Climate Change Can’t Be Stopped, But We Will Adapt

Julia Gillard is half-right. The world is acting on climate change. But not acting to stop it – to adapt to it. In the 1920s, an average of 240 people out of every million died every year from extreme weather events: drought, flood, windstorm, landslide, earthquake, extreme temperatures and wildfire.

According to data from the International Disaster Database, last decade that figure dropped to just three per million.

Actually, the numbers are even better than they first look. The 20th century saw a 99.9 per cent reduction in the risk of death from drought. And the risk of death from floods came down almost as much: 89 per cent. Floods and drought – two of the most commonly mentioned consequences of climate change. We’re getting much better at managing and surviving them.

The causes of this remarkable decline in mortality are many. Better transport and communications help move food to where it’s needed, quicker. Globalised trade gives producers an incentive to do so. Hardy modern agriculture can survive not just long-term climatic shifts, but the more pressing problem of bad growing seasons.

Better flood control and prevention, weather forecasting and more responsive emergency services all help reduce the damage from floods. Never have we been better at protecting ourselves against nature.

If the past is any guide to the present, that’s how we’ll deal with further changes in climate (whether caused by human activity or not): through adaptation. Especially considering there’s next to no chance of serious international action to reduce carbon emissions. Sure, if Australia introduced a carbon price now, we would not be “leading the world”. Other countries have introduced their own. But there’s action on climate, and then there’s “action on climate”.

The only purpose of carbon pricing programs is to achieve deep emissions cuts. By that measure, they’ve been a dismal failure. Those jurisdictions that have introduced them have been slowly backing away from serious reductions. The coalition of 10 American states acting on climate that Gillard often cites will soon be nine: New Hampshire is planning to withdraw.

European climate policy is pushing bravely ahead. But if nuclear power is off the table after the Fukushima scare then cutting emissions there will be a dead end. As George Monbiot wrote in The Guardian last week, “the energy source to which most economies will revert if they shut down their nuclear plants is not wood, water, wind or sun, but fossil fuel”.

And China has been increasing its carbon dioxide emissions by an average of 12 per cent every year this century. By 2020, China will be emitting nearly 500 per cent above its 1990 levels, even after their highly publicised emissions reduction efforts.

The goal of public policy must always be to increase human welfare. One lead author of the Intergovernmental Panel on Climate Change, Richard Tol, has pointed out that many studies of the economic impact of climate change have excluded the possibility of adaptation entirely – as if potential sea level rises will be met by humanity with a stoic fatalism, rather than levies and insurance. (Tol, it’s worth pointing out, is no climate sceptic.)

Nor do enough studies consider the positive effects of temperature increases. In a warming world, marginal land can become productive for agriculture, just as often as productive land can become marginal.

Given how we’re getting better at coping with extreme weather events, there’s reason for optimism. Taking all peer-reviewed studies of the economic consequences of temperature rises into account, Tol estimates that climate change could cost just a few per cent of global GDP over the next 90 years. That’s about one year’s economic growth. The cost of climate change is the equivalent of a bad recession, spread over nearly a century.

With the economic cost of climate change so low, Tol suggests (at most) an optimal carbon price would be $2 per tonne – a lot less than the $26 to $40 per tonne suggested by the government and commentators. But at $2, the cost of collecting such a tax would seriously eat up its revenue; hardly worth doing at all, and a bit trivial to be ”major economic reform” on which Julia Gillard could build her legacy.

The most damaging consequences of IPCC-projected climate change will be in the Third World. But developing countries aren’t disproportionately vulnerable to climate change because they’re in more dangerous parts of the globe, but because they’re poor.

Wealth and sturdy institutions are critical for handling natural disasters and climatic changes – as we’ve seen in the difference between the 2010 Haitian earthquake and the 2011 Japanese earthquake. This makes the real climate change question a question about economic development. How can the world’s poor get rich quick?

If her government is serious about tackling the consequences of climate change, that should be the one question exercising Julia Gillard’s mind. Her carbon price is, at best, a distraction.

