DEVIL AND THE DEEP

Josh Gordon September 26, 2010

NO DOUBT, Julia Gillard is in a pickle. A worse pickle, perhaps, than the peripatetic Odysseus. In the epic poem The Odyssey, the hero of Greek myth found himself faced with the choice of sailing past the six-headed Scylla on one side of a narrow strait or the whirlpool Charybdis on the other.

Following the advice of Circe, Odysseus decided to sail closer to Scylla. Better to lose six men rather than risk an entire ship and crew. Sure enough, ''they writhed/gasping as Scylla swung them up her cliff and there/at her cavern's mouth she bolted them down raw -/screaming out, flinging their arms toward me,/lost in that mortal struggle''.

Grisly stuff, but at least Odysseus's ship was able to continue homeward. So tight are the numbers in Parliament that Gillard can ill-afford to lose a single crew member, let alone six.

Gillard has no choice but to take her chances with the whirlpool Charybdis.

For a start, she will be praying there will be no byelections or mishaps that could sink her entire government. It's a good bet Labor MPs are being instructed to take their vitamins, avoid scandals and be on the lookout for errant buses.

Gillard will also simultaneously need to manage delicately her relationship with the Greens and independents, battle an aggressive and obstructionist opposition, and swiftly deliver on some major policy challenges left over from the Rudd years.

Foremost among those policy challenges will be introducing laws to place a price on carbon. This will in turn involve conceiving a scheme with enough grunt to appease voters angry about the lack of genuine action to tackle climate change, while at the same time addressing concerns about the impact on prices for utilities, food and transport.

As a first step, Gillard has promised to set up a new parliamentary ''cabinet-style'' committee made up of Labor and non-Labor members to consider the options. For the first time in history, the Greens will be part of the cabinet process for a federal government.

Gillard has also backed away from an election promise that there will be no carbon tax on the grounds that circumstances have changed because of the hung parliament.

A carbon tax now seems the most likely political outcome. It would be relatively simple to administer in comparison to Labor's defunct emissions trading scheme. It could also initially be levied at a low rate, with scope to increase it over time depending on the outcome of international negotiations.

The price of carbon would also be fixed, in contrast to an emissions trading scheme, where the price would be determined by the market. That would offer producers and investors an added layer of certainty.

The major disadvantage would be that delivering guaranteed emissions cuts would be more difficult. Producers would have an incentive to cut pollution so long as it is cheaper to do this than pay the carbon tax. Abatement would cease as soon as it became a more expensive option than paying the tax. The government could only make educated guesses about levels of abatement associated with different tax rates.

Because emissions trading schemes involve issuing a fixed number of tradeable permits, they make it easier for governments to meet specific targets than carbon taxes.

Given the global nature of the problem, emissions trading schemes have the bonus of allowing permits to flow internationally to industries where they are most highly valued, and allowing abatement would flow to countries where it can happen at the cheapest cost. (There have also been proposals for hybrid schemes, combining a domestic carbon tax with international tradeability.)

If only this were purely an economic problem, the issue would have been resolved years ago. The challenge for Gillard will be, as we found out at the end of last year, of a political nature.

But what about the opposition? Tony Abbott too, will need to carefully manage the politics. The public clearly want action to address climate change and Abbott must be seen to be offering a viable alternative.

That's where the opposition's policy to spend $3.2 billion over four years on measures to directly cut emissions to a level 5 per cent below 1990 levels by 2020 comes in.

The centrepiece of the plan, thoughtfully conceived by climate spokesman Greg Hunt, would be a $2.6 billion fund allowing the government to directly tender for emissions reductions. In other words, taxpayers would pay for abatement, with specific projects determined by the government through a competitive tendering process.

Given the magnitude of the political problem, such an approach may be a sensible early option, particularly if there is no international consensus.

Yet the internal politics for the opposition are also far from easy. Many members of the Coalition are deeply sceptical about the science of climate change (which raises questions about why they would support spending even $3.2 billion).

Yet others, most notedly former opposition leader Malcolm Turnbull, are strongly in favour of so-called market-based mechanisms such as emissions trading schemes and carbon taxes to place a direct price on carbon.

Turnbull has already privately infuriated some of his colleagues. Soon after being restored to the opposition frontbench as communications spokesman, he strayed from his portfolio area by voicing his support for a carbon price and a market-based mechanism.

Abbott has been trying to impose a straitjacket on Turnbull and others by warning the Coalition's policy opposing any form of carbon price will not change.

Turnbull, however, says he does not resile from his political principles, in particular the need for a carbon price.

Much of the focus so far has rightly been on Labor and Gillard. Yet, it is possibly only a matter of time before the deep ideological rift in the Coalition over this and other issues re-emerges.

When it happens, things are once again likely to turn ugly.

Josh Gordon is The Sunday Age's national political reporter. jgordon@theage.com.au

This story was found at: http://www.theage.com.au/opinion/politics/devil-and-the-deep-20100925-15rjf.html