The Economics of Carbon Pricing

I spoke in parliament yesterday about one of the Labor Government's biggest economic reforms - putting a price on carbon pollution.
Matter of Public Importance, 26 June 2013

We really should not be surprised that the opposition is continuing this line of attack. For the past three years this has been their standard tactic to avoid engaging in any substantive policy debate. They hurl accusations at the government to whip up fear based on factual inaccuracies. In talking about the government's economic policies on confidence and the budget, the member for North Sydney appears to be completely oblivious to the economic reality in Australia. That is because the economic reality is an uncomfortable one for the opposition because it so clearly reflects the economic policy successes of the Labor government.

There is no clearer example of a successful economic policy than this government's carbon pricing scheme, and it is good to see the member for Wentworth at the table as I say that. Not only has the sky not fallen in since the scheme was introduced, but also we are now seeing early stages of its success. Every day it is becoming clearer that the carbon price has been the most sensible way to address climate change. Many of those opposite know in their heart of hearts, and indeed their own leader has said, that if you want to address climate change why not do it with a simple tax? Every day it is becoming clearer how effective this economic policy of pricing carbon is in addressing the challenge of climate change.

Since its introduction the carbon price has resulted in a 7.4 per cent drop in emissions in the national electricity market. That is almost 12 million tonnes less pollution from the electricity sector. Renewable energy generation is rising by almost 30 per cent. This is not a change in consumption, as those opposite would have you believe. We can contrast carbon intensity. So, in 2011-12 for every megawatt hour of electricity generated in the national electricity market, 0.92 tonnes of carbon pollution were released into the atmosphere. Since the price's introduction, the amount of pollution for every megawatt hour has gone down to 0.87 tonnes—a five per cent decline in emissions intensity in just a matter of months.

The carbon price has also had a lower impact on the cost of living than was expected. Those on this side of the House always said the impact of the carbon price on the cost of living would be moderate. It was projected at 0.7 per cent increase in the CPI, less than a third of the impact of the GST. But we now see new evidence that the impact of the carbon price on prices has been less than that.

Those opposite are well aware that Australia is the fourth-largest economy in the world—up from being 15th largest when this government came to power. We are the 15th largest polluter in the world. That is, if you look at more than 190 nations, Australia is the 15th largest polluter. Per capita, we are the largest polluter in the world. So, this gives us a great responsibility to act to tackle climate change. Climate change is not someone else's problem. It is Australia's. At no time is that better illustrated than in January this year. January 2013 was the hottest month on record in Australia since 1910. It should have left no doubt in the mind of any Australian, including the climate sceptics opposite, that climate change is real, is happening now and that we need to act. I love the fact that the tin hat corner goes off when I say that.

Opposition members interjecting—

Dr LEIGH:  The Bureau of Meteorology is to be believed. I know the member for Tangney has taken on the Bureau of Meteorology on Twitter but the climate records are very clear on this. We have experienced the hottest summer on record.

Mr Turnbull:  Madam Deputy Speaker, I have a point of order. The honourable member, for whom I have the greatest respect, has described that corner as a 'tin hat corner'. It is 'cockies' corner' and if they wear any hat it is an akubra.

The DEPUTY SPEAKER (Ms O'Neill):  Thank you for your contribution. The shadow minister will resume his seat. The parliamentary secretary has the call.

Dr LEIGH:  If those opposite had the same view on climate change as the member for Wentworth did, then my suggestions would be quite unjust. But when climate change is raised, it is from that corner of the House that we hear the greatest cries. We refer to 'dangerous climate change' and it is as though a set of crackers had gone of in the seats on that part of the House. We have a fixed price in our emissions trading scheme which will conclude in June 2015. From then the carbon permits can be auctioned and traded allowing the market to determine the carbon price. That will ensure that emissions are reduced in the cheapest and most effective way.

In July 2015 there will be an annual cap on the number of permits, which means there will be a cap on pollution. The current low market prices we are seeing in the European emissions trading system, to which we will link in 2015, does not detract from the environmental integrity of our pollution cap. Sound economic policy, sound social policy, sound environmental policy—that is this government's economic legacy.

The Leader of the Opposition has claimed that the carbon price would destroy thousands of jobs, that it would wipe Whyalla off the map. The reality is that since the price started employment has grown by more than 150,000 with the total number of jobs gained since Labor came to office now close to one million, at a time when unemployment has grown by 28 million worldwide. The latest consumer price index figures show the inflation rate was 2.5 per cent in the year to March—in the middle of the Reserve Bank's target zone for inflation. Westpac's economics team has estimated that the carbon price has increased the CPI by just 0.4 per centage points, less than Treasury's estimate of 0.7 per centage points.

The member for North Sydney, the Leader of the Opposition and the member for Wentworth know this, but it is a measure of the opportunism of the opposition that they choose to ignore it. The Australian Industry Group has '…long argued that an emissions trading scheme is the most flexible path to reducing greenhouse gas emissions at least cost'. Lord Stern, possibly the greatest world authority on the economics of tackling climate change, wrote a letter to the member for Lyne, which he has given me permission to quote in this place. That letter of 11 June 2012 recognises the benefits of Australia's carbon pricing scheme. Lord Nicholas Stern says:

‘The carbon price addresses a key market failure. Emissions of greenhouse gases represent an externality in that they cause great damage to the prospects of others. Australia is acting to address these crucial market failures.’

Nicholas Stern also sees our economic policy as good public policy:

‘A clear, credible and stable climate change policy regime represents a unique opportunity for Australia: it could drive a new energy-industrial revolution, similar to past waves of innovation and technical change, such as the continuing ICT revolution. There is great potential for new products, processes and technologies to be developed across the economy and society. This fits well with Australia's entrepreneurial culture. Indeed, it fits well with Australia's long tradition of innovation and culture of creativity. Institutions such as the CSIRO are already making strong progress.’

Nicholas Stern also notes Australia is also acting to address these other crucial market failures—for example, the $10 billion Clean Energy Finance Corporation could help to reduce long-term risk around financing for low carbon infrastructure.

The strength of Labor's economic policies is being recognised internationally, but not just in the UK. President Obama himself has recently said:

‘Nearly a dozen states have already implemented or are implementing their own market-based programs to reduce carbon pollution. More than 25 have set energy efficiency targets. More than 35 have set renewable energy targets. Over 1,000 mayors have signed agreements to cut carbon pollution.’

And as the Prime Minister noted in question time, 'President Obama remains strongly of the view that an emissions trading scheme is the most efficient way of dealing with dangerous climate change.'

But the commitment to a market-based mechanism for dealing with dangerous climate change also extends to China. Nominally a communist country, it saw a pilot emissions trading scheme launched on 18 June in Shenzhen. Pilots in Beijing, Tianjin, Shanghai, Hubei and Guangdong are expected to be launched this year. There is a deep irony in that the Liberal and National parties, which are nominally parties of the free market, are standing against the use of a market-based mechanism to deal with climate change, while nominally communist China is supporting a market-based mechanism. They are doing so for a very simple reason: it is the most efficient way of dealing with dangerous climate change.

Labor's economic legacy is a strong one. The Australian economy has grown 14 per cent since 2007, a period when the United States has only grown a couple of per cent and Europe has actually shrunk.

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