Doomed Planet

Klimate Kommittee Korruption?

UPDATED: The Joint Select Committee on Australia’s Clean Energy Future Legislation has published only 70 of the over 4500 submissions they received.

The Department of Climate Change received 326 submissions of which it published 267.

They can’t be serious.

The Department of Climate Change published this:

To whom it may concern,

I am writing to express my support for the Government to legislate to put a price on Carbon. I urge the government to continue to move ahead with the Carbon tax.

Rob Feith

The Department of Climate Change published this:

To Whom It May Concern

Even with all the confusion surrounding the Carbon Tax, I would like to support the move the Government is making. In order to reduce our Carbon Pollution you have to place a monetary value on the air we breathe. I hope this is a step in the right direction and, I hope the Government sets a model and digs their heels in to become a world leader in this arena.

My support is with the Government at present.

 Kerrie Chandler

The Select Committee did not publish this:

Submission on the Clean Energy Bill 2011

To the: Joint Select Committee on Australia’s Clean Energy Future

By: Peter Smith

Opening Comment and Summary View

My submission is as a private citizen of Australia. I am basing my submission on the “Explanatory Memorandum” (“EM”) to the Clean Energy Bill (“the Bill”) and on media reports of the contents and implication of various parts of the Bill. I have neither the time nor resources to study and consider all of the constituent parts of the Bill in detail.

I note that the time given for considering the Bill and providing a submission is extremely short given its complexity and import. It is not clear why the Government has allowed so little time for the public to consider a piece of legislation which is described as a “major reform” and which is designed to have far-reaching effects.

Though it does not reflect on the Bill per se, the political process surrounding its introduction is disquieting. The Government went to the election only a little over 12 months ago with an explicit undertaking by the Prime Minister “to develop a Citizens’ Assembly to examine climate change over 12 months, the evidence on climate change, the case for action and the possible consequences of introducing a market-based approach to limiting and reducing carbon emissions”. She went on to link any action with the views of the group comprising the Assembly: “if I am wrong, and that group of Australians is not persuaded of the case for change then that should be a clear warning bell that our community has not been persuaded as deeply as required about the need for transformational change”.

Making a transformational change – one so hard to unpick – contrary to the PM’s undertaking, brings our political processes into disrepute and calls into question the trust we should have in our democratic processes. To be clear, election promises are not always kept; that is not the issue. The issue arises from the circumstances of the about-face and its dimensions. The Bill is making changes of great moment and effective permanency under no pressure of circumstances, contrary to a clear and explicit commitment which may have been instrumental in winning a very narrow election. I doubt whether a similar instance could be found in Australia’s past.

My conclusion is that whatever its merits, the Bill should be withdrawn because of the process surrounding its introduction. My quite separate conclusion, based on my comments set out below, is that the Bill will damage Australia, for no measurable gain, and should be withdrawn also on that account.

My comments are brief; therefore I have not provided an executive summary. They fall under the following headings:

  • The Science and Appropriate Responses
  • Picking Winners & Green Jobs
  • Cost and Complexity
  • Household Assistance
  • Australia’s Competitiveness

The Science and Appropriate Responses

It is commonplace to read and hear that the science of man-made global warming is settled. Science is seldom settled, in so far as scientific progress often consists in discarding the truths of the past. In this case, the evidence for material man-made warming appears to be based on a very short space of time (1970s-1990s) when measured on a climate scale. Also, numbers of reputable scientists disagree with the received wisdom. However, there is a strongly held view among many that it is too risky to do nothing because of the potentially catastrophic effects of large temperature rises; a precautionary principle comes into play.

Taking action of a precautionary nature does not fit well with the Bill. Precautionary action, if at all possible, should be designed to cause least harm if the threat is not realised, and give maximum scope for any future government to change course in the light of changed circumstances.

