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John Quiggin

Free riders not welcome

John Quiggin Australian Financial Review

17 July 2008

While there are plenty of details remaining to be spelt out, the Green Paper on the Carbon Pollution Reduction Scheme issued yesterday marks the shift from the symbolism of ratifying the Kyoto Protocol to the practicalities of an emissions trading scheme.

Many critics of an emissions trading scheme have embraced what might economists call a ‘free rider’ policy, but might better be described as the ‘litterbug’ argument. This is the claim that since Australia contributes only a small portion of emissions, it does not matter whether or not we do anything to reduce them. This is much the same as a litterbug saying that their beercan or chip packet is not going to make any difference, so they may as well dump it.

To take this argument more credibly than it deserves, Australia currently generates about 2 per cent of global emissions of greenhouse gases. That’s comparable to Britain or France. The fact that these countries have several times our population is cancelled out by our much higher emissions per person.

Of course, countries like the US and China with a population much larger than ours, have higher emissions. But there’s no obvious reason why this should be relevant. The 20 million residents of Southern California might reasonably say that, if Australia’s emissions make no difference, neither do theirs. And the 100 million people of Henan province in China, whose total emissions are about equal to ours, could make the same claim with even more justice.

A more superficially respectable version the argument, and one of several positions adopted by Opposition Leader Brendan Nelson in the last week, is that, as a small country, we should not get ahead of the rest of the world, incurring the costs of reducing our own emissions, but not realising any benefits from mitigation.

There is, however, little danger of our finding ourselves way out in front. Until the recent change of government, we were, along with the United States, bringing up the rear. To be more accurate, the Howard and Bush Administrations were dragging the chain. On the one hand, it was claimed (contrary to the agreement at Kyoto) that developed countries shouldn’t do anything unless developing countries like China and India also cut their emissions. Meanwhile, surreptitious encouragement was given to those in developing countries who opposed any action.

The Rudd government’s ratification of the Kyoto protocol has put Australia in front of the US, and also in front of some backsliders like Canada, whose conservative government (heavily influenced by its own “sceptics”) has abandoned any effort to meet its commitments. But we are still nowhere near the front of the pack.

Even assuming the government’s ambitious schedule of a 2010 implementation date for emissions trading is reached, we will be well behind the EU (which currently accounts for nearly a third of global economic output, and around 15 per cent of greenhouse gas emissions), not to mention New Zealand.

It might however, be argued that the previous policy of bringing up the rear was the right one, and that even the middle of the pack is too far in front. A look at our current position suggests the opposite. Given the absence of any serious action on climate change under the Howard government, introducing an emissions trading scheme by 2010 will indeed be more costly, and have a higher risk of failure, than would a more leisurely schedule.

But with the Copenhagen negotiations on a post-Kyoto agreement fast approaching, leisure is something we don’t have. If Australia is to present a defensible negotiating position on issues like the treatment of agriculture, we need some concrete evidence that we are taking action to reduce emissions. The window-dressing offered on such occasions by the previous government will not pass muster. And while the ratification of Kyoto was an important step, the symbolism must now be backed by substance.

The advocates of delay seem to think that Australia can act as a free rider indefinitely. But free riders eventually face sanctions. The European Union is already talking about border taxes to be imposed on imports from non-complying countries.

Such ideas are unlikely to go far while the Bush Administration remains in office. But once the US is part of an international climate agreement, life is likely to become uncomfortable for those who choose to remain on the outside. While there is still room for debate about the details of the scheme proposed in the Green Paper, the time for delay has already passed.

John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

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