Cap and Trade Going Under Down Undah

Originally posted at the Breakthrough Institute

It was with much fanfare and bravado that then-newly-elected Prime Minister Kevin Rudd of Australia announced at the 2007 Bali climate talks that his nation would abandon opposition to climate action and ratify the Kyoto Protocol. Better late than never, Rudd said and bravely declared, "I can unite the world on climate."

To deliver on that bold promise, Rudd directed his ministers to put together a cap and trade program to limit greenhouse gas emissions and put a price on CO2. The outline of an Australian "Emissions Trading Scheme" was rolled out last week with plans to implement a cap and trade program in June 2010 aimed at cutting emissions 5 to 15 percent below 2000 levels by 2020.

Now, the Australian Prime Minister's efforts to put a price on carbon and cap emissions are under fire from both Right and Left, and cap and trade is going under Down Undah.

The pro-climate action blog SolveClimate has an honest report on the political opposition to Prime Minister Kevin Rudd's carbon pricing plans. [Editor's note: keep in mind as you read this that the Australian "Liberal" Party is the nation's major conservative, center-right party and the "Labor" Party is the real liberal, center-left party.]

The battle offers a window into the complexity of making climate laws in a coal-fired country.

Federal opposition leader Malcolm Turnbull is leading the charge on behalf of his center-right Liberal party, stepping up attacks on a scheme he once favored. He wants to delay ETS until at least 2012, and pile on extra industry hand outs. And he's employing a familiar weapon to win over Australians, the threat of job loss.

It's a particularly cynical ploy on Turnbull's part in a drowning economy. Said Turnbull to Rudd this week:

"Why are you putting people out of work?"

There is no evidence that the ETS will "put people out of work," even in mining towns. But the story caught fire in the Australian media.

And now it's clear that a majority of senators will vote against the ruling government's ETS, complicating all prospects for legislation that has yet to be introduced into Parliament.

Rudd's in trouble. His center-left Labor party doesn't have a majority in the upper-house Senate. If the opposition blocks the bill, then he will need the support of Australia's swing-vote Greens.

But the Greens now say they won't endorse the ETS, unless it is substantially "greened up."

Specifically, they want the industry-friendly legislation to auction 100 percent of the emission permits -- a vital aspect of any effective cap and trade scheme -- rather than giving polluters a free ride, as the bill now does. They also want a strong reduction goal of 40 percent by 2020, not the current 5 percent target, or up to 15 percent in the event of a new global climate pact.

SolveClimate's reporter chocks the failure of the Australian ETS plan up to "lobbying, partisan politics and the usual suspects (i.e., big coal)." The implication being, "Those darned knuckle-dragging champions of the status quo got the best of us again." Of there's truth to that. But it's also all to easy to dismiss the challenges facing Rudd's plans and conclude, "We've just got to battle harder and overcome the industry opposition next time."

But that kind of response dismisses this story without grappling with the real lesson behind it. After all, this is the exact same situation facing cap and trade or carbon pricing plans in Canada, the EU and of course, the good old USofA.

The story is fundamentally the same everywhere carbon pricing programs have been attempted. Carbon pricing plans run smack dab into an unshakable reality of the political economy of climate and energy: the public and policymakers (not to mention industry) are resistant to efforts to significantly increasing the price of dirty energy. That resistance is clearly even stronger in the midst of the worst global economic crisis in decades.

The result: even when shot through with loopholes and industry giveaways, cap and trade and carbon pricing schemes are still not able to pass political muster, especially in coal-heavy economies like Australia (or much of the United States... or Eastern Europe... or China or India... or just about everywhere we need to reduce emissions most!).

Kevin Rudd is thus stuck in a political dilemma that should be familiar by now to champions of carbon pricing proposals everywhere (a dilemma we call the Gordian Knot of climate policy): he must either further weaken the proposal (as the Liberal Party opposition calls for) in order to win passage while ensuring that the carbon price is insufficient to drive the major emissions reductions needed; or he can strengthen the proposal (as Australia's Green Party is calling for) and guarantee the bill's political failure.

SolveClimate's reporter worries, "Any way you slice it, there will be a disappointing end to this cantankerous process," and concludes, "Let's just hope it's not a preview of what's to come in America, in the nation's own congressional battle over global warming legislation." But of course, this is exactly what will happen in the United States if President Obama and his green allies continue to push cap and trade and carbon pricing as the centerpiece of climate action. The Gordian Knot is most certainly not a uniquely Australian phenomenon, and it will inevitably ensnare U.S. carbon pricing plans as well.

But there's a way out of this dilemma, a way to cut free of the Gordian Knot.

If only at least one world leader (*cough*Obama*cough*) was willing to break from the carbon pricing orthodoxy and start leading a new emerging climate consensus, a strategy centered on the critical effort to make clean energy cheap, a strategy driven by innovation and investment, one finally able to overcome the fundamental constraints of the political economy of climate and energy and the powerful resistance to efforts to price our way to a clean energy future... If only...