Exposing the hidden costs of pollution

An article in today’s Sydney Morning Herald, which questions whether the Australian states could undermine national action on climate change, illustrates just why a broad-based national emissions trading scheme would be effective.

Environment groups said the Opposition Leader, Kevin Rudd, needed to explain how he would curb rising greenhouse gas emissions at a time when Queensland and NSW were dramatically boosting coal exports and several states were approving big road and power projects that would increase climate change pollution…

The NSW Treasurer [Michael Costa] favours building a new coal-fired power plant to meet the state's energy needs, in contrast to other proposals for more gas-fired generation or energy efficiency and demand management.

New coal-fired power stations would make it difficult for a federal Labor government to reach its target of cutting emissions by 60 per cent by 2050, said the Australian Conservation Foundation campaigner Tony Mohr.

"The really interesting question to ask Kevin Rudd would be if Costa approves a new coal-fired power plant, what will he do about it?" Mr Mohr said. "How is he going to deal with the parochialism of the states?

The power of an emissions trading scheme or carbon tax is that it imposes the same price on greenhouse pollution from any source in any state, so questions like these become irrelevant. Both major parties have now committed to a national emissions trading scheme.

With a trading scheme, the federal government sets a cap on total emissions from all sources and issues permits for that amount. Emitting without a permit is prohibited so total emissions don’t exceed the cap. If you don’t have enough permits for the pollution you wish to create, you need to buy them from someone else. They can only sell them if they’ve taken action to reduce their emissions so that they have surplus permits.

Under an emissions trading scheme, if NSW wants to approve a coal-fired power station, so what? For the station to be allowed to operate, the operator will need to buy enough permits to cover its emissions. It can buy them only if someone else reduces their emissions and so has surplus permits. The total level of emissions is therefore unchanged.

It will no longer be up to the NSW Government to decide whether a new coal-fired power plant, more gas-fired generation or energy efficiency and demand management is the best way to meet the state's energy needs: all those methods will compete side by side on the basis of bang for your cost-of-pollution-adjusted buck.

So what is a parochial state government that wants to encourage coal-fired power production to do? Well it can offer breaks from state taxes and planning restrictions, but that’s not a good look. Importantly, it can’t exempt power stations from emissions trading, because it’s a scheme administered by the federal government. If it really wants to encourage the power station, it will have to agree to buy the permits for it. (Scarily, they’ve already started doing this).

And this is one thing I love about a national emissions trading scheme: it puts a price on pollution for everyone to see. State governments place costs on their citizens every time they exempt a large development from laws that apply to everyone else, but those costs are hidden. Voters don’t notice the cost of a government exemption, but you can bet they’ll notice when their taxes are used to buy permits for a large and profitable energy company.

When we put a price on polluting, we bring hidden costs into the open.