26 September 2010

Treasury to Coalition on climate change

The Treasury seems to have prepared some pretty blunt advice on climate change policy for an incoming Coalition Government, according to an article by Sid Maher in this weekend’s edition of The Weekend Australian (see report Big new tax only option, Abbott told here). 

I have been involved in the writing of these briefs for an incoming government and their presentation to the new Ministers. They are, properly, scrupulously polite. On the whole they take the announced policies of the incoming government as a given, and direct themselves to how those policies might most effectively be implemented. Only rarely are incoming governments briefed that the policies on which they have campaigned are, in effect, ill-advised, and when it does happen, as in this case, it is usually with good reason.

According to Maher, the briefing book prepared for an incoming Coalition Government warned that the commitment to reduce national emissions to 5 per cent below 2000 levels by 2010 “cannot be achieved without a carbon price unless significant economic and budget impacts are to be imposed”.

The article goes on:

"A broad-based market mechanism which prices carbon, driving large-scale abatement through long-term investment in low-emissions technologies and changes in behaviour by both producers and consumers across the economy, is the only realistic way of achieving the deep cuts in emissions that are required," Treasury said.

"A market-based mechanism can achieve the necessary abatement at a cost per tonne of emissions that is far lower per tonne of emissions than alternative direct action policies."

The briefing said the sooner an emission trading scheme could be implemented the better. "Too much time has already been wasted - for which the Australian community will necessarily pay a high price."

Appropriately for parties that describe themselves as conservative, the Coalition parties, when it suits them, loudly proclaim the virtues of markets, often preceded by the word “free”, but this position seems to be ideological (faith-based) rather than analytical (derived from established principles) because they seem to struggle to understand what markets do, actually.  What Treasury is trying to tell them in the above paragraphs is Economics 101: the function of markets is to allocate resources efficiently, the corollary of which is, if you want to allocate resources efficiently, you will need to rely on market mechanisms.

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