Adapt To Survive

The Labor party once made great fun of John Howard’s distinction between core and non-core promises. Julia Gillard has now added to that taxonomy: a promise so intolerably core it has to be explicitly denied during an election campaign.

It’s damned hard to reconcile August 2010’s ‘There will be no carbon tax under the government I lead’ with February 2011’s ‘The two-stage plan for a carbon price mechanism will start with a fixed price period for three to five years.’

Labor’s goal during the 2010 campaign was to get over the line and govern another term. Just like any political party. But where Labor broke new ground was by being happy to say anything or promote any idea to get there, no matter how divorced from its own philosophy or the wishes of its supporters.

Disavowing a carbon tax is what US political consultants told Gillard to do. So that’s what Gillard did, no matter what she or her party thought.

Of course, the Prime Minister’s reversal of what seemed a pretty explicit promise not to price carbon says nothing about the rightness or wrongness of that policy. But it says a heap about her approach to politics. She’s very, er, political.

Careful policymaking would be a distraction from the important business of political manoeuvring.

The Greens might bear this in mind as they negotiate with Gillard and her ministers. Any deal is one grumpy focus group or James Carville phone call away from being discarded.

Nevertheless, if all the government’s legislative cards fall in place, after July 2012 Australia will have a price on carbon. That’s almost exactly when poor old Brendan Nelson suggested the Coalition under his leadership would implement one.

Nelson’s policy had an important condition: international action on climate change. It was a more innocent, optimistic time. Kevin Rudd and Malcolm Turnbull also spent 2008 and 2009 rabbiting on about Copenhagen and international agreements.

Yet in 2011 the closest Gillard comes to mentioning the molasses-like movement to international agreement is a vague ‘the global economy is shifting’. Just vaguely shifting, in general.

This modified rhetoric places the government’s climate policy at one remove from its purpose: to combat global climate change.

For this government, a carbon price is no longer about stopping, reducing or slowing global warming – a task which would require concerted, co-ordinated global action. Now it’s just the season’s most fashionable economic reform.

Gillard has implicitly admitted the chances of international agreement on emissions action in the foreseeable future are near zero. The chances that the unco-ordinated and compromised carbon initiatives now being introduced in some countries will have a significant impact on the global climate are even lower.

Don’t underestimate the magnitude of a transition to carbon-free energy production. Or the economic and social change that transition would cause.

The Australian government’s carbon price will start small. But if it is to make any dent in our carbon emissions it will have to be steadily raised, year after year.

Even during the ‘fixed-price’ period which Julia Gillard announced would precede the full emissions trading scheme, the carbon tax will still increase ‘annually at a pre-determined rate’.

Any government facing complaints about the cost of living – justified or unjustified – will find that very challenging.

A Galaxy poll commissioned by the Institute of Public Affairs last week showed that 66 per cent of Australians were unsure about the relationship between human-induced carbon emissions and global warming. This figure has remained steady for at least 12 months.

Combine this finding with survey data revealing that even people who fully accept the dangers of anthropogenic climate change are unwilling to pay the extra money a modest carbon price would demand, and you have quite a political pickle.

Gillard may initially win some political points for a courageous and aggressive stand on climate action. But those points will disappear when higher energy bills are mailed out. Especially since the Prime Minister has effectively taken personal, political responsibility for everybody’s electricity costs.

Hers is a pickle shared by every government which wants to act on climate.

The situation is even more serious in the developing world. Energy poverty is a serious development problem. Traditional home methods of producing energy (burning wood, agricultural residue and animal dung) are a major health hazard for the world’s poor. Economic growth is held back by unreliable or inaccessible electricity.

So no responsible developing world government would penalise large-scale energy production significantly enough to have an impact on the global climate.

The only policy position sensitive to these political realities is a focus on adaptation. Adapting to climate change – whether natural or anthropogenic – is the only approach which accommodates questions of political economy.

