Dog Days: Australia After the Boom (Redback)

by Garnaut, Ross

  Like Howard before him, Prime Minister Abbott might come to think that the MRRT did no harm and generated an increasing amount of useful revenue. It would be helpful in meeting Australia’s challenge in the years ahead if, after a respectful pause from the heat of recent opposition, the current government or its successor reassessed the limited coverage of the MRRT, as well as its anomalous differences with the PRRT. This should be done in the context of the new federal compact on financial relations discussed in Chapter 8. Otherwise we will have to start again on resources taxation within the reform of federal financial relations.

  CARBON PRICING: A GOAL AGAINST THE RUN OF PLAY

  The contest over climate change policy is more complex. This has been a big issue in the last three federal elections and, separately, in the last four changes of leadership in the major political parties. It will play a central role in the longevity of the Abbott government. The policies with an ETS at their centre that were legislated in 2011 and described in Chapter 9 are working as they were designed to do. This experience has eased anxieties that they would be economically disruptive. They have majority support in the electorate if viewed as a package, and there is stronger support for meeting emissions reduction targets than for the removal of the ETS. Nevertheless, the new government is committed to repealing the ETS.

  Until July 2014, the government will not have a majority in the Senate by which to repeal the legislation. After then, repeal depends on the votes of a number of senators who are not aligned with either major party. The repeal has been described by the prime minister as part of his mandate to govern. If it is blocked in the Senate, the prime minister has said that he will dissolve both Houses of Parliament and call a general election to resolve the deadlock. The polling says that only a minority of the electorate supports a double dissolution of the Parliament – while a substantial majority stands by its election choice of prime minister.

  I am not going to tell this richly textured and continuing story. It will take enough time and words to make a few observations about the role of private interests in the wider political story of climate change, and discuss how they interacted with other forces to influence policy and shape the perceptions of the electorate.

  Australia has the highest emissions per person of the developed economies. Our exports contain an unusually high proportion of fossil fuels. Australian industry therefore contains a higher proportion of wealth generated from emissions-intensive industries than that of any other developed country except Norway. (Norway is different, because a major share of economic rents are generated within a state-owned corporation that does not play a private role in the political process.)

  Australia also has unusually rich opportunities for developing low-emissions energy, but the established industries are currently small. The main developments will occur in the future, and the corporate and personal beneficiaries do not yet know that they stand to gain.

  For the export industries, other countries’ policies are more important than Australia’s own. The Chinese and US discouragement of coal-based power generation has, in different ways, reduced the expected profitability of Australian coal more than any action taken here to reduce its use.

  It is inherent in the human condition that where most people stand on an issue depends at least to an extent on where they sit. Many senior Australian businesspeople have a vested interest in the failure of global efforts to mitigate the dangers of climate change. One consequence is that our business leadership contains an unusually high proportion of people who express the opinion that the best of climate science is wrong on global warming.

  There are exceptions. The implications of climate change are so large that they challenge deep allegiances in the minds of intelligent people. The chief executive of one of the world’s largest exporters of coal, with whom I discussed my work on climate change at length, shared with me the discomfort that he felt about the implications of coal use for the future human condition. He took comfort, he said, from the possibility that expanding coal use might be reconciled with climate stability by the successful capture and storage of carbon dioxide wastes. He was personally troubled by what he saw as the increasing probability that work on carbon capture and storage would not be successful, so that it may become necessary to acknowledge a contradiction.

  It is more common for business leaders with interests in the fossil fuel industries to find other justifications for resisting policies to reduce emissions. Something should be done, they say, but now is not a good time. Or there is no point in Australia doing things before others. Yes, others are doing things, but they are not doing the same things that are being proposed for Australia. We should do something, but what is now being proposed is not achieving its objectives, or is unfair to my industry.

  The most common and important initial stance of the major emitting industries in the Australian debate was to insist on more compensation for their activities. This went well beyond any economic justification. While the demands for greater compensation did not amount to direct opposition to the policies, acquiescence to them would have made the package as a whole irresponsible from the perspective of budget stability, or favoured corporate interests over ordinary households. This made these industries opponents in practice, if not in principle, of effective policies.

  The business lobbies, including the Business Council of Australia, tended to relay the views of their most concerned members. Something should be done, they said, but what was being proposed contained ‘flaws’ that required its rejection. The fact that, by the criteria applied by the lobbies, all alternative policies had greater flaws was of no account.

  Some business interests also participated in the political process by providing funds to organisations campaigning against climate science or mitigation policies. This usually reflected the strong personal views of particular people.

  The most important role of private interests in practical policymaking on climate change was to weaken support for any particular measure. Something should be done in general to mitigate climate change, but nothing in particular. The private interests contributed to the political smog through which policymakers had to find their way.

