ETS Green Paper – Let’s All Take A Deep Breath
The reaction in the left-wing blogosphere to the Rudd Government ETS Green Paper’s cent-for-cent reduction in the fuel excise to compensate for tax increases in the ETS seems to have been universally hostile –Larvartus Prodeo variously describes it as “highly problematic” and “ALL Wrong” and An Onymous Lefty describes it as “Absolutely pissweak”, which was very close to Not A Hedgehog’s label of “Piss. Weak”. The Greens have described it as both ‘Cruel’ and ‘Populist’.
A bit of passion over policy is great – but in this case it’s misguided. The Australian Left have an unfortunate habit of imputing political opportunism as the rationale for every government decision with which they disagree. All those who are condemning the cynicism and incompetence of the Rudd Government need to ask themselves one question “What would I have done in the situation?”
And when you answer that question keep in mind that the Greens, Fielding and Xenephon all have an effective veto over anything that comes through the Senate.
Also keep in mind that, as An Onymous Lefty has railed at in the past, Steve Fielding has been a long term supporter of a cut in the level of government taxes on fuel. It was only in February that Fielding was saying:
Senator Fielding says cutting the fuel excise would be a simple and immediate way of easing the pressure on household budgets.
“People are struggling to make ends meet,” he said.
“Petrol has fuelled inflation for the last couple of years. Now this is a significant problem, and it’s about time the Rudd Government really got a handle on this issue by cutting petrol tax.”
He’s (generally) a smart operator in the Senate and you could easily imagine him playing the filibuster role and refusing to pass the ETS wholesale if it resulted in families having to pay a cent extra for anything. As Sam Maiden points out:
The Senate is certain to amend the Government’s draft legislation – which we won’t see until December. The three-year sunset clause on excise relief is probably the first in the amendment firing line.
Don’t forget, the Coalition needs just a single extra vote from the independents, Family First’s Steve Fielding or No Pokies senator Nick Xenophon to block this legislation.
In contrast, Bob Brown wants an ETS that will put a price on carbon that is MUCH higher than anything the ALP has ever contemplated, while at the same time opposing any financial compensation for low-income earners.
I haven’t read too many people suggesting that the government go to the electorate in a double dissolution on and ETS, so if you have a better option for an ETS you also have to explain how you’re going to get it through the Senate when Brown and Fielding’s positions are both miles apart and deeply entrenched.
Including petrol in the ETS without an excise offset would have condemned the policy to death in the Senate. Sometimes policy leadership is about more than a blunt refusal to compromise. Sometimes policy leadership is about getting a result when it makes EVERYONE unhappy, but no-one furious.
That being said, exempting petrol in the short term isn’t the policy catastrophe it’s being made out to be. As Wayne Swan noted today:
“What we’ve decided to do, in the first instance, is to provide relief from the emissions trading scheme when it comes to petrol excise,” Mr Swan told ABC Radio.
“That relief is being provided because petrol has already gone up around 30 cents a litre this year alone.”
It’s not like there isn’t already a MASSIVE price signal to motorists to use less fuel. As Josh Gans has recognised:
A year ago, I would have been outraged about this. But with world markets doing a much better job of getting petrol prices up than any emissions trading regime, we can be relaxed. What is more, this plan must be forecasting that the pain from emissions trading will be no more than the current level of the exise tax. That implies that we already have a carbon tax on petrol in our current policy. To get political traction on this issue, this is something I can live with. Moreover, there will still be impacts at the refining end and also on the costs of car capital.
If someone gave Bob Brown a magic wand three years ago and let him increase the price of petrol by 30c a litre do you think he wouldn’t have jumped at the chance? At any rate, the policy is being reviewed in three years time, so if fuel prices do go through the floor (!), the mechanism can be adjusted to reflect this.
While we’re at it, it’s still coming in in 2010, we’re not waiting for China, India USA et al before we act, we’re legislating for larger cuts contingent on an international agreement. It’s not the ACF/Greenpeace dream position, but there’s still plenty to be happy about in this Green Paper.
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July 16th, 2008 at 9:43 am
Does Brown really oppose compensation for the poor? That doesn’t sound like the Greens, who consistently argue for an increase in the pension.
