What next for Australia’s climate policy and the carbon price ?

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By Frank Jotzo

Australia’s new government is likely to repeal the carbon price, by striking a deal with crossbenchers in the Senate after July 2014, or possibly going to a special election if it looks electorally attractive. Still, carbon pricing remains the logical choice for Australia’s longer term climate policy.

Prime Minister Abbott has made it clear his incoming government will make the repeal of the “carbon tax” a priority – in line with his stance since becoming opposition leader in late 2009. It is understood this means getting rid of the carbon pricing mechanism, including the emissions trading phase.

The Senate game

The Abbott government is expected to introduce laws to abolish the carbon pricing scheme and pass them in the House of Representatives. But this change – as well as others that the government may want to make – would require approval by the Senate, where the government has no majority.

The Labor party seems unlikely to agree to a repeal of the carbon price, nor will the Greens. Labor and the Greens together hold a majority in the Senate until the newly elected senators, comprising half of the chamber, take office on July 1 2014.

On current projections, there will then be 33 Liberal/National party senators, 25 Labor senators, ten Greens senators, and eight senators from minor parties and independents. Thirty-nine votes are needed to repeal the carbon price.

The Coalition would then be looking to get the votes of at least six of the crossbenchers. The majority of the crossbenchers from July 2014 are conservatives and several represent single-issue parties. They include representatives from a new party founded by a billionaire miner, and from tiny groups that define themselves around offroad motoring and sports, as well as an obscure libertarian group.

Australia’s compulsory, preferential voting system together with voter disaffection has led to this bizarre outcome of micro-parties holding the balance of power.

Each crossbencher will want to extract political concessions from the government in exchange for their vote, but on the whole they are likely to side with the government. Some may also want to use the opportunity to leave their mark on the government’s climate policy.

Independent senator Nick Xenophon, for example, has made it known that he will vote for the repeal of the carbon price only if the Coalition’s “direct action” climate policy is improved.

A double dissolution?

All the while the government will threaten to go to a double-dissolution election. Abbott has maintained that he is prepared to go to a double dissolution over the carbon issue – the very step that then Labor prime minister Kevin Rudd failed to take in 2010.

Such a special election can be called by government if the same legislation passed by the lower house is twice rejected by the Senate. It involves a simultaneous election of the lower house and all members of the Senate, which can be followed by a joint sitting of both houses for passage of the legislation in question.

The government may want to go to a double dissolution if it looks like this will give the Coalition the majority in the Senate, while retaining its comfortable majority in the lower house. If future polls make such an outcome seem likely then we can expect prime minister Abbott and climate minister Greg Hunt to take an uncompromising line in the Senate, forcing a double dissolution.

But the government has every reason to be wary of a double dissolution because it could give micro-parties even more seats: fewer votes are then needed to attain a Senate seat. Meanwhile, some of the existing crossbenchers will want to avoid a double dissolution for fear of losing their seats.

So on balance, a deal in the Senate is more likely than a new election.

Carbon pricing once more?

For the carbon price to survive under the Abbott government, there would need to be a combination of crossbenchers demanding too high a price for their votes, and a double dissolution looking very unattractive to the government.

Stranger things have happened in the rollercoaster that is Australian climate policy. But it seems unlikely given the political prominence that the new prime minister has attached to the “carbon tax” issue.

Down the track however things could change again. Once the “carbon tax” issue loses its excessive political heat, there could once more be room for rational mainstream political discourse over climate change policy. If the Labor party in opposition sticks to its support of carbon pricing, then the option will remain prominently in the mix. And mounting budgetary pressures will put the focus on carbon pricing as a source of government revenue.

How that debate goes will partly depend on the experiences in other parts of the world, not just in Europe where carbon prices remain low but also California, and the budding emissions trading schemes in China and other countries.

And it will depend on the experiences with alternative policies in Australia. Details of the Coalition’s proposed “emissions reductions fund” are not yet clear, but the concerns from many are that it may impose more economic cost and administrative effort per unit of emissions reduced than emissions trading. Recent analysis suggests that much more money than budgeted would be needed to achieve a 5% reduction in Australia’s emissions.

Abbott however has said that no more money than allocated will be spent.

The question must be asked whether the government is indeed serious about cutting emissions. If it is and wants to do so without putting a comprehensive price on carbon and without large on-budget expenditure, then it will need to expand schemes such as the renewable energy target – but indications are it is intent on winding this back. Another option is direct regulation of businesses, like the Obama administration is now doing through emissions standards for power stations.

But direct regulation tends to be more costly to the economy than action through price incentives, and it goes against the Abbott government’s deregulation drive and credo of business friendliness.

At the end of the day, emissions trading or a carbon tax is the obvious climate policy choice for a market economy. But it needs a genuine commitment to take the economy on a lower carbon track, and putting policy ahead of political rhetoric.

Frank Jotzo receives funding (for research activities not salary) from the Australian Research Council and the Australian government.

The Conversation

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