Intervention is the new black
by Richard Denniss
[Originally published in the Australian Financial Review, 4 Feb 2019]
Few people think carbon pricing is as important as Tony Abbott does. Not only was repealing the carbon tax his biggest achievement as prime minister, nearly five years later, he still can't stop talking about it. Nothing would excite him more than the chance to repeal another carbon price one day.
But unfortunately for the member for Warringah, the economics community and the electorate no longer see a carbon price as the "one true instrument" for tackling climate change. While Kevin Rudd was obsessed with "least cost abatement" and "optimal policy", 10 years on policy-makers and the public are far more pragmatic. Both domestically and internationally, consensus has emerged that, while carbon pricing can play an important role, there are lots of ways to reduce emissions without it.
While the Coalition has never been ambitious in their efforts to reduce emissions, they have indeed broadened the menu of climate policy options. Few remember that it was John Howard who introduced the Renewable Energy Target and even fewer seem to remember that Abbott, having at different times supported emissions trading and his own simple carbon tax, spent billions of taxpayers dollars on his "Direct Action" scheme. And while the Clean Energy Finance Corporation was set up by the ALP to help renewable energy projects raise funds, it was Abbott's government that decided to keep it going. These alternatives have supported $23.4 billion worth of clean energy projects.
There is more than one way to skin a cat. To discourage smoking we use taxes to make cigarettes expensive, but we also rely on regulations to limit where they can be sold, smoked and who can buy them. We use advertising and information programs to change individual behaviour and cultural norms. As minister for health, Abbott oversaw all of those policies and even introduced an increase in tobacco tax, an increase that hit low-income earners hardest and for which he offered no compensation. It seems not all policy-induced increases in the cost of living are evil.
Back when the Coalition pretended to be the party of "free markets" and "small government", it made some political sense to focus on market-based approaches to climate change. Those days are long gone. Now that Coalition MPs such as Abbott and Craig Kelly are excited about spending public money to subsidise new coal mines, new coal-fired power stations and even the nationalisation of electricity companies, there is absolutely no need for advocates of climate action to confine their policy asks to price-based measures. Even for conservatives, interventionism is the new black.
While it's true that economists like me like the idea of raising revenue from a source of pollution (be it tobacco or fossil fuels) so that less needs to be collected from wages or profits, if the politics of switching the tax mix are too hard, it's still possible to significantly reduce greenhouse gas emissions. Further increasing Howard's Renewable Energy Target or increasing expenditures on Abbott's Direct Action Scheme can make a big difference. Similarly, dusting off Malcolm Turnbull's National Energy Guarantee (NEG) would give the next government, and ones after that, a policy framework whose ambition can be ramped-up over time while still providing industry with enough certainty to start investing again.
Which brings me back to Abbott. Scrapping the carbon tax was an enormous political accomplishment for him, but the policy vacuum he created sucked all confidence out of private sector investors. Despite his promises to the contrary, the removal of the carbon price has actually led to higher electricity prices – no one wants to make a 50-year investment until they see what the new climate policy architecture looks like.
In this year's federal election, Abbott, who after 25 years representing Warringah is after another three, will be challenged by the high-profile Zali Steggall. In his inimitable style, he has already labelled her the "carbon tax candidate". Back in 2013, Abbott declared that "the government's job is rarely to tell people what to do: mostly it's to make it easier for people to make their own choices." The voters of Warringah will soon have the choice as to whether they want three more years of three-word slogans, or investment certainty and lower electricity prices. Time will tell.
Richard Denniss is chief economist at The Australia Institute @RDNS_TAI