Sure, it’s easy to imagine an ideal world where a mechanism can be developed which prices the externalities of pollution efficiently, consistently and effectively – where the best legislators can team up with the best scientists and the best economists to write the best laws which take into account the best research, unimpeded by politics and democracy and the mendacities of self-interest.

But that’s not our world.

If you fully accept the Intergovernmental Panel on Climate Change’s dire scenarios, there’s still reason for optimism. The economist Indur Goklany, poring over the UK’s Stern Review, found that human and environmental wellbeing in the foreseeable future will be, on balance, higher in a ‘richest-but-warmest’ scenario. His argument should carry weight: Goklany has been a long-time delegate to the IPCC. He argues that tackling the consequences of climate change is far more efficient than trying to prevent it.

That is, a rich world is better able to cope with the adverse effects of any climate change than a poor one. When it comes to climate change, it is far more efficient, and far more practical, to treat the symptoms.

And it’s the only approach which takes into account the raw, unforgiving logic of political action.

Artificial Markets: Miles Behind The Real Deal

The Federal Government and its faithful Opposition are falling over each other to say their own climate policy is market friendly.

On Lateline last week, Penny Wong and Greg Hunt each argued theirs was the most faithful “market mechanism” which could be devised.

Perhaps this should be taken as a positive – recognition by both sides of politics that voluntary trade in a free market is the most efficient way to allocate resources. A few decades ago this would have been a very different debate.

But a crucial distinction has to be made. A market mechanism does not make a free market.

Indeed, while market mechanisms like an emissions trading scheme are superficially appealing – it has all the buying and selling that we see in the most dynamic sides of capitalism – they can only ever be a crude approximation of the real thing.

Sure, it looks like a duck. It quacks like a duck. But it swims like a robot which has been engineered to swim like a duck.

Ducks and robo-ducks are different. So are genuine and artificial markets.

Genuine markets emerge, spontaneously and dynamically, to meet demands or to create them. The market order which develops seems harmonious – balanced, as if, by an “invisible hand”.

But of course there is no invisible hand guiding the marketplace. Ideally, the market is only limited by general rules: private property, protection against fraud, and enforcement of contracts.

There are just billions of people working to produce things for other people to buy, and buying things which other people have produced for them.

It works. The efficiency, wealth, and increase in living standards that results from this capitalist dynamic have been recognised, implicitly, by every side of politics.

An artificial market like the proposed emissions trading scheme is a completely different beast. It has a very visible hand indeed.

Every side of the market is created by legislation. The Government nominates the product. The Government nominates the customers. It nominates the producers. The Government controls the supply and restrains the demand. Then it regulates the whole thing over the top.

Someone has to design the rules of the game, the limits, and write the laws which govern them.

The contrived structure of an emissions market leeches away much of the dynamic efficiency it is supposed to encourage.

Markets out in the wild have booms and busts all the time. Artificial markets are even more flimsy and prone to failure. No planner could predict ahead of time the negative consequences of every single line of legislation which will construct this artificial economy.

On The Drum on Friday, the ABC’s Chris Uhlmann speculated how soon the first great crash of this huge artificial marketplace would occur. He could have added these crashes have precedent. Two of the most dramatic corporate collapses in the United States in the last decade have been deeply involved in artificial markets and were pioneering carbon trading.

Enron was an energy company, sure, but its main business was broking – it wasn’t producing much energy, but trading a lot.

And when it traded energy, it was gaming the regulatory environment created by the inconsistencies of Californian electricity “deregulation” in 1998. The opacity of Enron’s business operations mirrored the opacity of the law which created the energy commodity market. And as the firm got increasingly comfortable trading commodities which were for all intents and purposes fictitious, it started trading emissions credits.

Unsurprisingly, Enron was one of the biggest advocates of the Kyoto Protocol.

Enron specialised in markets which were created and managed by governments and regulators. (They also traded in broadband, another highly regulated, imitation market.) Those markets were artificial, the corporate collapse in 2001 was not.

