Sunday, June 01, 2014

Climate change: Time to kill the ETS

Today at their annual conference, the Greens made a major climate change policy announcement: they want to kill the ETS and replace it with a carbon tax. I originally supported the ETS when it was passed back in 2008. But this is the right decision. Here's why

  • Firstly, and most obviously: the ETS doesn't work. A system which should make polluters pay instead does the reverse, both directly and through a number of financial rorts. So rather than disincentivising pollution, it encourages it;
  • While the system is in theory fixable (eliminate the free giveaways, force agriculture to pay its way rather than giving it an enormous public subsidy, auction units and legislate a downwards path for the supply), the costs of doing so are so high that you might as well throw it out and start again. Meanwhile, the public reputation of the scheme cannot be fixed.
  • The public sees no benefit from the ETS - it gets blamed for price increases, and doesn't even reduce emissions. A tax with revenue recycling is likely to enjoy greater public support.
I don't think a carbon tax is going to be without problems, but they'll be different problems from the ETS. And given that the politicians have effectively surrendered the ETS's greatest virtue - the ability to directly control the supply of pollution - then a carbon tax's biggest problem (that it controls supply only indirectly, through prices ) is basically nullified. Meanwhile, we get the benefits of simplicity, fewer rorts, and revenue recycling so the public sees an actual benefit from emissions reduction. We do face the risk that politicians will underprice carbon - but we know they'll oversupply units, so I don't see that as actually any worse.

The political reaction from National has been entirely predictable: they think it will be the end of the world if polluters are forced to pay their own bills, rather than being able to dump them on the rest of us. As for Labour, they refuse to comment. That's right: the party which should have the most to say about this (because they'll be having to work with the Greens and this will be the price of coalition) is staying silent. I'm not sure whether this is because of an FPP-thinking desire to strangle their potential coalition partner, or whether they genuinely have nothing to say about the greatest challenge facing our society - but either wya, by staying silent, they simply feed the perception that if you want any action at all on this issue, you have to vote Green. Good for the Greens - and very bad for Labour.