  • The Bill as I understand it will create valuable “Australian carbon credit units” which would form a potentially large liability of the Commonwealth should a future government wish to change course for any reason, including in the light of new evidence. 
  • The Bill will establish a pattern of behaviour in the use and production of energy which will be costly to undo and potentially leave unproductive assets in its wake (for example, solar and wind farms) in the event relevant circumstances change. 
  • The Bill will inevitably result in the contraction of parts of Australia’s manufacturing sector in response to the need to abate carbon dioxide, and to increased energy costs. This will be all but impossible to reverse. 
  • The Bill will put in place various subsidies and changes to welfare benefits and taxation, which might be politically difficult for a future government to undo despite there being sound logical, fiscal and economic grounds for it to do so.

Taking action of a precautionary nature points to the adoption of measures falling under what can be called a “no regrets policy”. Basically this is the kind of policy which provides benefits whether the risk is realised or not, and/or which does not put in place measures that are very difficult or costly to undo. Adaptation, research & development, and neural taxation incentives are three.

  • Adaptation – this consists of putting in place infrastructure to better deal with floods, or drought or storms or forest fires. Whether these climate events will happen more in the future than in the past; they will happen and cause considerable property damage and tragic loss of life. It is clear that more should be done to mitigate the effects of climate events in a continent subject to droughts and flooding rains and storms and bush fires. This would be a perfect example of a no regrets policy which would likely earn consensus support among Australians. It is not in the Bill. 
  • Research & Development – R&D is in the Bill, administered through a new Australian Renewable Energy Agency (EM p.16). However, the focus is only on renewable energy. Making wind and solar energy, for example, more efficient than they are now is likely to prove futile for generating base load power. R&D is worthwhile provided it is non-judgemental as to forms of energy. Use of renewable energy is a misguided objective. It confuses means with the objective. The objective should be to produce more energy with less cost and with less emission. Switching from an old coal power station to a technologically advanced gas power station may abate a lot more carbon dioxide per megawatt hour than an ultra-modern windmill farm. Improving the safety, efficiency and form of nuclear energy may be a key solution. Whatever opportunities exist, R&D should search them out. Unfortunately the Bill is picking winners (and from among an unlikely field) before the R&D process has started. 
  • Neutral Taxation Incentives – It may also be possible and affordable to design taxation incentives, say, through depreciation allowances, to provide all companies with are reward for investing in capital equipment which improves both energy efficiency and lowers emissions by at least the saving in energy use. Policy neutrality should apply across different industries, companies and technologies to get the best outcome per dollar spent. Favouring some activities over others has no reliable base to it. By favouring renewal energy, the Bill will inevitably steer the economy away from solutions which increase energy efficiency and, therefore, away from solutions which have the potential of significantly reducing overall emissions.

Picking Winners & Green Jobs

Picking winners with technology is fraught with risk. This risk is compounded when the technology is embodied in particular companies. The Bill (EM, p.16.) includes the establishment of a “new $10 billion commercially-oriented Clean Energy Finance Corporation to invest in renewable technology…”

The Obama administration in the United States established a $38.6 billion program to provide loan guarantees to companies creating green jobs. Depending on who is doing the calculation, each job so far, with about half the money allocated, has cost between $600,000 and $5 million. Solyndra, a solar panel maker, the recipient of $527 million of these funds, has just gone broke, taking the taxpayer money and 1,100 jobs with it. Solyndra found it could not compete with Chinese manufacturers, which should not have come as a surprise. A lesson should be learnt.

Quite simply, giving taxpayers’ money away to private companies often results in corrupt processes and, in any event, makes no economic sense. The market is well able to make judgements on the likely success of new innovative businesses – at the riskier end, that is the role of venture capital companies. Governments are not good at it – first, they don’t have the expertise and, second, those making the decision don’t have “skin in the game”. The end result is likely to be the loss of significant amounts of taxpayers’ money; corruption and disruption as companies without a future spring up to take advantage of government largesse and then close down; and all without long-term gain.

The fact is that very few green manufacturing jobs will be created in Australia. The world is competing for them. Almost every country is projecting the creation of many thousands of green jobs. International trade and specialisation will ensure that only those countries best at it will succeed. China is very good at large scale manufacturing, as Solyndra found, and is likely to take the lion’s share of jobs; with Europe and the United States coming up behind.