So too that other iconic implosion of recent time: Lehman Brothers. Collateralised debt obligations weren’t the only complex financial instruments Lehman Brothers was buying and selling at a far remove from their underlying value. The financial services firm was looking to be “the prime brokerage for emissions permits”. Like Enron, Lehman too wanted a price on carbon, because then there’d be money to be made selling carbon derivatives.

Much goes on in the dark regulatory complexities of market mechanisms.

Nevertheless market-based schemes are still, on a theoretical level, an interesting way to resolve a public policy challenge.

If you ignore the emissions trading scheme’s crippling complexity, the inevitable exemptions, the free and subsidised permits, the compensation to lower- and middle-income households, the politics, the rentseeking, and the possibility of bureaucratic or regulatory error distorting the framework even further, then perhaps a market is better than no market at all.

Well, it would be, if anybody thought it could work.

The idea behind carbon trading is to neatly arrange a regulatory framework, then let the profit motive and competitive pressures choose the most efficient suite of energy policies. Set and forget.

But there’s been no suggestion that the substantial subsidies and regulatory requirements for renewable energy will be lifted once an emissions trading scheme is implemented. The Renewable Energy Target, for one, will stay. The Government plans one of the biggest economic changes in Australia’s history, but not even they have any faith in it.

A future emissions trading scheme will feature lots of buying and selling, sure. But while it will have all of the risks of a marketplace, it will confer few of the benefits.

The Truth About Energy Subsidies

Is the Australian Government subsidising the fossil fuel industry?

So said the Climate Institute, when they heard Julia Gillard was scrapping solar schemes to pay the flood bill.

This claim shouldn’t be casually dismissed.

Because it’s one thing for fossil fuels to be cheaper and more efficient when all energy technologies are competing on a level playing field.

But it’s quite another if government policy is artificially boosting the competitiveness of fossil fuels. If, in other words, taxpayers’ money is being used to boost the dirtiest technologies and suppress the cleanest.

Would it be unfair to describe this argument as typically “neo-liberal”? The Climate Institute’s claim suggests a free market in energy, where the Government treats all forms of energy production neutrally, would be a more environmentally friendly one than what we have today.

One writer on Greenpeace Australia’s website condemned “taxpayer handouts” being used to “line the pockets of the wealthy fossil fuel industries”. Remove corporatist government subsidies – instantly get a greener Australia.

It’s a shame these claims don’t really hold up.

The definitive version of the subsidy argument is contained in a 2007 Greenpeace paper written by a researcher at the University of Sydney’s Institute of Sustainable Futures.

And the Institute of Sustainable Futures’ definition of what constitutes a subsidy to the energy industry is broad, to say the least.

Take, for instance, what the paper describes as the largest subsidy to the energy industry – roads. In the author’s view, roads are a government subsidy to private transport, therefore a subsidy to petrol, therefore a subsidy to fossil fuels.

Never mind buses use roads too, or bike lanes are being built into roads across the country – two climate-friendly modes of transport which would struggle without roads.

But, on the facts, this subsidy claim is wrong. The Department of Infrastructure’s own figures show the money raised by road and vehicle-specific taxes ($16.2 billion in 2006-07) is much more than is spent by all levels of government on roads ($12.1 billion the same year).

Anyway, it’s hardly reasonable to describe government investment in roads as a direct subsidy to the energy industry. Unless you are happy to describe government investment in health as a subsidy to the pharmaceutical industry. Or government investment in schools as a subsidy to the whiteboard industry.

Certainly, other subsidies exist, but it’s unclear why they would be of deep concern to environmentalists.

The Greenhouse Gas Abatement Program, for one. Or the Low Emissions Technology Demonstration Fund, which supports a range of carbon capture projects. There are more.

These are programs specifically designed to make energy more environmentally friendly. It’s a bit rich to insist, on the one hand, the Government should encourage cleaner energy, and, on the other hand, criticize the Government for implementing projects which try to.

It’s hard to see many environmentalists congratulating a government which eliminated those sorts of programs. Sure, Greenpeace would like those programs to be replaced with fully renewable energy programs. But subsidies are either bad or good. It seems Greenpeace would like their elimination to be contingent on introducing other subsidies. Hardly the most principled anti-subsidy position.

