The Opposition’s shadow minister for Climate Change, Greg Hunt, wants the price of cars to go up to help cut the contribution carbon dioxide makes to global warming. He doesn’t put it this way, of course. But that would be the consequence of his preferred alternative to rises in the price of petrol if the Rudd Government uses its carbon cap and trading scheme to cut greenhouse gas emissions from cars.
The Opposition will only have a respectable case for leaving petrol out of a carbon cap and trading scheme if it can show that industries, such as power generators, won’t have to make bigger cuts to CO2 as a result. Unless the Opposition wants the price of electricity to go up by more than would otherwise be the case, it has show how it would ensure that petrol bears its fair share of cuts to emissions.
Hunt is making a better fist of doing this than his leader Brendan Nelson who seems fixated on the cutting the excise on petrol. Hunt would like to use government regulation to force manufacturers to the cut tailpipe emissions of CO2 from cars rather than rely on including petrol in a carbon trading system underpinned by regulatory caps on emissions. The Shadow Treasurer, Malcolm Turnbull, partly shares this view, but both may end up supporting a cut to the excise.
Hunt’s goal can be pursued by mandating improved fuel efficiency standards for cars, as has occurred in the US, and by mandating cuts in tailpipe emissions as in Europe. Following the lead of California’s Republican Governor, Arnie Schwartzenegger, more US states are mandating cuts to emissions. Some countries are also increasing registration fees on cars that are “gas guzzlers” or big emitters, and cutting them for low emitters. Most of these measures will make cars dearer, at least until the cost of the required changes becomes cheaper over time. All this means is there is often no costless way to cut emissions.
Hunt points to figures showing impressive results from mandated cuts to petrol consumption or tailpipe emissions compared to the outcome of relatively small increases in petrol prices under a carbon cap and trading scheme. Nevertheless, car manufacturers such as General Motors, Nissan/Renault and Toyota believe that rising oil prices, combined with big improvements in lithium-ion batteries, are finally making electric cars more attractive. Tailpipe emissions from electric cars will be zero. Emissions from recharging the battery will depend on the source of electricity and the ability to use surplus power in the grid.
Hunt is pushing Kevin Rudd to rule out a 30 cents a litre increase in the price of petrol if it is included in the cap and trade scheme due to begin in 2010. The Government will opt for a gentle start, so the initial price of CO2 is likely to be $15-20 a tonne, leading to an extra 4-5 cents for a litre of petrol. Hunt rightly argues that this is unlikely to have a big impact on consumption. However, rising prices still reinforce the effect of the reducing cap on emissions which is the primary factor in driving emissions lower in these schemes.
Usually, technological advances, or changes in an energy source, are the key to reducing emissions in the production of electricity or the propulsion of cars. But cuts in demand help. Improved efficiency standards for household appliances, and the insulation of buildings, lower demand for electricity and make it easier for power stations to stay within their emission caps.
With cars, the job of a cap and trade scheme would be easier with mandatory standards for fuel efficiency and tailpipe emissions. In addition, with the rest of the world, including China, adopting tougher emission standards, Australian car manufacturers will have to make the necessary investment or face losing export markets. They will also be under pressure to meet public expectations, just as they did with the introduction of catalytic converters in the 1980s to lower other harmful tailpipe emissions.
Consequently, there is no compelling reason to stop the Government and the Opposition from including petrol in a cap and trade scheme and from imposing mandatory emissions standards on car manufacturers. At this stage, however, only minimal changes look likely.
The international price of oil might have eased back when trading starts. If not, perhaps an offsetting cut in excise will make the inclusion of petrol in a cap and trade scheme a little more politically palatable. But where does it end? Should a subsidy offset a modest increase in the price of electricity? If so, these offsets will undo the contribution rising prices make to cutting emissions.
Apart from helping compensate low income earners, there is ample support in mainstream economics for putting much of the revenue raised from auctioning emissions permits into the development and deployment of new low emissions technologies to help lower costs over time. There is such justification for subsidies which undermine the polluter pays principle at the heart of an emissions cap and trading scheme.
Postscript: The Democrats have rightly seen themselves as legislators during their 31 years in the senate which ends today. When they held the balance of power, they rarely blocked legislation outright, but often suggested amendments that produced distinct improvements. The West Australian senator, Andrew Murray, was one of the best. A moderate, always thoughtful, contributor to the parliament, his departure is the nation’s loss.
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