“Cap-and-Trade is Dead” in the US: Implications for Australian Climate Policy

By Leigh Ewbank. Cross posted at The Real Ewbank.

It’s official: “cap-and-trade is dead” in the United States. The frank declaration was made by Republican Senator Lindsey Graham during a private meeting with environmental leaders at the weekend. The Washington Post report that the Senators spearheading national climate legislation have rejected an economy-wide cap-and-trade scheme. Senators Lindsey Graham, John Kerry (Democrat), and Joe Lieberman (Independent) are “engaged in a radical behind-the-scenes overhaul of climate legislation” and are “preparing to jettison the broad ‘cap-and-trade’ approach that has defined the legislative debate for close to a decade.”

The collapse of cap-and-trade in the United States has implications for Australian climate policy, making the Rudd Government’s mission to pass a cap-and-trade scheme even more difficult. The Australian Senate has twice rejected Labor’s Carbon Pollution Reduction Scheme (CPRS) and is set to reject the bill for a third time in May. Unlike the previous rejections, the stakes are higher this time around. A third strike for the proposal just months out from a national election would be a demoralising blow for the Labor Party.

The Rudd Government faces a tough political environment. The Opposition will use the US Senate’s abandonment of economy-wide emissions trading to attack the Government. Tony Abbott has shown considerable political nous by betting correctly that the US Congress would not pass emissions trading legislation in the near term. This foresight allowed the Coalition to corner Labor by proposing a suite of “direct measures” to reduce Australia’s carbon emissions. By staking out the logical alternative to carbon pricing measures, the Coalition hopes to position Rudd as a policy copycat or worse—incompetent.

The Greens add another layer of political complexity for the Government. Labor can only win Greens support for the CPRS by agreeing to substantial amendments, but Labor are too risk averse and evidently uncommitted to climate change to make the deal. Similarly, Labor could throw their weight behind the Greens’ interim carbon-pricing measure, but the move gives the minor party a much needed boost heading into the election and inadvertently bolsters the Coalition’s claim that carbon pricing is taxation by another name. In any case, the Government would still need two additional votes for either measure to pass the Senate.

While the Labor Government has the trigger for a double dissolution election they won’t risk one. On one hand, Tony Abbott is polling better than expected and Labor hasn’t quite figured out how to deal with the new Opposition Leader. On the other, public support for the CPRS has declined and the Government fears a scare campaign based on the easy-to-understand “ETS = great big tax” message.

By far the worst option for Labor is to abandon the CPRS entirely. The Prime Minister simply can’t walk back his “greatest moral challenge of our time” statement he made as Opposition Leader and reiterated in his pre-Copenhagen speech to the Lowy Institute. This move would make the Prime Minister and his government look weak and unprincipled in the eyes of the public. Labor is stuck between a rock and a hard place.

While the death of cap-and-trade in the US presents an obvious challenge to Rudd and Labor, it is also an opportunity. The recent development provides the PM with an escape route for his troubled emissions trading scheme. With consistent messaging citing the changes in US climate policy as the rationale for a new approach, Labor can avoid Opposition attacks. The key to success rests on presenting a credible alternative policy with an equally powerful political narrative.

Adopting a nation-building framework for climate change policy is the Government’s best way forward. In addition to providing a potent political narrative to frame their agenda, the approach deals with the technological problem at the heart of climate change. Australian renewable energy advocate Beyond Zero Emissions (BZE) has recently released the executive summary of its Zero Carbon Australia 2020 plan—a detailed blueprint for Australia to transition to 100% renewable energy by the end of the decade. BZE rightly emphasise the need for public investment in critical renewable energy projects as integral for reducing the nation’s contribution to climate change.

Beyond Zero Emissions spokesperson Mark Ogge concedes the Zero Carbon plan is expensive. The plan would require investment in order of $35-40 billion per year for a decade—the equivalent of the 2009 economic stimulus package each year to 2020. Some commentators, politicians, and vested interests will no doubt argue that this level of investment is difficult. Nonetheless, BZE are on the right track. Their cost estimates are based on the ambitious goal to generate all of Australia’s energy from renewable sources by 2020. Implementing the measures over a longer timeframe would make the plan more economically viable, more politically palatable, and still deliver considerable carbon emissions reductions.

The death of cap-and-trade in the US can make Rudd’s job harder, or could be used as the rationale for a new nation-building approach to climate policy. Let’s hope for the latter.