Australia's Rudd Backs Off Carbon Trading Plan

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Daniel Munoz / Reuters

Steam and other emissions are seen coming from a power station in Wollongong, some 55 miles south of Sydney, Australia, on Nov. 17, 2009

In the last three years, Australian Prime Minister Kevin Rudd has often used his podium to talk to the nation about climate change. He has called it "the great moral and economic issue challenge of our time," comparing global warming skeptics to gamblers who "happily play with our children's future." It's not random that Australia's leader has been vocal on the issue: Despite being one of the more sparsely populated nations, Australia's 22 million inhabitants emit the third largest amount of carbon dioxide per capita in the world.

In fact, Rudd's firm views on global warming helped push him to victory in the national 2007 elections. Soon after, his administration proposed the ambitious Emissions Trading Scheme (ETS) that aimed to shrink Australia's carbon emissions by 5% of 2000 levels by 2020. Under the scheme, the country's biggest polluters would have to buy licenses to discharge carbon from companies with low carbon emissions. ETS had even become the centerpiece of Rudd's campaign for re-election; in a November 2009 speech he accused the coalition government of "absolute political cowardice" for wanting to wait until other countries acted on global warming to push his plan into law. "No responsible government confronted with the evidence delivered by the 4,000 scientists associated with the international panel [on climate change] could then in conscience choose not to act."

But that was then. Last week, in what Australian news website quickly dubbed the "great moral back flip of our time," Rudd announced he was shelving ETS — at least until 2013. But Rudd made it clear he had not changed his mind about the scheme, but pointed the finger elsewhere. "The opposition decided to backflip on its own historical commitment to bringing in a carbon pollution reduction scheme and there's been slow progress in the realization of global action on climate change,'' Rudd told reporters.

Cynics, however, have said that the move was a tactical one. A federal election is due to take place this year, and polls were showing that Australians had lost interest in climate change. Tony Abbott, leader of the opposition Liberal Party, tagged the ETS as a "great big new tax on everything" and the label stuck. A Nielsen's poll conducted in February showed that public support for the ETS had dropped by 10 points since December 2009 to 56%; recently, Australians have been more concerned with immigration, healthcare, and climbing housing costs.

The ETS is a "cap and trade" system, under which Canberra would calculate the total amount of pollution that could be emitted by Australian businesses each year. Each business would then be given a permit with a fixed amount of emissions. Companies that emit beyond their allocated numbers of carbon would be penalized by having to buy licenses to pollute from companies that had successfully reduced their greenhouse gas emissions below the fixed level. Opponents said the additional cost to high-polluting businesses like utilities and gas companies would have trickled down to consumers through increased prices in petrol and electricity. Companies in those heavy-polluting sectors were also worried about potential job losses, saying the scheme would affect profits, which in turn would reduce productivity, eventually forcing heavy-polluting businesses to shrink.

"It was badly designed," said Warwick Mckibbin, Director of the Research School of Economics at the Australian National University and a Professorial Fellow at the Lowy Institute for International Policy. "Instead of just setting targets you need a policy that you can adapt over time. We can't say anything [about the] costs of reducing carbon in 2020, because we don't know what the world will be like in 2020. Reducing carbon by 5% may be over-committing, for all we know."

And some of the Rudd administration's attempts to win support for the scheme backfired. At one stage, the government proposed to offer the most emissions-intensive industries, such as coal and steel, 90% of their permits for free, offering these industries the chance to pay less penalties for their emissions. Andrew Robb, the opposition's emissions trading spokesperson said that trade-exposed industries using the best available technology should have "100% free allocations of permits ... until such time as our competitors had some price on carbon," according to The Australian. For some companies, paying for 10% of their permits would have still forced the price of their exports to rise, limiting their ability to compete on the global market. The Australian Greens, however, believed that 90% was far too high, giving the nation's highest polluters too many concessions.

Australia is not the only country that's having difficulty with coming to an emissions-trading agreement. The U.S. is also struggling to win approval of proposed climate-change laws. Europe has had an ETS in place since 2005, though the scheme still has teething problems. Emissions in the E.U. dropped by 11% last year, but this was largely due to the recession. As a result heavy polluters now have an abundance of carbon permits, which can be banked indefinitely. Pollution is likely to rise as soon as the economy snaps back. Environmental groups, such as Sandbag, a London-based NGO that focuses on emissions trading, believe the E.U. scheme is not ambitious enough and caps on carbon should be tighter.

Australia is not alone in its inability to come to an arrangement to slow climate change, but it's probably the most red-faced. "Post-Copenhagen, I don't think any world leader was as religiously zealous as Rudd on climate change," said McKibbin. "It looks absolutely ridiculous on the world's stage... the Prime Minister... acknowledged it was too hard and shifted focus to something else, instead of trying to propose a better policy."