Are there no policies worth retaining to reduce greenhouse gas emissions in Australia?

 This is a guest post by Geoff Edwards.

Tasmania-raised, Geoff has held economist positions at the Productivity Commission, La Trobe and Melbourne Universities, the Australian Treasury and the Bureau of Agricultural Economics. His research has focused on public policy for energy, water, agriculture and industry. Geoff's research has been published in The Economic Record, The American Economic Review, The Australian Journal of Agricultural and Resource Economics, The American Journal of Agricultural Economics, Australian Quarterly and elsewhere, including “Freedom and Flourishing”. (Geoff has previously published here about gas price policies.) 

In this post, Geoff discusses one of the policies announced by Angus Taylor, leader of the Opposition, in his recent budget reply speech in the Australian parliament.

The Opposition leader's budget reply often serves as an opportunity for the Opposition to present the narrative that it proposes to take to the next election. Angus Taylor’s recent budget reply speech has special significance. Since this was his first budget reply speech, it provided an opportunity for Taylor to point out the shortcomings of the government’s economic policies and to propose a radically different approach. The political context surrounding Angus Taylor's budget reply speech added urgency, as the Liberal-National Party coalition faces an existential crisis, with competition from Teal Independents, on its left flank, and more intense competition from One Nation, on its right flank.

The government’s budget, the fifth delivered by Jim Chalmers, seeks to address chronically low productivity growth and perceived generational inequity with policies that are anticipated to result in a higher public debt burden to be serviced by future generations. Taylor outlined a platform centred on "generational tax reform" through indexing income tax brackets to inflation (the "tax back guarantee"), cutting net overseas migration, and restricting certain welfare services to Australian citizens only. As Geoff notes below, Taylor also foreshadowed a radical shift away from policies to reduce greenhouse gas emissions.

Geoff Edwards writes:

Opposition leader Angus Taylor said a government he led would stop targeting net zero greenhouse emissions. It would increase use of fossil fuels, running coal-fired power generators "as long and as hard as possible". Mr Taylor wants "cheap energy". He blamed  the renewables push and the energy bureaucracy for high energy prices. The reality is that the impact of high world prices for oil, gas and coal on electricity costs are also relevant. 

There is a certain irony in Mr Taylor's rejection of net zero 2050. It was he as Energy and Climate Minister with then  Prime Minister Scott Morrison who, in October 2021, first announced Australia's commitment to net zero. Subsequently, in opposition, the Liberal Party followed its smaller coalition partner, the Nationals, in walking away from net zero 2050.

Australia generates about one per cent of global greenhouse emissions. It cannot  influence climate perceptibly, domestically or globally. But a majority of Aussies according to surveys see it responsible for doing its bit to reduce carbon dioxide and other greenhouse emissions, so the atmosphere is more conducive to good living conditions for humans and other species. And I want my grandkids to grow up in an Australia that has policies and a culture that take seriously caring for the global commons that is the atmosphere.

Yes, remove subsidies on solar electricity, household batteries and EVs—-though I don't see that reducing electricity prices. And credit to Mr Taylor for the rational initiative of removing the ban on nuclear energy in Australia, so long as any investments in nuclear are made through unsubsidised, technology-neutral competitive processes.

But the Safeguard Mechanism, a de facto tax on carbon emissions, attacked by the Opposition leader, is the right way to go. It is a price directly on the pollution that harms the habitat of humans and other living things. 

Under the Safeguard Mechanism, the country's largest industrial firms have a baseline level of carbon dioxide equivalent emissions they can make without penalty. The baseline is reduced each year. Emissions in excess of the baseline need to be offset by purchasing approved carbon credit units; these are accredited emission reductions made in such ways as soil carbon sequestration, vegetation management and energy efficiency gains.

Yes, the Safeguard Mechanism increases prices a small amount; appropriate for efficient pricing when producers are made to pay a real cost. The Productivity Commission and others, focusing on efficiency in the energy sector and beyond, and on cost-effectiveness in reducing emissions, recommend extending the Safeguard Mechanism so disincentives to pollute the atmosphere are experienced by more of the polluters.  It is especially incongruous that individual electricity generating facilities are not subject to an emissions tax. 

 

Geoff Edwards

Kew, Vic.