Complicated tax arrangements for company cars are often cited as subsidies, without the proviso that those arrangements are designed to ensure company cars are treated exactly the same as all other forms of income.

Similarly, some environmentalists are also upset about fuel tax concessions for primary producers being available to miners. But, like it or lump it, miners are primary producers too. The fuel tax concession is not an energy subsidy. Quite the opposite. It’s a measure to ensure the tax office treats all forms of production the same.

Instead, the environmentalists just want to penalise miners for existing.

Nor does Australia’s lack of a carbon tax constitute a subsidy for energy. Well: any more than our lack of an idiot tax constitutes a subsidy for idiots. The Gillard Government argues the externality of carbon pollution should be internalised through some sort of price mechanism. But the absence of that mechanism is not a “subsidy” in any useful sense of the word.

This is not to say that, globally, subsidies to fossil fuels aren’t a problem. The 20th century’s mania for central planning left its mark on the energy sector.

Electricity and petrol was as subject to misguided industry policy as any other industry. The global energy landscape is a mesh of tax breaks, tariffs, quotas, preferential planning and regulatory controls price controls, grants, government investments, rebates, and outright subsidies.

Government support for fossil fuels in the last century was as fashionable as government support for renewable energy is today.

If we were smart, we would approach this modern fashion much more cautiously, keeping in mind the perverse consequences of the fashions of past.

According to the OECD, eliminating global fossil fuel subsidies would reduce energy-related carbon dioxide emissions 5.8 per cent by 2020 compared to the baseline scenario. Because subsidies to favoured industries are inefficient, the world economy would be richer to boot.

The OECD is very careful defining what constitutes a subsidy.

The Climate Institute and Greenpeace aren’t. They want to make a political point: that free marketeers, so diligent finding government programs to cut, deliberately ignore taxpayers’ money being handed to their fossil fuel mates.

Cutting those subsidies would be the lowest possible hanging fruit of emissions reduction. If they existed, doing so would have bipartisan support.

But apart from a few emissions reduction programs – which most environmentalists would oppose eliminating – they are nothing more than green mythology.

