The new politics of energy
In early September I was asked by Garten Rothkopf to write an article about the updated politics of energy issues in Australia, following the federal election. I did so, trying to be as politically neutral as possible. Unfortunately, it turned out that the editors of their website have a certain bias and they managed to edit their bias into my article… making me look like more of a greenie than I would have liked.
I complained and they fixed a few sentences, but I’m still not impressed. Thankfully, their version of my article is only available to people with a paid subscription. Below is the version that I wanted published:
The Australian election & the energy policy
With the recent elections in Australia having produced a fragile coalition government, the future of energy policy remains highly uncertain. The ruling Labor government depends on both the Green Party, which wants a tough carbon pricing scheme and a stiff tax on mining profits, as well as rural independents that are wary of both policies. Prime Minister Julia Gillard thus faces a difficult balancing act that could easily fall apart, and may even lead to new elections. In any case, continued uncertainty over climate change policy will mean Australia has little to add to the upcoming climate summit in Cancun.
Until the most recent election, there has been only one precedent in Australia for a “hung” parliament,where the government does not have a majority in the House of Representatives. Now, however, the ruling Labor Party only has 72 seats in the House, despite needing 76 to govern.
The conservatives(a coalition of the city-based Liberal Party and the rural-based National Party) won 73 seats, and got the support of one rural independent (ex-National Party representative Bob Katter), leaving them two short. While Labor started with only 72 seats, they were able to cobble together a coalition including one Green Party representative, one left-leaning city-based independent and two conservative-leaning rural independents. It was the two rural independents who ended up being the kingmakers, keeping the nation waiting for several weeks while they entertained competing offers from the major parties.Their decision was particularly dramatic considering that the majority of voters in their electorates preferred a conservative government.
It is not clear what this fragile coalition will be able to achieve. Although there is little difference between Labor and the Liberal-National coalition on foreign affairs, regulation, welfare, health,education or labour markets, one area where the major parties are sharply divided is energy policy. For the past year the two big political debates in Australia have been about whether to introduce an emissions trading system, and whether to introduce a tax on mining profits.
In 2007, Prime Minister Kevin Rudd and the Labor Party took control of the government and went about trying to implement an emission trading system, or Carbon Pollution Reduction Scheme (CPRS). The government commissioned several reports which all pointed to the need for such a scheme, and it seemed as though the legislation would be easily passed with bipartisan support.
However, in late 2009 there was a significant change in mood within the conservative coalition parties. Liberal leader Malcolm Turnbull, who had tried to secure conservative votes for the CPRS, was ousted and the new leader Tony Abbott began a strong campaign against the CPRS. While initially controversial, this move turned out to be a political masterstroke as the threat of a “great big new tax on everything” turned public sentiment against the Labor Party, which consequently chose to delay their CPRS plans until after the 2010 election.
After the CPRS debate, attention shifted to tax reform. In late 2008 and early 2009 the Labor government introduced one of the biggest fiscal stimulus packages in the world, which took the Australian budget from a $20 billion surplus to a $40 billion deficit. In order to bring the budget back to surplus, the Labor government decided to introduce a new tax on the “super-profits,” of mining companies. This sparked a public debate, with the mining industry launching television adverts against the tax, and the government responding with taxpayer-funded ads of their own. The backlash against the tax in the mining states of Queensland and Western Australia (as well as general concern that the proposed tax was poorly designed) lead the Labor Party to modify their policy, and also change their leader, giving Australia its first female Prime Minister in Julia Gillard. While the CPRS and mining tax did not play a central role in the election campaign, their future hung in the balance, as a conservative government would have scrapped both schemes.
What happens now?
The Labor win does not necessarily mean a win for their agenda. The future of every piece of legislation rests with five cross-benchers with vastly different backgrounds. In particular, it is not clear how the key rural independents – Rob Oakeshott and Tony Windsor – will vote on energy issues. While most rural people are skeptical of the need for the mining tax or the CPRS, both of these independents have voiced tentative support for the Labor agenda. That potentially gives Labor enough votes to pass their agenda through the House.
The big problem for the Labor Party would be finding a compromise that could get the support both of the Green Party (which wants a high carbon price and a high mining tax) and the rural independents (who would need to factor in the skeptical views of their constituents). A compromise is far from guaranteed. The Green Party actually opposed the old version of the CPRS because they objected to the high amount of compensation going to industry, and they support an expanded and higher mining tax. On the other side, the rural independents may fear an electoral backlash if they find common ground with the Greens and support higher taxes.
One potential policy getting more attention in recent weeks has been a carbon tax instead of a trading system. BHP chief Marium Kloppers recently backed the idea of a revenue-neutral carbon tax, and others in industry and the centre-right (including this author) have also offered tentative support for such an idea. But this proposal is unlikely to bridge the current divide, with the Greens unwilling to accept the need for matching tax-cuts and the rural independents and conservative opposition hesitant to put their name to a new tax.
Even if Labor can get the CPRS or a carbon tax through the House of Representatives, they still face the problem of a hostile Senate. Until July 2011, the Labor Party must deal with the old Senate,which means they need the support of the Greens and also two Senate independents. One of those independents is Steve Fielding, who is a vocal doubter of climate science and is unlikely to support an emissions trading system or carbon tax, no matter how it is structured. Indeed, at one stage Fielding went so far as to threaten blocking support for a re-elected Labor government, potentially forcing a new election.
The new Senate will start in July 2011, at which time Labor will only need the support of the Greens. If they keep their minority government together, manage ten months of a hostile Senate, and somehow balance the demands of the Greens and the rural independents, then there is some chance that Parliament could pass a mining tax, an emissions trading system, or both. But it will be difficult.
Another scenario is that, given the precarious state of both the House of Representatives and the Senate, it is possible (perhaps even probable) that a new election will be held within the next 12 months. Given the amount of unanswered questions at the moment, the only honest assessment of future energy policy in Australia is “ I don’ t know” .
With the Cancun climate summit coming up in November, the only position that Australia will be able to offer with certainty is a bipartisan and unconditional commitment to reducing carbon emissions by 5% (from 2000 levels) by 2020, and a slightly less clear commitment to larger cuts if there is an international agreement. Last year, then Prime Minister Rudd went to Copenhagen with strong support from Parliament and the public, and came back disappointed. This year Julia Gillard will go to Cancun in a much weakened position, trying to juggle a hostile parliament and an indifferent public. Meanwhile, the Australian energy industry remains in limbo as they wait to find out which way the political winds will blow. They may be waiting for a while.