Labor and Greens agree to sell carbon pollution permits

The federal Labor government and the Greens announced on February 24 that they had agreed to sell carbon pollution permits at a fixed price from July 1, 2012, as an interim measure. After that, a carbon emissions permit trading scheme will be introduced within three to five years.

The “framework” agreement between Labor and the Greens is in line with a recommendation made by Professor Ross Garnaut, the Labor government’s chief climate change adviser in 2008. In an updated paper released on March 17, Garnaut proposed that the price of carbon dioxide emissions be set at around $26 per tonne, rising each year by 4% before the introduction of the emission permit trading scheme in 2015. This figure, however, is aimed at reducing Australia’s CO2 emissions only by the government’s target of 5% on its 2000 levels by 2020.

Of the $11.5 billion expected to be raised in government revenue in 2012-13 through the sale of carbon pollution permits at a fixed price of $26 per tonne, Garnaut proposed that half be used to compensate lower and middle-income households through tax cuts and increased welfare payments. This would be for the estimated initial rise of $275 in annual household electricity bills.

This is an acknowledgement that the cost of carbon emissions permits will simply be passed on by electricity companies to households, with no reduction by these companies in CO2 emissions. Writing in the March 18 Australian, Liberal Party climate change spokesperson Greg Hunt noted, “... it would take a price of $70 a tonne to close coal-fired power stations”. What he didn’t note was that this price would provide a financial incentive only to shift from coal to natural gas as a fuel for electricity generation.

A 2010 study by Cornell University’s Robert Howarth estimated that emissions from the US natural gas industry — from extraction to burning — are about as high as CO2 emissions from burning high quality steaming coal. According to a February 28 briefing paper issued by the Melbourne-based research group Beyond Zero Emissions, it would take a carbon price of $200 per tonne to persuade profit-oriented companies to switch from coal-fired power to a technology that could provide baseload electricity, such as solar thermal. That would raise an average household’s yearly electricity bill by around $2000.

What’s the aim of carbon pricing?

Garnaut’s latest paper acknowledges that the aim of setting a price on carbon is to “encourage” households to “switch away from relatively emissions-intensive goods (such as electricity)”. But even the 22% rise in NSW electricity prices last July 1 did not result in a reduction in household consumption, rather forcing low-income households to cut back on other necessities, such as food, to cover their electricity bills.

Garnaut also proposed that a range of Australia’s biggest carbon polluters in “trade exposed” industries - from the 1000 companies each responsible for more than 25,000 tonnes of greenhouse gas emissions per year -  be provided with government financial assistance. These industries are alumina processing, aluminium smelting, cement and steel making. This assistance would make the effective carbon permit payments of companies in these industries between $2.60 and $10.41 (on a starting price of $26) per tonne of CO2 emissions.

According to Garnaut’s latest paper, “In steel, for example, these assistance arrangements would mean that the average carbon [tax] cost per tonne of steel would be around $5. This represents around two thirds of a per cent of the value of the final product.” In other words, there will be little financial incentive for Bluescope Steel to reduce its CO2 emissions. Greens deputy leader Senator Christine Milne has declared the Greens’ support for Garnaut’s subsidy plan for the “trade exposed” polluters, describing it as a “principled approach”.

In his 2008 paper, Garnaut concluded that substantial reductions in global CO2 levels were “a technical possibility at this time”, but would only “become commercially realistic through a combination of high carbon prices and support for research, development and commercialisation of low-emissions technologies”. In other words, unless such technologies can be made profitable to capitalist businesses through huge government subsidies and forcing working people to pay higher prices for electricity, such technologies will not be utilised, regardless of the devastating impact of global warming in the coming decades.

Garnaut is neither a climate scientist nor an expert on the non-carbon-emitting energy technologies. He is a professor of economics and sits on the board of a dozen different companies. Until August last year he chaired the board of Lihir Gold, a gold mining company that operates in Papua New Guinea, Australia and West Africa. It was therefore to be expected that he would regard making carbon pollution a saleable and profitable commodity as the only way to “solve” global warming.

Socialists and carbon pricing

One would not expect people who claim to be for socialism to support this same market mechanism as the supposed solution to global warming, or any other social problem. However, members of the Socialist Alliance have taken just such a position. At a February 9 Gosford forum on climate change, SA national convener Peter Boyle declared: “We are not opposed to using price signals and taxes on carbon polluters but this is not enough, too inefficient and too slow.”

Boyle’s position was elaborated by SA member Simon Butler in the March 16 edition of SA’s Green Left Weekly. Under the headline “Carbon price plan heads in wrong direction” (which would seem to suggest he did not agree with Boyle’s position), Butler wrote: “The big problem is that the proposed carbon tax is not really a tax — at least not for long. It’s actually a carbon trading scheme in slow motion ... Once carbon trading is in place, all talk of a stable carbon price, high or low, becomes meaningless. The price will be in the hands of the energy companies, traders and big financial corporations, who can game the market, avoid emissions cuts and manipulate the price to suit themselves.”

So, for Butler the key problem is that the Labor-Greens-Garnaut plan envisages a transition from a fixed carbon price to a market-determined price, not that it envisages pricing carbon. Contrary to its misleading headline, Butler’s article was not a rejection of pricing carbon, but merely a rejection of the second phase of the Labor-Greens-Garnaut carbon pricing plan.

Furthermore, Butler also endorsed another market mechanism to combat CO2 emissions. “Feed-in-tariffs”, he declared, “which pay renewable energy providers a higher price for the energy they produce, could play a useful role in promoting renewable energy and deserve support”. The March 23 edition of GLW carried comments by Pip Hinman, the Socialist Alliance’s candidate for Marrickville in the March 26 NSW elections, in which she also declared support for feed-in-tariffs: “The feed-in-tariff needs to benefit generator-scale energy, not just solar panels on household roofs. We’d support a national feed-in tariff for large-scale baseload solar.” But the effect of feed-in-tariffs is to push up electricity prices, increasing the cost of living for working people and working-class pensioners unable to fork out the $10,000 or so upfront cost of installing solar panels on their roofs.

A carbon tax and feed-in-tariffs are just different ways of making ordinary working people pay for the pollution created by big business. The fundamental problem with all such market-based “solutions” to global warming is that they leave the ownership of industry, including the power-supply industry, in the hands of the capitalist class, a class whose goal is to maximise its private profits rather than prioritise the interests and welfare of working people. And without a revolutionary change in who holds political power, i.e., the replacement of capitalist rule by a working people’s government, it will not be possible to abolish capitalist ownership of industry.

This does not mean that no progressive measures could be taken under capitalist rule, such as the demand that no new coal-fired power stations be built and existing ones be shut down. But such measures will be taken only in proportion to the threat to capitalist power that mass struggles by working people can apply. A carbon tax is not a progressive measure. It is just a diversion that helps capitalist politicians pretend that they’re tackling global warming while big business continues to drive the planet’s climate to catastrophe.