Can’t Compare: Emissions Trading And Reforms From The Past

It’s now an accepted part of political folklore: the era of reform is over. Our boldness has gone. No longer are we able to push through major economic changes. We have no appetite for challenge.
Australian politicians are hesitant to take risks, intimidated by polls, and the Government is cripplingly scared of focus groups and opposition.
That’s the broad outline. Fill in the details yourself.
This story has a lot of truth in it. In his recent Quarterly Essay, George Megalogenis carefully and convincingly documents the way federal Labor reacted to falling opinion polls in ways which only made those opinion polls drop further.
But the end-of-reform tale pivots on one critical comparison which doesn’t hold up – that between the liberalisation of the Australian economy in the 1980s and early 1990s, and the failure to (so far at least) introduce an emissions trading scheme.
The parallels are admittedly seductive. The decade-long program of financial deregulation, reduction in tariffs and industry protection, privatisation and corporatisation of state enterprises, and labour market reform required unheard-of boldness. It caused pain. Industries which had relied on protection were no longer viable, workers were exposed to the stresses of competition and new private operators took knives to the bloated payrolls of formerly public sector businesses.
The emissions trading scheme will bring hurt too: making some forms of energy production unprofitable (with the attendant risk to jobs) and add substantially to everybody’s power bills. The government that introduces it will be a bold government.
But that’s where the similarities end.
The reform of the 1980s had one clear and unambiguous goal: to clear up a century of accumulated, unnecessary or entirely counterproductive regulatory burdens. These burdens were holding back Australia’s economic growth, limiting personal income, and entrenching private interests at the public expense.
The goal of an emissions trading scheme is very different: to impose burdens on the Australian economy.
Not a bug, a feature. Placing new costs on the cheapest energy will inspire people to reduce their energy use. It will also make technologies which were uncompetitive in a world of cheap coal suddenly competitive.
That’s the plan, anyhow.
In practice, the emissions trading scheme was rife with exemptions, subsidies, wealth transfers and policy distortions which favoured some industries above others. Emissions-intensive, trade-exposed industries were eligible for assistance, so the definition of what constituted “emissions-intensive” and “trade-exposed” was pretty important.
The lucky winners, according to a paper released by the Department of Climate Change in October: Alumina refining (of which there are four companies operating in Australia), aluminium smelting (also four companies), carbon black production, (one company), carbon steel from cold ferrous feed (one company), clinker, copper, ethylene, flat glass, fused alumina, and glass container production, among others, are now considered “highly emissions intensive” and “trade exposed”.
Other businesses, like tissue paper and white titanium dioxide pigment production, are considered to be trade exposed but only moderately emissions intensive. They get a different rate of assistance.
Then there were the free and subsidised emissions permits. And the household assistance payments to compensate poorer Australians for higher energy costs.
The end result of all this regulatory complexity, new subsidies, and tax-welfare churn shouldn’t remind us of the great reform movement of the 1980s. It should remind us of what that reform movement tried to clear away.
Treasury suggests emissions reduction will cost Australia’s economy 2 to 3 per cent of GDP over the next 50 years.
That too compares poorly with the great reforms of the 1980s, which were designed to boost, not restrain, economic growth.
The pain of deregulation was limited to companies which had profited at the expense of the rest of everybody else. Like the tariffs which kept inefficient clothing companies in business and inflated clothing prices. The pain of emissions reduction will be borne by all Australians who use energy.
In a speech last week, the Chairman of the Productivity Commission, Gary Banks, tackled just this question: what constitutes “reform”?
At the very least, reform has to be productivity-enhancing. Reform has to achieve its goal – if carbon pricing is to be considered a success, it has to go some way to mitigating global emissions and then climate change. And reform has to be long term – not so precariously controversial it will be eliminated at the next change of government, like, for instance, WorkChoices.
Banks also cited the Baby Bonus, light globe bans, FuelWatch, Grocery Choice, and Cash for Clunkers as “reforms” which failed to meet these modest but important criteria.
Emissions trading would fail too. No emissions trading proposal before Parliament could achieve its ambitious goal. And no proposal before Parliament would be “sustainable”; that is, would be able to survive into the long term without major revision.
Banks does not go so far as condemning emissions trading. But his argument for action on climate is half-hearted: “perhaps the strongest economic argument for carbon pricing is that it would displace more costly alternative measures targeted at particular products or technologies.”
In other words, it would be marginally better than the even-worse things we’re doing now. That’s hardly an inspirational argument for bold new reform.
How desirable you think carbon pricing is will depend on your view of the science of climate change and the likelihood of significant global action.
But to compare it to the great reforms of the 1980s and 1990s is a mistake. It does a disservice to the legacies of Bob Hawke and Paul Keating. And it gives emissions trading a sense of historical inevitably which this compromised, undercooked, and ineffective policy has not earned.

Carbon Price Makes No Policy Sense

Gillard will need a big policy win this term. Even better if it’s a win on the policy that sank her predecessor.

So it was hardly surprising that the call by Marius Kloppers of BHP Billiton for a carbon tax was quickly affirmed by the new climate minister Greg Combet.

Julia Gillard announced the makeup of the oddly secretive climate change committee yesterday. She’s getting all her ducks in a row for a price on carbon of some description.

But domestic politics isn’t the main climate game. International politics is. And right now, the prospects for a global agreement on climate change couldn’t be lower.

Diplomats are pouring as much cold water as they can on hopes for securing an agreement in Cancun in December. “The likelihood of a continued deadlock remains significant”, said the director of the UN Framework Convention on Climate Change last week. George Monbiot wrote in The Guardian, “The closer it comes, the worse it looks.”

You don’t have to be a climate change sceptic, denier, pessimist, realist, optimist or scientist to recognise dealing with real or potential consequences of greenhouse gas emissions is the ultimate collective action problem.