July 16th, 2008 at 9:52 am
Jeremy,
I hope they don’t oppose compensation for the poor and I don’t want to put words in their mouth but this is what the Greens blog (http://greensblog.org/2008/07/14/key-issues-for-the-emissions-trading-green-paper/) says on compensation under the ETS:
“# Cash handouts (tax cuts, welfare cheques, or free permits) will reduce the effectiveness of the scheme, will be inflationary, and will be temporary relief from a permanent price hike.
# Revenue from permit sales can be used to permanently reduce people’s increasing carbon debt by investing massively in energy efficiency (insulating homes and providing solar hot water, and helping the commercial and industrial sector invest in energy saving equipment), bringing forward renewable energy alternatives, and shifting funding from roads to mass transit and cycleways. These investments must be systemic, not hand-outs to a few.”
That sounds to me that if you’re a low income earner the Greens say you can get a solar panel on your roof, but no cash to help you pay your increased energy bills…
July 16th, 2008 at 12:33 pm
I have asked that question on the greensblog link you cite.
July 16th, 2008 at 12:38 pm
Great - I’ll be interested to hear.
July 16th, 2008 at 2:38 pm
[…] left blogosphere condemned the decision as political opportunism. More sensibly, Tim has wisely pointed out that to have done otherwise would have condemned the policy to death in the […]
July 16th, 2008 at 3:55 pm
Tim, where’s the need to cut fuel excise if low income earners are to be compensated in general (presumably via tax cuts) for increased costs associated with the ETS? Wouldn’t it be an equitable and an eminently social democratic solution for petrol to be included in an ETS and for only those most affected to be compensated?
More broadly, the whole thing is a rent-seeker’s paradise.
And wasn’t Kevin Rudd elected on the promise that he’d prioritise “evidence-based policy” and eschew short term political fixes in favour of long term solutions?
Even as a Green Paper, this thing makes no sense. All the concessions have been made in advance, and probably a lot need not have been made. This isn’t the same sort of policy courage we saw from Labor in the response to Mabo. This is thoroughly pathetic.
July 16th, 2008 at 4:41 pm
[…] ETS Green Paper – Let’s All Take A Deep Breath […]
July 16th, 2008 at 11:51 pm
Mark - fuel excise is already this great big chunk of price distortion that applies to petrol, but not other forms of carbon emissions. If we want a pure emissions system, we would include petrol and abolish the fuel excise to put it on level pegging with coal!
Imagine the outcry from left then:
Rudds ETS - Petrol to drop 30c a litre!
heh - the howling on the intertubes would be deafening!
That pure ETS would be the real social democratic solution, it would let all carbon to be treated equally, encourage it to flow to its highest value use and allow any compensation to occur through the tax system for those most affected, free from the extra layers of price distortions clogging up the system.
But that’s unrealistic. So we’re left with a government trying to manage as practicably as possible the hand of public expectations that they’ve been dealt.
The price of petrol is one of those things that if you’re a government, you cant sweep its price reality under a rug. Even though things like interest rate increases chew up far larger proportions of the family budget, when you pay your mortgage you dont do it under a great big sign twice a week letting you know exactly how much it’s increased from last time. Petrol becomes a very sensitive issue for the electorate because it’s reality is shoved in peoples faces.
So it needs to be handled with care because it has the potential to derail everything.
On the compensation side - the price elasticity of demand for petrol is greater where trasport alternatives (like public transport, close proximity to commercial and public services etc) exist than it is in places where it doesnt exist, and, as I’ve said elsewhere, the spatial distribution of income in Australia is such that as the availability of transport alternatives to motor vehicles decreases, so too income tends to decrease. In great swathes of outer-metro suburbia and most of regional Australia, demand for petrol is quite inelastic at a certain level of consumption.They need to earn a living, they need to get to work, they cannot use public transport because there isnt any so they need to buy petrol - the scope for petrol use reduction is much smaller in those places.
