Canberra's Carbon Awakening

THE WALL STREET JOURNAL ASIA

A funny thing happened on Canberra's way to cap-and-trade carbon regulation -- Australians noticed how expensive it would be. The Obama Administration, which is contemplating its own emissions trading scheme, could learn a lesson or two from this political debacle.
Prime Minister Kevin Rudd's Labor government unveiled its draft Carbon Pollution Reduction Scheme on March 10. Canberra wants to sell emission permits to private businesses, raising 11.5 billion Australian dollars (US$7.6 billion) in the first two years. The government would then redistribute the money in transfer payments to households and certain industries to offset the costs.
And the costs are huge. Australians will pay for this once with a 1.1% increase in prices, and then keep paying in the form of a 0.1% cut in average economic growth until 2050. That's probably a conservative estimate, given that almost every corner of the economy would be taxed by higher energy prices.

Some industries, like mining, have seen the potential economic problems with this all along. Consider the as-yet uncalculated compliance burden. Private companies will be required to determine whether their carbon emissions reach the threshold beyond which a company is subject to the law and then figure out how many permits they need to buy. If a company gets it wrong, or if the government alleges it has, the business will find itself facing a fine of up to A$1 million.
Unions and business lobbies like the Business Council of Australia -- which had once supported cap and trade in theory -- are now voicing reservations. Even without the additional tax of a cap-and-trade regime, Australian unemployment hit a four-year high of 5.2% last month and is expected to rise further in coming months. Unions and business advocates don't do much good when there aren't jobs to fill, or companies to lobby for.
Politicians of all stripes are backing away fast. Opposition Liberal Party leader Malcolm Turnbull, who backed a limited emissions trading scheme in the past, says Mr. Rudd's plan is wrong for the economic times. So do his coalition partners, the Nationals. On the other extreme, the Green Party, which controls five swing votes in the Senate, doesn't think the Rudd plan is green enough. That's despite the fact that the scheme would cover around 75% of national emissions, compared to the "only" 40% of emissions the European Union covers in its own (ineffective) cap-and-trade program.
The hisses have left the Rudd government scrambling for cover. Climate Change Minister Penny Wong is trying to gain parliamentary votes by persuading Greens that a plan is better than no plan. Meanwhile, the proposal will have to survive scrutiny by no fewer than three hostile committees in the Senate. Mr. Rudd himself has remained firm, saying earlier this month that he's "100% committed." He's pushing a rapid timetable, hoping to see the scheme implemented next year.
When he proposed his plan on the campaign trail two years ago, Mr. Rudd didn't wager on a global recession that would focus minds on the costs of his green goals. And when they voted for him, perhaps Australians didn't appreciate the full costs. But now they are beginning to, especially given the paltry benefits. Australia contributes only 1.5% of global greenhouse gas emissions. With no emissions plans from the likes of India, China or Brazil in sight, Australians would be making their exports more expensive for negligible -- if any -- environmental gain.
Politics being politics, Mr. Rudd's plan isn't quite dead yet. There is always a chance the government will reach a deal with its Green Party allies. But the political uproar is itself instructive. The left has often assumed it can conceal the costs of its environmental ambitions. At least in Australia, voters aren't so easily deceived.