As it’s a problem of collective action, it makes little sense for countries to “go it alone” – particularly nations like Australia, who would easily see their carbon emissions move to jurisdictions which aren’t playing along.

The government implicitly agrees. It’s why we have two proposed emissions reduction targets – an unconditional 5 per cent for now, and 15-25 per cent if there is a binding global agreement to do so. The difference between these two targets is an admission that reduction is substantially less meaningful without international action.

Treasury agrees too. Their modelling of the Rudd government’s Carbon Pollution Reduction Scheme in October 2008 assumed all countries around the world would implement the same scheme at the same time.

There’s a precedent for international policy action: the sixty year long quest for multilateral free trade agreements. Like emissions reduction, trade has been the subject of numerous international conferences and diplomacy.

But unlike emissions reduction, free trade is unambiguously in the self-interest of every nation. This is true even if other nations do not open their markets. In a world of high tariffs and subsidies, a country which unilaterally lowers trade barriers – as Australia did – is still better off.

Despite this, the fight for freer trade through global agreements is excruciatingly slow and now seems to be stagnating.

Those failures say nothing of the worthiness of the free trade project. Just that international politics is an ineffective and frustrating mechanism to pursue policy goals.

That’s not a good omen for a global treaty on emissions reduction, where countries can benefit by avoiding their emissions reduction obligations. Unlike free trade, it’s in their self-interest to cheat.

Recognising that is not being a sceptic about climate science, but a realist about politics.

Certainly, many countries are doing little bits of climate change mitigation here and there. We’ve had a national Mandatory Renewable Energy Target for nearly a decade now, and countless subsidies and programs.

We’re hardly alone. Even China is talking about imposing a domestic carbon trading scheme. And on Friday last week, a senior Chinese climate negotiator declared his country would seek a binding climate treaty by the end of next year.

Sounds definitive, but there’s more to that declaration than a headline may suggest. The Chinese blame the Americans for wrecking Copenhagen: “The biggest obstacle comes from the United States”, according to their negotiator. But after China’s calculated theatrics at the Copenhagen summit, it’s hard to take them at their word. Chinese statecraft is increasingly cantankerous and contrarian. Big statements have to be seen through that prism.

Yes, China is cleaning up its coal-fired power stations – as they should – but their average efficiency is still well below those in the developed world.

And the country has generous subsidies for renewable energy. There’s more to those than the headlines suggest too: a report in the South China Morning Post last week pointed out they badly underperform. Wind turbines turn for an average of 75 days a year, compared to 110 days in England. Few wind turbines and solar plants are even connected to the electricity grid.

In Australia, the Green Loans scheme was exploited by opportunists looking to make a subsidised buck, with negligible environmental benefit. In China, those green subsidies are much larger, in a much larger country, and embedded in a much more corrupt and opaque political system.

Yet as business writers keep pointing out, China has an “advantage” in the climate game. It’s a dictatorship. It only has to justify its policies so far.

The rest of the world will be even harder.

The International Energy Agency said last week energy poverty in the developing world is a big reason it doesn’t look like we’re going to achieve the Millennium Development Goals.

1.4 billion people lack access to energy. Most of those are concentrated in Africa and on the Indian subcontinent. The health and wellbeing consequences are substantial. Those nations – 1 billion people in Africa, 1.1 billion in India – will be unlikely to go along with any policy that would restrain development. When you live below the poverty line, a ‘small’ price on carbon is not trivial.

China’s public relations blitz notwithstanding, the chances of a binding and meaningful agreement have diminished since Copenhagen, not increased. The European Union’s climate action commissioner Connie Hedegaard said last month “These negotiations have if anything gone backwards.”

The Stern Review said “no country can take effective action to control the risks that they face alone”.

And it’s now clear we can’t rely on international action.

It makes political sense for Gillard to jump into a comprehensive carbon price this term. But it still it makes little policy sense.

