- The Washington Times - Thursday, July 18, 2013

Recent stumbles in Europe and Australia to implement ambitious climate change programs are providing a “cautionary tale” for the Obama administration and U.S. lawmakers as they consider how to fulfill President Obama’s drive to reduce U.S. greenhouse gases.

A popular backlash against a carbon tax in Australia and major implementation problems with the European Union’s “cap-and-trade” carbon emissions trading program are raising fresh doubts about the two main policy vehicles that climate change advocates have backed to curb greenhouse gas pollution in the industrial world, analysts say.

Australia’s new prime minister, Kevin Rudd, vowed this week to kill the country’s hugely unpopular carbon tax, a move that is expected to save companies billions of dollars and translate into lower energy bills for the average household.

In his first major policy change since regaining control of the ruling Labor Party last month, Mr. Rudd announced that Australia would junk the direct tax on polluters and transition to the same cap-and-trade system that Europe uses to reduce emissions by next summer, which will lessen the impact on the economy.

But the European Union’s cap-and-trade emissions trading scheme, while more affordable than the carbon tax, has run into problems of its own, as the early “market” for polluting rights proved badly out of whack, sending designers back to the drawing board. Also, it may prove less effective at reducing emissions, critics say, and, ultimately, curbing climate change.

Around the world, politicians are finding it difficult to strike a balance between energy policies that effectively reduce emissions while not costing too much and irritating voters.

“Certainly, nothing about the failure of the European Union’s emissions trading scheme or the extremely unpopular Australian carbon tax is likely to encourage American politicians to want to go through the same experience here,” said Lee Lane, climate and energy policy specialist at the Hudson Institute.

Jeff Kueter, president of the George C. Marshall Institute, said such aggressive climate change agendas are proving to be “political suicide.”

“The Australian example is a cautionary tale for any policymaker in the U.S. who is thinking about a carbon tax,” he warned.

Second try

But environmentalists and some economists say the Rudd government’s plan to move forward with an EU-style emissions trading scheme does not indicate that the carbon tax was a failure or that the country is giving up on reducing its greenhouse gas output.

Canberra is merely speeding up a plan that was in place to move toward a cap-and-trade system, said Nathaniel Keohane, vice president at the Environmental Defense Fund.

“They’re talking about whether they should use one type of climate policy or another, but I think the important thing is that the Rudd administration is continuing to have a climate policy in place,” Mr. Keohane said.

In fact, Mr. Keohane suggested the cap-and-trade system — in which industries and factories can buy and sell credits to pollute — may be even more effective at reducing emissions, because it sets a roof on how much carbon an entire industry can pollute, where a carbon tax allows for as much emissions as industry can afford.

“The thing about cap-and-trade is, you set the cap and you’re going to meet it,” he said. “There’s a strong advantage with cap-and-trade systems because they guarantee a reduction in emissions.”

But the numbers paint a different picture. In Australia, the carbon tax, which went into effect in July 2012, reduced emissions by 6.9 percent in the first year, according to data published by consulting firm Pitt and Sherry.

By contrast, Europe’s emissions trading scheme has reduced emissions by about 10 percent over the eight years since it went into effect in 2005, and will continue to reduce emissions at a much slower rate of 1.74 percent each year.

Mr. Keohane said this has nothing to do with the effectiveness of the cap-and-trade program, but is merely a reflection of Europe being “less ambitious” than Australia was about reducing emissions.

He defended the cap-and-trade system, saying the difference between that and a carbon tax is “apples and oranges.”

Political manipulation?

But critics of the emissions trading scheme say this shows that the system is prone to political manipulation and has had little practical effect reducing emissions.

In fact, European leaders recently had to tweak the cap-and-trade system because the prices were so low that companies were undermining the program by purchasing more emissions than the government intended. Lower European emissions reflect more the depressed state of the continent’s economy in recent years than the effectiveness of EU policies set in Brussels, critics say.

The Hudson Institute’s Mr. Lane said cap-and-trade is a “watered-down” climate change program that “reduces the incentive to reduce emissions,” because the compliance costs are so much cheaper.

“In the end, the low price means that nothing really happens,” Mr. Kueter explained. “If you have a low price, there’s no incentive to do it — you just pass the price on to the consumer, and it’s a low cost so the consumer doesn’t change their behavior.”

On the other hand, Australia’s carbon tax has been effective in reducing emissions in a short time — but proved to be not so friendly to businesses or consumers. It also brought substantial political grief to its authors.

As Australian prime minister, Julia Gillard caused a political uproar last year when she introduced the carbon tax, despite a campaign promise not to do so. Her Labor Party took a big hit in the polls.

When Mr. Rudd, a former prime minister, staged a party coup and regained control of the party last month, “terminating” the carbon tax was one of the first things he said he would do. The move is expected to save the average household about $350 a year.

Since Mr. Rudd has taken over, Labor has surged in the polls and is now neck-and-neck with challenger Tony Abbott from the opposition Liberal-National coalition. Australia’s elections are scheduled for Sept. 14.

But Mr. Abbott has said if he gets elected, he will scrap the energy policy altogether, whereas Mr. Rudd is merely switching to a cap-and-trade system.

“He’s not the terminator; he’s the exaggerator,” Mr. Abbott told reporters. “He’s not the terminator; he’s the fabricator.”

These sort of rising political tensions over emissions taxes are exactly why Washington has not embraced Mr. Obama’s climate agenda in the president’s first term, despite the administration’s early enthusiasm for a cap-and-trade system, Mr. Kueter said.

“In this Congress, that shouldn’t surprise anyone,” he said.

Still, the U.S. has reduced emissions over the past few years, even without an emissions trading scheme or carbon tax on the books. According to the U.S. Energy Information Administration, energy-related carbon emissions were down 12.1 percent last year from 2007.

Meanwhile, energy policy advocates point out that Europe and Australia are merely working out the kinks in their plans to reduce emissions and that the U.S. can learn from their mistakes and develop an even more effective strategy to combat climate change.

“They’re learning as they go,” said Blaise Sheridan, a policy associate at the Environmental and Energy Study Institute.

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