Australian Lefty on Politics, Governance, Science and Info Management

Carbon trading: why not join ETS?

Posted by Dave Bath on 2008-07-10

There are a couple of approaches to carbon-trading that might ease the difficulties as far as domestic politics goes, by making it more attractive to the finance industry, minimize the cost to implement, avoid the arguments about the details, and make Australians feel we are moving to world’s best practice.

Strangely enough, it is also possible that my suggestions are consistent with GATT (which now liberalizes, perhaps too much, cross-border capital flows), which should keep capitalists happy.

The two points I’d suggest are as follows:

  • Join the EU carbon trading scheme.
  • Push the idea of not just carbon trading, but carbon futures and options trading.
  • Reform Australia’s rules on donations to political parties.

The EU carbon trading scheme is rightfully seen as world’s best practice, even though it is yet to get past all the teething problems.  Being associated with the scheme presents, for the planet, people, Australia, and the political party in government, a number of opportunities:

  • We’ll feel good about ourselves (which will make incumbent governments happy).
  • We can minimize the political debate, and therefore political impact of the individual policy points and timelines, because the government can say

    "We’re part of a multi-lateral world’s best practice push: arguing for Australian exemptions from (pick an objection) is like trying to argue that GATT should except Australia from (pick any number of GATT rules, e.g. cross-border cashflows)."

    GATT decreases protection for businesses – but free-marketeers like it because, in capitalist dogma at least, it improves competition and therefore efficiency.

  • The financial costs of policy development and administration of the sheme (both to government, and the exchanges that run the trading boards) become relatively trivial when we are merely joining an existing and rapidly maturing scheme with the administrative apparatus already in place.  Politicians will love that taxpayers will love that part!
  • Transnationals (including fuel companies) are already able to operate under the EU scheme… so they’d be happy to have wider use of a consistent system, just like they want to have consistent rules for things across all states in Australia (think of attitudes to state tax differences).
  • If people from the other side of the planet join the EU scheme, particularly we Australians who must hold our heads in shame as the worst per-capita emitter outside North America, it sets a precedent that pushes other countries to join a mature scheme that becomes the default world standard, rather than create shonkier immature systems: and no Australian can argue that the EU scheme is unfair to developed countries.  That aspect should at least quieten the objections of those who make low per-capita emitters (like China and India) the scapegoats for inaction.
  • If KRudd goes to the upcoming Copenhagen meeting with this on the table, that international publicity junkie will get a good fix from the European media, which will play even better here than the snippets from Chinese TV a little while ago – the soundbites will probably be in English.  (Cultural cringe version 2: being at all newsworthy overseas is still newsworthy here!)
  • The sooner we have a carbon trading scheme (and joining an existing scheme is quicker than starting one from scratch), the greater the chances of having a "clean" export industry rather than miss the boat and have yet another class of expensive imports that cruel our national accounts.  (The Northern Europeans are busy cornering markets in all things clean and green.)

While I have strong philosophical objections to derivatives trading generally, the pragmatist in me says that in the case of carbon futures and options, it would be worthwhile: in some ways, because of what I see as flaws in the derivatives system.

  • The financiers and speculators will love the chance to play another game, (CDOs and dodgy mortgage backed securities are deservedly on the nose), speculation will bump up futures prices (they should probably have 5 and 10 year ranges, rather than the 12 months of pork-bellies, coffee and grains).
  • The greater the speculation, the higher the price of carbon, the greater the pressure on people and businesses to decrease emissions.  Oh dear – li’l ol’ lefty me, encouraging speculative markets!  I feel like "The Economist" a few months back arguing reluctantly for nationalization of Northern Rock Bank as the least worst option.
  • Perhaps we could even have Carbon Default Swaps: much more useful than the disgusing CDS market of today.

Sadly, I cannot Australia taking timely and competent action.  We’ll fall into the same errors as the (then) immature EU carbon trading system, and the same errors as our management of Murray-Darling water: too many allocations, too cheap, to satisfy industry groups and sectional interests, that lead to the market collapsing.  The EU market is now improving: since the beginning of the calendar year, EU ETS (the EU carbon version of the AllOrds or DJIA), has grown a healthy 35% (Greenback terms) or 25% (Euro terms), compared to our AllOrds (down 10% in Greenbacks or down 19% in $A).

Some of you will have been wondering why I mentioned reform of political donations.  With all areas, big money from large donors is more persuasive to political parties than logic and data – and unfortunately Australian industries flush with funds have the most to gain by influencing policy.  Again, does anybody notice the way KRudd made initial supportive noises, but it now distancing himself from the push for campaign finance reform which met near unanimous approval at the 2020 summit.  It’s very to KRudd distancing himself from Garnaut.  Join the dots.

Do I want the Tories in again?  Of course not.  Do we need the Dems back, who have always been much better at policy forensics than the Greens?  Of course.  So, all we can hope for is an environmentally-aware cross-bench that holds the balance in the Senate… but that is years away, or the flickering hope that KRudd will stop his apparent neo-denialism and get on track.

There was never any hope about Little Johnny Rat, and very little about any Tory federal government anytime in the next critical decade.

See Also / Notes:

  • Malcolm Turnbull’s interview on ABC "Lateline" 2008-07-09 about Tory carbon tax and trading policy was a giggle when he said the China and India were "playing poker", as those nations argue that per-capita emissions are important (theirs are low), and developed nations are responsible for most of the problem.  Unsurprisingly, he didn’t essay the losing battle of trying to rebut such propositions.  It’s a pity he wasn’t pushed in the interview to explain what he saw as any weakness in the Chinese and Indian arguments.
  • I can’t wait for "The Hollowmen" to do an episode on carbon, although I’d imagine Rob Sitch’s background pushed obesity into the first episode.  It looks like someone at Working Dog saw the photo of KRudd in "The Economist" that showed him having speling truble.
  • "EU Carbon Plan Challenges AU and US" (2008-01-30), as they are heading to per-capita country limits.
  • Some per-capita CO2 emissions by different criteria are outlined in a summary table and references mentioned in "If only Castro had run the world, not just Cuba." (2007-03-11)

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