Life under Gillard could be an expensive business

If Julia Gillard holds government, the alliance she will have cobbled together will speak in one voice on one major issue – climate change.

Andrew Wilkie’s addition to the Gillard side on Thursday afternoon confirms this. The new independent from Tasmania had ”a price on carbon” prominent among his 20-point list of priorities for action.

Despite many Greens being uneasy with a quasi-market approach to climate change, Melbourne MP Adam Bandt and his party have embraced an emissions trading scheme.

And Gillard will be looking to keep the nine Greens holding the Senate balance of power in her government’s tent – a task made much easier by the lower house agreement she signed with Bob Brown this week.

Let’s say Rob Oakeshott and Tony Windsor fill up seats 75 and 76 in favour of the Labor government.

Oakeshott is clearly for climate action. In February, when the government’s Climate Pollution Reduction Scheme was looking ever more hapless, Oakeshott called its collapse ”a pox on both the major parties” and a ”disgraceful failure of so-called leaders in this country to tell the story of climate change and energy security”.

Tony Windsor has said that a price on carbon is inevitable, that he supports it, and doesn’t believe it will be a disaster for the bush.

Anyway, that’s the maths. Bob Katter may end up supporting Gillard, but does Bob Katter strike anyone as a team player? The member for Kennedy thinks Sir Nicholas Stern and Ross Garnaut are ”lightweights”, so it’s unlikely the government could count on his support for climate legislation any time soon.

Assuming the Labor alliance can survive the next three years – and that Gillard’s leadership will too – the precariousness of minority government will leave the prime minister looking for a policy win. An emissions trading scheme is an obvious candidate.

And not just any ETS. The 2009 model reflected the need to negotiate with the Liberals in the Senate. A new ETS would reflect a deal with the Greens, who rejected the last one as too weak, and the independents – Oakeshott has shown a reverence for Garnaut’s original, ”pure” emissions trading scheme.

Hung parliaments can be funny things. Despite the low profile of climate change in the 2010 campaign, and despite not gaining government in its own right, the ALP may now be more able to enact the policy it most wanted to last term.

But the debate over climate change policy has regressed badly. In 2009, Parliament was discussing the mechanics of the government’s elaborate cap and trade scheme. But in 2010, we’re stuck on this simple phrase: ”price on carbon”. It makes it all sound so simple.

But what would its target emissions level be? When would it start? How should trade-exposed energy-intensive industries be compensated, if at all? Should low-income earners be compensated?

Not to say anything of the main policy crunch of November and December 2009 – the failure of the Copenhagen summit. An emissions trading scheme cannot achieve its goal without being part of a global agreement.

The notion of putting a price on carbon is popular. Around 50 per cent of Australians believe climate change is a serious problem that should be tackled by government.

Yet actually paying that price is substantially less popular.

A poll by the Lowy Institute has tracked the willingness of Australians to pay extra for electricity. The number of people who refused to pay anything to tackle climate change has increased from 21 per cent in 2008 to 32 per cent in 2010. And less than a third of those who believe that there should be a significant price on carbon report themselves willing to pay a significant price for energy.

Even if the federal government manages to get an ETS through Parliament, the key to emissions reduction is to slowly but perceptibly increase the cost of emitting.

Recent elections have shown us Australians are inordinately sensitive to real or imagined cost-of-living increases. Few governments would be eager to deliberately ratchet up the price of electricity every single year.

Supporters of emissions reduction argue that new technologies will fill the gap and keep prices down. To a degree, that’s true. But the pace of technological change is not guaranteed. There’s no reason to believe that the price of wind power will drop in concert with a rise in the carbon price.

In her deal with the Greens, Gillard ditched the much-ridiculed citizens’ assembly. Instead, she plans a climate change committee, formed under the auspices of Parliament, and including only those committed to a price on carbon.

Her alliance may help Labor get emissions trading through Parliament. But the emissions trading model the climate change committee devises may create more political problems than it solves.

Chris Berg is a research fellow with the Institute of Public Affairs. Follow him at twitter.com/chrisberg