Clunky approach to carbon reduction policies

Labor's wasteful and tokenistic ''cash for clunkers'' subsidy to scrap old cars is one of the few carbon emission reduction policy announcements this election campaign.

This is notwithstanding the priority on ''climate change'' carbon reduction measures that both parties have said is a priority.

The Liberals and Labor have the same medium-term target reduction goals for CO₂ -- 5 per cent below year 2000 levels by 2020 (which is a 40 per cent cut in ''business-as-usual'' emissions).  Julia Gillard says we must ''put a price'' on carbon to meet this goal.

''Putting a price on carbon'' is code for a carbon tax.  As a mantra, it is already creating financial risk for new investment in electricity generation, bringing dearer power irrespective of any price that may be actually imposed.

The Liberals' goal is stigmatised as relying on a regulatory approach.  This involves choosing the areas for emission reduction which offer the best bang per buck.

But the regulatory approach is flawed because circumstances are so dissimilar that a low-cost approach in one place may be exorbitantly expensive in another.

The pink batts ceiling insulation program illustrates this.  Originally estimated to make savings at a cost of $50 per tonne of CO₂, the savings are now estimated to cost some $200 per tonne of CO₂.

The Government has, highly optimistically, estimated that the carbon tax ''price on carbon'' necessary to bring about its policy would be only $23 per tonne of CO₂.  Hence, the outcome of the pink batts program meant its CO₂ savings were eight-fold the cost that the Government had said would generally be required.

As this demonstrates, both the main political parties actually support regulatory approaches.  Aside from the now discontinued pink batts subsidies, regulatory measures already in place include direct subsidies for certain low-carbon power producers, requirements on electricity suppliers to use wind and solar generation and ''five-star energy requirements'' on new houses.

Direct carbon reduction subsidies from the Commonwealth budget come to more than $3 billion per year.

Regulatory measures on top of this include a requirement for ''20 per cent renewable energy'' by 2020.  Renewable energy essentially means wind and solar power and the requirement will add around 12 per cent to the average household's electricity price.

The Government's ''carbon price'' proposals would increase this by at least a further 25 per cent.

These and other regulatory measures compound the effects of an absence of new capital investment in commercial power stations.

Altogether, carbon reduction measures will be equivalent to doubling the electricity bills households actually pay.

This means $1000 a year to the average household.

Ominously, in a survey we undertook this year, only 6 per cent of respondents said they would willingly pay $1000 a year to reduce carbon emissions.

Electoral issues aside, this presents a public policy dilemma since the test of any tax's legitimacy is taxpayers' willingness to pay.

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