When you combine those two, any inclusion of fuel in the ETS while maintaining excise at current levels means a bigger burden on those with the least capacity to pay and the least capacity to use alternative means of transport. That is the way it would be seen anyway - not quite in these terms, but certainly in terms of “I cant catch public transport so why is the government punishing me? - I’m not wealthy”. They’d see wealthier people in better suburbs using public transport to save money, but they wouldnt have that luxury due to circumstances not of their own making.
So compensation would have to target that - but apart from compensation via tax not being seen like petrol price increases are seen, there’s also another problem.
Even though income tends to decrease as trasport alternatives decreases, there is a large distribution of incomes around the mean trend. So if you compensate through the tax/welfare system, you waste a lot of money compensating lower income earners that reside near transport alternatives. In order to fully compensate those you are trying to target, those with low incomes combined with certain geographical circumstances, the total compensation bill blows out because of the first group.
Another problem still is that it doesnt deal with rural and regional Australia at all.
So rather than keep fuel in and compensate through transfer payments, its a hell of a lot easier and practicable to simply cut the excise to offset the carbon price.
And the politics cant be removed from this either. In purely financial terms we’re talking relatively small biscuits here from the consumer side - but those biscuits are seen and eaten everyday, and even though the few cents a litre involved gets swamped by global price movements, it stops the government being blamed, but more importantly it gives the whole system a greater chance of getting through the Senate because of the Coalition on one side and Fielding and Xenophon on the other.
The Greens will become isolated and look like extremists to the overwhelming majority of the public if they refuse to accept the excise cuts on petrol.
Which makes me think “Welcome to the real world Greens - you now have a say, you now get to carry the responsibility for it”.
To expect that a massive change like the ETS can be fully running in a short period of time, with full carbon pricing yet with no transitional period for adjustment is just so completely unrealistic.
“Only the impotent are pure” is more true today on this issue than it ever has been before on anything else.
July 17th, 2008 at 8:06 am
[…] ETS Green Paper – Let’s All Take A Deep Breath […]
July 18th, 2008 at 12:52 am
This is Christine Milne’s reply:
“Jeremy, the point is that giving people one-off increases in welfare payments is not an equitable and fair way of dealing with the increasing price of carbon that will come with an effective emissions trading scheme. It is a cruel hoax, really, allowing people to feel they are OK while ratcheting up the pressure. Eventually the crunch will come and people will hurt badly.
It’s exactly the same as protecting jobs in the Latrobe by insulating the coal sector. That can only last so long and, finally, the coal corporations will disappear and leave thousands of workers in the lurch. Thoughtful policy would start retraining the workforce and seeding new industries now.
Our policy is to use revenue from the ETS to roll out energy efficiency and mass transit that will more than offset the increases in cost of living thanks to the ETS. In addition, we’d see money invested in renewables R&D and roll-out. If and where appropriate, and if the ETS does lead to significant rises in other cost of living expenses, additional compensation may be required, and we would support that, of course. But any rise in grocery prices thanks to the ETS will be tiny comparative to the price rises thanks to climate change.
Our policy will make sure the poor are protected by investing in making them more resilient, not pretending that everything will be OK.
Next to that, we have a raft of policies to increase social equity through the tax and welfare and education and health systems, of course.
And, Jeremy, climate change will disproportionately impact the poorest people.”
July 22nd, 2008 at 2:25 pm
[…] “responsible economic policies”, as claimed by the Green Paper, or in the interests of getting the legislation through the senate. We might never know the answer to that. For me, these are much more likely explanations than […]
July 24th, 2008 at 10:27 am
[…] the programme is focusing on will be very familiar to anyone who’s been following the ETS debate in Australia: • the management of risk – The prevailing scientific consensus on the effects of climate […]
December 9th, 2009 at 1:02 am
Based on the rcommended EU ETS Trading scheme that Kevin Rudd would have us join at Australia’s current emissions (580 million tonnes p.a.) and working population (10.6 million), a carbon price of $A225 would correspond to a cost per working person of more than $A12,000 per year, or around 25 per cent of the average after-tax earnings. Even if we halve our per-capita emissions by 2030, the cost would still be at least $6,000 each year per working person. All with no drecrease in greenhouse gases.