Has the PM “knocked the brick wall down”?

CO2”I’ve knocked the brick wall down; this is going through, this is done, full stop.” Prime Minister Julia Gillard, 10 July 2011.

The good news is that the modest carbon price announced yesterday will neither impoverish Australians nor bankrupt our economy. The bad news is that the modest carbon price announced yesterday won’t save the planet either.

The new scheme, which doesn’t seem to be suffering from the lack of an acronym, will however do more to transform the energy sector than the old Carbon Pollution Reduction Scheme (CPRS) was designed to achieve.

One of the biggest differences is the commitment to buy out up to 2000MW of coal-fired electricity generation capacity. This is likely to lead to the closure of Hazelwood power station, one of the biggest single sources of greenhouse gasses in the world. Under the CPRS, as the Institute pointed out, no coal-fired power stations were actually expected to close until 2034.

Another major difference is the significant increase in funding for all stages of renewable energy including R and D, commercialisation, and a new fund to help leverage private sector funding for commercial scale investments.

While there is more money for renewables there will likely be less for big polluters over the next 10 years. While the big polluters will still receive 94.5 per cent of their permits for free at the commencement of the scheme there are new review arrangements and a commitment to move towards a ‘principled approach’ to compensation which means that compensation payments may begin to fall significantly in five years time whereas the CPRS locked in compensation until 2020.

Much has been said about the role of household compensation in explaining both the politics and economics of this scheme. As we have said previously there is no validity to the argument that if households receive enough compensation to cover the cost of any energy price rises then the scheme will make no difference. If the price of electricity rises relative to other products people will have an even bigger incentive to conserve it. While some people may choose to spend all of their compensation consuming exactly the same amount of energy, history tells us that many people will save a bit more electricity and pocket the compensation to spend on something more fun.

And speaking of households, it seems like the Institute’s long, and at times lonely, prosecution of the need to ensure that the voluntary efforts of individuals and communities results in reductions in Australia’s emissions rather than just freeing up permits for big polluters might have finally paid off. All purchases of GreenPower will be additional to the national target, as will other forms of voluntary action (see below).

Overall the most significant differences between yesterday’s announcement and the CPRS are related to the upward flexibility that can be pursued. Whereas Kevin Rudd argued that the CPRS ‘gave polluters certainty’ in reality what that meant was that it locked in failure. That is, if we had accepted the 5 per cent emission reduction target and a ten year deal with the polluters about their compensation then there would have been no opportunities to ratchet up the ambition of the scheme until 2020. Under the new arrangements the 2020 targets will be recommended by an independent commission.

We can only hope that a majority of independent experts will pay more attention to the science, and in turn show more ambition about the cuts Australia can achieve, than a majority of our parliamentarians.

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