  Leaders of large firms and the business lobbies remained silent when the Opposition, now the government, committed itself to replacing carbon pricing with an interventionist approach to mitigation that will make it much more expensive and disruptive for Australia to meet its international commitments.

  As with the RSPT, the popular memory of the carbon-pricing package, promoted by the majority of the print media, is that it has been highly unpopular. ‘The hated carbon tax’ became a stock phrase in the News Corp majority press and on page two of the Australian Financial Review.

  The reality is more complex. Despite the smog blown out by Australian business and its lobbies, the systematic distortion of the issues in the majority News Corp press, the relentless criticism from the Opposition since its change of leadership in December 2009, and the absence of advocacy of legislated policies from the Labor government, there has been continued public support for action on climate change in general – and for the 2011 measures when viewed as a package. That support has been stronger when comparisons are made with any alternative policies.

  Attitudes to the policy depend on whether people think climate change is real; if real, whether they think it is caused by humans; and if caused by humans, whether they think that the policy represents a good response.

  Newspoll provides consistent findings. Australians have overwhelmingly considered climate change to be real: 84 per cent in July 2008, falling to a low of 73 per cent in February 2011 soon after the change of Opposition leadership, and rising gradually from there. Nearly all who considered climate change real thought that humans were wholly or partly responsible, at the beginning and at the end. A majority supported a price on carbon to slow it down, even at the cost of higher petrol, electricity and gas prices (57 per
cent in December 2010, 54 per cent in May 2011).

  Australians expressed overwhelming support for the Rudd government’s Carbon Pollution Reduction Scheme (CPRS) when it was also supported by the federal Opposition (72 per cent in October 2008, 67 per cent in September 2009), and merely strong support after the change in Opposition leadership and policy (57 per cent in February 2010).

  Bitterly attacked from the beginning as a ‘great big new tax’ that would put a wrecking ball through the economy, the legislated carbon price had much less support than the CPRS in May 2011 (30 per cent support; 60 per cent opposition). In fact, the 2011 package was similar to the CPRS, with two departures that registered with the community – the increase in the tax-free threshold funded by the carbon pricing, which was popular; and the higher fixed price for a three-year transition period, which was unpopular when the 2010 decline in the European price left it high by international standards. The most important of the other differences provided for better governance of the 2011 scheme, which did not attract community interest.

  Most polls did not ask about the package as a whole, as distinct from the ‘carbon tax’ component. When polls asked respondents what they thought about carbon pricing when the whole of the revenue was going to be used for tax cuts, household social security payments, renewable energy and compensation for industry – as it was in the 2011 package – the package received consistent majority support. For some reason, which may have had its origins in the focus group, the government mostly chose not to present the carbon pricing and household payments as a single package. If the separation was to allow the government to receive separate recognition for the cut in income tax (principally by raising the tax-free threshold), it backfired politically. The Opposition also separated the carbon pricing from the tax cut and household payments, and then promised the good bits without the bad, at a large cost to the budget.

  While there was a strongly negative view of carbon pricing in isolation, the polls reveal majority opposition to repealing it, majority opposition to a double dissolution election on the issue and, before the election, support for the carbon pricing policy on its own over the Coalition’s proposal for Direct Action.

  These views were clearly observed even among Coalition voters in an exit poll at the 2013 election conducted by JWS Research and commissioned by the Climate Institute. Reminded that the Coalition supported targets of reducing emissions unconditionally by 5 per cent and conditionally by up to 25 per cent, 40 per cent of Coalition voters thought it more important to meet the targets than to repeal the carbon ‘tax’, and only 32 per cent that it was more important to repeal the tax. Only 3 per cent thought that ‘scrapping the carbon tax’ was the most important of the issues that the Coalition had put to voters.

  An Essential Vision Poll on 1 October 2013 provides insights into changes in opinion with the new government in place. Respondents were asked whether they supported ‘the previous Labor Government’s carbon pricing scheme which requires industry to pay a tax on the amount of carbon pollution they emit’ (no mention was made of how the revenue would be used). Whereas the responses were evenly balanced in May 2013 (43:43), there were more negative responses after the election (39:37). Asked directly whether they preferred the carbon tax (no mention of the use of the revenue), or the Liberal Party’s policy on providing funds for planting trees and paying companies to reduce carbon emissions, a majority supported the ‘carbon tax’ in May (39:29), but a minority after the election (31:35).

  The smog of politics encouraged by private interests increased the difficulty of introducing a carbon-pricing package, and provided cover for a relentless attack on its central feature, but it did not turn majority opinion against the package as a whole. With firm and agile prime ministerial leadership, the Gillard government was able to legislate an effective policy. This time, in contrast to what happened with the mining tax, the government (and the Parliament) held its ground against huge pressure from private interests.

