Labor in denial as ETS fairyland fractures

Paul Kelly, The Australian  February 24, 2010

The Rudd government stares down the gun barrel of one of the greatest policy and political retreats of the past generation that confounds its election strategy and its policy credibility.

"Cap and trade in America is dead, the idea is completely dead," Chicago-based global economist, David Hale, participant in the Australian American Leadership Dialogue and a long-time personal friend of Kevin Rudd, told The Australian this week. "The Democrats in the coal-burning states have effectively vetoed a cap-and-trade scheme and Republican gains in the mid-term congressional elections will only make it even more improbable. Cap and trade has been totally submerged in America's economic problems and unemployment near 10 per cent."

Hale says the US confronts a dual crisis of economics and governance with climate change relegated to a minority issue. "America seems crippled by the fiscal crisis," he says.

"There is no remote sign of a political consensus about where we are going and my fear is that America is becoming ungovernable. The separation of powers in the US system is the real problem. It means we don't really have government policy, the way you do in Australia. We just have outcomes. There is no government control of the legislature to achieve its program. I think we are heading for some dark moments over the next few years."

Australians, unable to comprehend the scale of this sentiment, should refer to the Pew Research Centre report on the US in late January showing global warming rated the lowest priority, the last out of 21 issues, behind even moral decline, immigration, trade and lobbyists.

Only 28 per cent said global warming was a priority for the US compared with the economy, the highest rating, at 83 per cent, followed by jobs at 81 per cent. (While energy rated 49 per cent or the 11th priority in the US, this usually pertains to energy security, not cap-and-trade laws).

Describing voter sentiment, the Pew Centre says: "Such a low rating is driven in part by indifference among Republicans: just 11 per cent consider global warming a top priority compared with 43 per cent of Democrats and 25 per cent of independents."

The latest decisive shift in Australian business opinion comes from the Australian Industry Group and its chief executive, Heather Ridout. "I think the political consensus on climate change both domestically and internationally is now fractured," Ridout tells The Australian. "The emissions trading scheme is on life support. Copenhagen fell well short of expectations."

The AI Group national executive meets today and Ridout's comments leave only one conclusion: the responsible path for corporate Australia is to engage with the Rudd government to find an alternative strategy. Frankly, nobody, including the Rudd government, seems cognisant of what this involves. Ridout says: "Importantly, the way forward is not clear. As an organisation we will operate on the principles that we have already outlined. We continue to believe that a market-based approach is essential. Any scheme must take into account the competitiveness of Australian industry and the current international situation only reinforces this argument."

The Rudd government is stranded without any apparent game plan on its most important first-term policy (outside its response to the global financial crisis). It is rare for a national government to face this predicament in its first term. Labor seems unable to abandon its ETS yet unable to champion its ETS; it cannot tolerate the ignominy of policy retreat yet cannot declare it will take its beliefs to a double-dissolution election; it remains pledged to its ETS yet cannot fathom how to make its ETS the law of the land. Such uncertainties are understandable, yet they are dangerously debilitating for any government. In such a rapidly shifting policy and political climate, even fallback positions risk being rendered obsolete. As Ridout says, the way forward is not clear.

In the interim, Labor's response is to launch a furious series of spins, diversions and alternatives. The list is long: it will make health the main election issue; it will be brave enough to seek a double dissolution on the private health insurance rebate; criticism of its $250 million tax break for the television networks was just a Murdoch media conspiracy; and Tony Abbott is off the planet whenever he attacks the government.

Beneath such drum beating is a government whose world view on climate change is in eclipse and whose domestic political assumptions about climate change have been broken.

As a consequence Labor has lowered, dramatically, its ETS policy profile. Its tactic is to deny Abbott's scare by playing down its ETS. Great tactics, but what's the strategy? Where does this lead? Abbott's bite may be diminished, but what happens to Rudd's credibility? For how long does Labor stop talking about the moral challenge of the age? Is the ETS the policy that dare not bear its name?

Ross Garnaut brands the present phase "the waiting game". But "the agony game" better captures Labor's plight. Garnaut calls this "awaiting the international agreement" that "provides a sound basis for international trade in entitlements". But awaiting the global conditions to make an Australian ETS viable looks like a long wait.

In strategic terms Rudd has three options. They come under the brands belief, compromise and retreat.

The belief option is to stand by the ETS and seek its passage via the deadlock provisions of the constitution at a joint sitting after a successful double-dissolution election around August-September, which approximates a full-term parliament. This is strictly for a government that believes in its policy and its powers of persuasion. Such faith is visibly draining away from Rudd Labor.

The compromise option means radical policy surgery to the ETS, such as legislating a two-year fixed carbon price of about $20 a tonne to get the scheme operational, or even a carbon tax. This is one of Garnaut's options. But it presumably requires some deal with the Greens, a fateful political step that would only create a new set of policy and electoral problems for Rudd. The truth is Labor has not recovered from last year's collapse of its parliamentary strategy of joining with the Coalition to implement its policy.

It was Abbott's election as Liberal leader that ruined Rudd's entire game plan.

The retreat option equates to admitting it is too hard to legislate a policy and too dangerous to make the issue an election centrepiece.

Yet saying "no, we can't" would constitute a humiliation for Rudd, making it the worst in a series of unpalatable options.