Australia’s comparative advantage will continue to lie in resource extraction, in related manufacturing and services; in some specialised manufacturing; and in a range of non-mining related services, education and tourism among them. Australia will not become a big manufacturer of green energy components and there is no point in throwing taxpayers’ money away in that direction, as the Bill will facilitate.

Cost and Complexity

Cost and complexity are at two levels in the Bill.

Reporting and compliance requirements will add a layer of dead-weight costs to business.

Numbers of new government entities will add dead-weight costs to taxpayers. As recorded in the EM, on my count, twelve will be established – variously called: regulator or authority or program or package or plan or corporation or agency or fund or council. The Productivity Commission will have a new role, effectively bringing the number to thirteen. Presumably many more public servants will be needed to oversee and administer these entities.

At question is the need for such complexity which both adds to compliance and administrative costs and complicates any unwinding that a future government may want to do. In my view, this should be reviewed, with a view to significant simplification, before any further progress is contemplated.

Household Assistance

A number of measures proposed in the Bill, under the title of “household assistance” (ME, p.14), advantage some Australians over others. It is envisaged that some sections of the community will be over-compensated for the price effects of the Bill; some partially compensated, and some not compensated at all. For example, self-funded retirees are not compensated nor are those earning above a specific level of income. What possible rationale could there be for that in a Bill whose only purpose is to reduce greenhouse gas emissions. The truth of the matter is that the Bill, quite inappropriately, is being used as a means of redistributing income from richer to poorer sections of the community. Now it is perfectly within the government’s purview to introduce a bill to redistribute income, but it should, properly, be quite separate and distinct from the Clean Energy Bill. Any compensation under the Bill should be designed to treat all households equally, so far as that is possible and practicable.

A (very) significant increase in the tax-free threshold (to $18,200 in 2012-13 rising to $19,400 from 2015 – EM, p.14) is proposed because, it is explained, the revenue raised from a carbon price “provides an opportunity to cut other taxes”. Again, this is very poor process. Any measure such as this should be part of a tax reform bill – quite separate and distinct; so that its merits can be separately considered, out of the context of carbon dioxide pricing.

Australia’s Competitiveness

The EM on page 10 says that “Australia produces more carbon pollution per head of population than any developed country in the world”.

There are two ways to look at this: one, as a badge of irresponsibility or, the other way, as Australia playing to its strengths. Australia has abundant supplies of cheap coal. Cheap coal is cheap energy; and cheap energy is one of the keys to having a competitive manufacturing sector. Some parts of Australian manufacturing are struggling even with cheap energy; take it away and the picture gets bleaker and reduces the potential for new manufacturing enterprises to develop and grow. It is important that Australia makes things, and the ups and downs of the exchange rate in keeping with resource prices, the distance from overseas markets, and a small population spread over a large land mass, do not help. Cheap energy helps, and overcomes some of the disadvantages that are not faced by manufacturing in the United States, in Europe or in Asia.

It is not good enough to give statistics on Australia’s carbon emissions on a world scale as a reason why we must act. We are not in the same position as other countries. We should act in Australia’s interests and that means understanding the present and, importantly, the future impact of artificially increasing energy costs for Australian manufacturing. Temporary assistance doled out (with an arbitrary element to both its quantity, 40 per cent of carbon tax revenue, and its allocation) to some existing industries, cannot make up for the damage the Bill will do to the future of Australian manufacturing.

In my view, it is irresponsible of the government to hamstring Australian industry, and its growth and development prospects, by moving ahead of a global enforceable agreement on capping and trading emissions. There is no reason why Australia, as a very small emitter overall, which can make no measurable difference to global temperatures, should take such a damaging and foolhardy vanguard role.

The comparison of the Bill with major reforms of the past (ME, p12) is disingenuous. Those reforms were all designed to invigorate the Australian economy. None set out to artificially penalise the competitiveness of Australian industry as part of making a so-called “fair contribution from Australia” (ME, p11). The Bill should be withdrawn in Australia’s best interests.

Peter Smith

Leave a Reply