is no capped price, but rather a futures market on which liable emitters can trade. McKibbin, and by extension Pearce, envisage that long term price will be high. According to McKibbin the benefits of such a scheme are to allow companies to have short term capital by not having to pay large amounts for carbon in the early years, particularly pertinent to a economic environment when corporations are crying out for liquidity. But the long term carbon price provides incentive to change behaviour and reduce emissions to position them the company ahead of future costs. The scheme’s internal logic is that a company will take a long-term corporate view, positioning themselves strategically over the long-term. Pearce argues that if your long term emission reduction at 2050 is high it doesn’t matter when you make the cuts, as long as you reach the target in the long run, ie. a slow build up to a later steep cut. That idea does contradict some of the science which talks about tipping points and the accumulation effect of carbon in the atmosphere.
3. Pearce also talked at length about a carbon tax. He was skeptical of the notion that a carbon tax was less complicated than a emissions trading scheme. He said it was a matter of the legislative process; the same issues come up with a carbon tax as trading, the same cross over with existing tax, with potential carbon leakage etc. Very unlikely he is pushing a tax, but in reality the Coalition was never looking at one seriously.
4. Agriculture also came up. Pearce worked on a review for Australian Farm Institute, but in my interview with him he was critical of some of the media reporting (here) of the issue. He indicated that he thought agriculture would have to be included in an emissions trading scheme on some level, because it would spread the burden of reducing carbon further across the economy and at any rate agriculture is the second largest emitter in the country behind electricity generation. Pearce’s problem was an adminsitrative one. In the Government’s proposed scheme they estimate their will be 1000 liable parties. Agriculture would significantly increase that, but their overall emissions per head would be much less. This he said would be the biggest concern with agriculture in the scheme, how would you record and monitor the emissions of each little farming operation and ensure they were able to access credits.
5. Pearce also believes the 2010 start date is too soon, believing that business has not yet prepared itself for the administrative related to the scheme. That position is in line with the Coalition’s policy and is interestingly now supported by the Australian Industry Group who have been very close to the Rudd government since its election.
I’m sure there is more in the report but Pearce was right to tell me who could not say any more to protect his client, the Opposition. In terms of his findings on the government’s emissions trading scheme he said little, but that he believed it was a heavy economic burden on some parts of the economy. But Pearce is no Coalition stooge. While he has had preconcieved notions of what is the best model of trading, and that is what will be reflected in his recommendations, he is also a respected economist from a respected firm.
What the Opposition do with his modelling is another question all together. When I talk to industry groups and try to get some information out of them about what policy the Opposition is devloping they say ”what policy.” The party room is in revolt, and Malcolm Turnbull has promised them all a say when the government’s emissions trading is up for vote. The Nationals are never going to vote for it, and it has been put to me by a former-Howard staffer that 80% of the Liberal party room wants to vote the scheme down. Thsi is not my understanding of Turnbull’s position as a long term backer of emissions trading.
When I spoke to Pearce on Tuesday he was putting the finishing touches on the report. The conversation closely followed first talk of a carbon tax by Robb, then Turnbulll and Greg Hunt saying they will have a much higher emissions reduction level than the government, but not explaining how they will get there.
”I’m just putting my head down and trying to write something sensible,” Pearce said, ”I’m doing my best to ignore everything they have been saying.”