  The main long-term consequence of the smog may turn out to be the cover it provided for the survival of an economically and environmentally weak alternative that can be expected to have disappointing results.

  The Abbott Opposition was effective in its attacks on the ‘great big new tax’ because of two things that will not be part of future debates. One was Prime Minister Gillard’s acquiescence to the leader of the Opposition’s description of an ETS with an initially fixed price as a ‘tax’. This could then be presented as a breach of the commitment that there would be no carbon tax under a government that she led. The second was the gap that opened up between the level of the fixed price in the first three years of the scheme ($23 and rising) when European carbon prices, initially well above that level, fell to around $A5 ($A7–8 in September 2013) as economic activity foundered and the European target became much less costly to achieve. The linking of the Australian ETS to Europe meant that this price discrepancy would have been removed from July 2015. Prime Minister Rudd, in July 2013, said that the link to Europe would be brought forward to July 2014 if he won the 2013 election.

  Any regulation to reduce emissions involves costs that are as real as, and larger per unit of carbon emissions than, carbon pricing. The sum of the costs of mitigation measures – mostly Direct Action, not carbon pricing – in 2013 in Europe, the United States or China (as a proportion of household income or of the economy) is much higher than the costs to households or business of the $A23 fixed price in Australia once the distribution of the permit sales revenue is taken into account.

  This is too complicated a point to be widely understood under the smog of attack by private interests and the Opposition. As a consequence, it is politically impracticable to maintain a carbon price that is higher than in Europe in these circumstances. The linking of the Australian scheme to Europe recognises this reality. It follows that carbon pricing here, as elsewhere, must be supplemented for longer than originally anticipated by other regulatory interventions if we are to achieve cuts that are commensurate with those in other countries.

  While we do not yet know the relevant details of how Direct Action would work, analysis of the information available indicates that it would be more costly for Australia to meet our targets through Direct Action than through an ETS linked to Europe. So the repeal of the 2011 legislation would mean that the smog had obscured the victory of private interests over the living standards of Australians. Or, if the high costs of Direct Action deter a serious effort to meet our commitments to the international community, it will have obscured the victory of private interests over the international effort to reduce the dangers of climate change.

  Does this suggest that it is now impossible to implement policy in the public interest in Australia? Let’s not rush to judgment. The smog did not prevent the legislation and implementation of a strong policy package. Indeed, the 2011 legislation stands out as a goal for market-oriented reform scored against the run of play in the mature years of the Great Australian Complacency. With the disparate objectives of minority senators, one cannot be certain yet that the package will not survive the Senate’s consideration of repeal bills. And if repeal succeeds, it was a sufficiently close-run thing for other outcomes to have been possible.

  CONFLICTS OF INTEREST ARE INCREASING

  Most holders of high office and their close advisers through most of our democratic history have sought their reward in the satisfaction of performing well a role that is important to the community. In the apt words of Tony Abbott on taking office, a life in high policy is a vocation. It is an honour to serve the people of your country in a way that improves their lives.

  Some people close to the exercise of power have always had other motives. Some have seen the attainment of high office or influence as a largely commercial activity – a way to a more lucrative career and a path to wealth. We have succeeded as a nation because few of our most senior leaders have involved themselves in politics and policy with pecuniary
motives. For example, our three long-serving post-war Coalition prime ministers, Menzies, Fraser and Howard, have been exemplary in their living of their vocations.

  The revelation of corruption in the NSW state government’s administration of mineral leases has shocked us. Yet this terrible case is in a sense reassuring, because the crimes will attract an appropriate punishment.

  Less blatant but nonetheless seriously damaging uses of official office for the advancement of business interests are now accepted as normal. It is now normal for people to move directly and without delay from senior government roles into positions in which their intimate knowledge of personnel and processes has high commercial value. It is now normal for people to move directly from positions of confidential influence in the offices of heads of government and ministers into lobbying roles for companies in which their access to decision-makers and presumed influence over them is a valuable asset.

  Do we really think it is right for a minister of the Crown with a portfolio related to gambling, who is also a recent state secretary of the governing party, to move directly to work for a company in the gambling business that has huge private interests in issues before the federal and state governments? Or for federal and state ministers to move straight into lobbying businesses, or positions with investment banks, in which at least part of their value derives from their influence over decisions of relevance to their new employers?

  The revolving door was an important factor in the political contests over resource taxation and carbon pricing. It is a serious counterweight to the public interest in shaping contemporary policy. As the influence of money grows, we need to defend the integrity of the democratic process with a sensitivity that may have seemed unnecessary in earlier generations. We have to be clear and straightforward in our management of conflict of interest and the use of public office to advance private pecuniary ends.