It was good news when Treasurer Wayne Swan announced that the House Economics Committee was to enquire whether the core of Australia’s response to climate change – the Carbon pollution Reduction Scheme (CPRS) — is the best way to tackle climate change.

This now cancelled review could have reconsidered the range of alternative approaches available and would have enabled the genuine concerns of all sides of politics, from the Greens to the conservatives and within the Labor Party, to be addressed. It would also have been an opportunity for the Government to produce a consensus policy framework.

The precise nature of the 'cap and trade' approach as currently proposed in the CPRS was never going to be easy to adjust to the political realities it was trying to address. The fundamental problem with the CPRS, as with the policy recommendations of the Garnaut Review, is that it starts with the idea that a rigid target and a timetable should be the basis of the policy design and that the problem of uncertain costs can either be ignored or tackled in an ad hoc way through exemptions and handouts.

However, the balance between reducing emissions as quickly as possible while smoothing costs over time should be integral to the policy design. The core of the policy design should be a clear, credible, deep cut in emissions where possible, with a clear mechanism for smoothing costs over time, based transparently on the evolution of international agreements and adjusted as information on costs and benefits are revealed. 

It is not too late to modify the CPRS to shift to a much simpler and more sensible approach that would address the genuine concerns of all sides of politics (though it would have been better to do this in an open enquiry with expert input rather than behind closed doors in political negotiations with the Senate). Here's how it can be done. More...

The Garnaut review, based on targets and timetables for emission reduction, will delay action on climate change at the global level. Most of the world has no clear policy framework, and most countries are not taking on targets and timetables because they don't want to commit to a system without knowing the cost. Some countries that have taken targets (Japan, NZ, Canada) are not even close to hitting them because domestic politics is blocking action. Only the Europeans have a wide ranging ETS and it is full of holes and exemptions for political reasons.

Wishful thinking will not solve this problem but it will, and has, delayed action. Emissions are at the high end of the most pessimistic projections. We have had Kyoto for 11 years and we are in the first year of the binding period with no chance of hitting the Kyoto targets on average between 2008-2012. That is why there is so much debate about what to do post-2012. This is pretty strong evidence that we need to modify the approach in important ways and not promote a position in Australia that will actually delay action globally.

A better way is to have clear long term goals priced in transparent domestic markets and fixed short term carbon prices equal (where possible) across countries. The McKibbin Wilcoxen Hybrid  is a way to break the national and global political log jam because it deals with climate policy in the same way countries now run monetary policy (but with a different time frame).