Monday, June 14, 2021

Climate Change: The return of feebate

The government has resurrected its feebate policy to lower transport emissions, taxing dirty vehicles to subsidise clean ones. Good. We've known for a long time that passive measures such as fuel economy ratings and up-front labelling of lifetime costs weren't enough, and neither was the ETS (which adds just a couple of cents a litre - a "signal" lost in the market's noise). More active measures are required. Feebate is a good one, a perfect application of the "polluter pays" principle. And because the polluters are paying, it will cost the government next to nothing.

But won't it just free up space in the ETS cap, resulting in no real reduction in emissions? Economic purists keep saying this, and its predicated on the idea that the ETS works. Reality is already telling us that it doesn't, at least not at current prices. Partly this is because, contrary to economists assumptions, actual people are not perfectly omniscient rational cost-benefit calculators able to asses the long-term costs and benefits of every purchase decision and factor in the potential for rising carbon prices and climate apocalypse on their future selves. Partly its because the ETS is so full of subsidies - including a "cost containment reserve" which just hands out extra permits if polluters pollute too much and prices get "too high" - as to make it useless. And partly its because the government is internally valuing carbon at $150 a ton, roughly four times the current ETS prices, and policy looks very different at that price. But mostly, its because nobody cares about purism anymore. Those fuckers have led us down the garden path for the last thirty years, stopping all practical policy in pursuit of their "perfect system", which when finally implemented, turns out not to work at all in practice. People who are serious about solving this problem - rather than defending a theological position - recognise we need to throw the kitchen sink at it. And that's what the government is doing. That said, to avoid any possibility of this happening, we should rip the estimated savings out of the ETS budget in advance, just to make sure that reductions in transport emissions don't just see Huntly burn more coal. But I suspect that the purists' response would be "not like that!" Which tells you that they're not really about emissions reductions at all, but delay and denial.

And speaking of the kitchen sink: obviously, this is only part of a solution to transport emissions. We need more. The good news is that the government seems to be doing it, with the first steps towards pushing the massive mode shift to public and active transport, plus a biofuels requirement to reduce the emissions of the fossil vehicles still on the road. There are obvious components missing: an e-bike policy to push the mode-shift, and a scrappage scheme to get rid of older, dirtier vehicles. But those look quite economic at $150 a ton, and I think they'll come quite quickly.