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Despite our apparent similarity in political beliefs, I’m not entirely sure of the last time I wholly agreed with Malcolm Turnbull on any matter. But, though he has been variously criticised for laying down a party room ultimatum this week: “Agree with me on climate change, or I will resign”, he is entirely correct, both from a party political perspective, a political perspective and more importantly, a public policy perspective.

Turnbull cannot lead a party that will not follow him. To put it less glibly, the Australian people will not follow a man who cannot even lead those he ostensibly leads. Turnbull has been criticised for being insufficiently moderate (as Nelson was) and kow-towing to the Right faction of the Liberals. This is his Last Stand, and his way of showing us that he is the intelligent social progressive that he was once known for being.

Let us not doubt, even if Turnbull wins next week, the ankle-biters will keep nibbling away. But this strengthens his hand. He is shown to be a man of courage and determination – though we knew this before, he has shown it in the most public way possible. It weakens his opponents by casting them into the light, and ties them to a losing strategy.

But more importantly, Turnbull is making the right decision from Australia. Climate change regulation is inevitable. With the political winds blowing as strongly as they do, it cannot be avoided. What is best for business and the economy in this landscape is to provide certainty. It will be grossly uncertain for Labor to bring in a Climate Change Act now, if the Opposition threatens to repeal it in 2010 if they get elected. That means that, as Turnbull says, the LNP must contribute to the negotiations in the Senate now over what shape the bill will take. They must not let this critical legislation be determined by a dyslexic idiot, a one-issue independent and a bunch of pinko socialists.

What needs to be done is this – ensure that our climate change bill will easily transition into whatever framework the world decides next year. If this is done, then the system should stand up well for two reasons:

Firstly, no matter what shape the regulation takes, it allows businesses to plan around it. At the moment, noone knows at all what the future looks like. How do you make major investment decisions not knowing if regulation will come and change it? How do you build a new coal power plant, or even a solar plant, not knowing if your returns on equity are high enough? Once the regulation is locked in place, you can alter your plans around it. You can constrain the size of your plants, or make them more efficient. You can adopt carbon offset programs.

Secondly, from the perspective of the economy, a carbon credit system (in a frictionless world) causes no loss. The loss of the coal plant operator is the gain of the energy efficient company who sells his excess credits on the market. The only loss is if the energy efficient company is less economically efficient, and deadweight loss is endured on that account. (This is no small problem either – some of our most profitable export industries are energy intensive, so de facto our other industries will be less efficient.) I was never really persuaded by the ‘green workers’ argument. You need far less people to operate a solar plant than a coal mine. But, depending on how your ETS is structured, the ‘energy efficient company’ I referred to earlier need not be a highly speculative alternative energy source. It can simply be an ordinary business which is more efficient than any other company in its industry. It can even be a coal plant which is more efficient than other coal plants.

The most important gain from having a comprehensive ETS is that it places Australian businesses in a better position to transition into a global ETS world next year. The EU trading scheme was not built with a transition mechanism in mind, it merely exists. An Australian system designed with that in mind, and exerting middle-power diplomacy can reap much higher benefits for Australian business than the do-nothing and wait approach which reaps mere short term benefits of a year of higher exports.


One Comment

  1. It also provides great cover if he gets rolled on the matter. “My party no longer wanted me, so I can safely resign and head back to Point Piper to continue what I’m good at — making money.”

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