by PAUL TWOMEY
The Carbon Pricing Mechanism, known to its friends as the carbon price and its critics as the carbon tax, passed away today in Canberra, aged two, after a long battle with slogans.
While it won praise from most academic and business economists at home and abroad, it will perhaps be best remembered for its controversial relationship with Australian voters, the stinging criticism it endured from certain politicians, and comparisons with its nemesis, Direct Action.
While no-one thought it was perfect, the carbon price was achieving the task that was asked of it, and won expert recognition as an important pillar of any sensible climate policy portfolio.
The carbon price was conceived in the throes of passion of market theory. Pollution has a social cost, so it seemed like a good idea to economists to incorporate these costs into the market system, with its respected properties of being relatively good at allocating resources and minimising costs.
Its backers had big ideas. Incentives to lower emissions would permeate throughout the economy from bolstering low-carbon investment, encouraging consumers to switch into low carbon goods and services, and supporting technological and social innovation. Emissions-reduction efforts could also be easily scaled up by raising the carbon price or reducing the number of permits for sale.
But the carbon price kept its feet on the ground, always aiming for a humble target of a 5% cut in Australia’s emissions by 2020, even though its cousin, the Climate Change Authority, advised it to shoot for 19% to be closer in line with what other countries were doing.
A difficult birth
With such a strong market-theory pedigree, one would have thought that the Coalition – usually ardent fans of incentives and market forces – would have gleefully awaited the carbon price’s birth.
Indeed, they were part of the pregnancy. Both the Coalition and Labor contested the 2007 federal election promising an emissions trading scheme.
One of those who later turned against the carbon price, environment minister Greg Hunt, had previously written an undergraduate honours thesis on the benefits of pricing pollution. Even future Prime Minister Tony Abbott said in his 2009 book Battlelines that it seemed to be the “best way to obtain the highest emission reduction at the lowest cost”.
But then came the event that presaged the carbon price’s untimely death: the fall of liberal leader Malcolm Turnbull and Abbott’s election as the new leader by one vote, supported by climate sceptics within his party.
Almost overnight, the admiration for carbon pricing disappeared.
Thus, before the carbon price was even born, it was branded as a pointless and bloated fetus, a “great big new tax on everything” – despite the fact that it was designed to return its revenues to the public through tax cuts and benefits, and the fact that this slogan came from a party that actually did bring in a tax on (nearly) everything: the GST.