Failure after failure: the first chapter in the sad history of the attempts to introduce a broad-based carbon price in Australia

Jan 18, 2024
Australian flag on the background of coal, Concept of Coal Mining and Extraction in Australia, Rising commodity prices in the world, Environmental impact, Industry and the economy of the country

The January release of the Cabinet papers for 2003 reminds us of the failure of the second attempt to introduce an economy wide carbon price in Australia through an Emissions Trading Scheme (ETS). It marks the ascendancy of the energy and resource sectors in influencing the Coalitions climate change policies. This decision to reject emission trading set the pattern for the failure to develop a bipartisan consensus on the best way to manage climate change.

John Howard was of singular importance in the decision, overturning advice from his most senior Ministerial colleagues.

The decision to not support a carbon price through an ETS was taken on 26 August (JH030258) after the Prime Minister reported on discussions he had held with important industry leaders. These consultations followed a discussion in the Sustainable Environment Committee of Cabinet on 22 July (JH0302588) which deferred a decision on a submission by David Kemp (Minister for Environment and Heritage), Peter Costello (Treasurer), Alexander Downer (Minister for Foreign Affairs) and Joe Hockey (acting Industry Minister). I was Secretary of the Department of Environment and Heritage at the time and heavily involved in drafting the submission.

The submission had unequivocally recommended that the “preferred mechanism for the long term management of greenhouse gas emissions is a mandatory national emissions trading scheme”. It proposed that this be developed in the context of intensive consultations with industry, the community and the states while acknowledging that it would take up to three years to bring to legislation. Ministers noted that Australia would likely be able to meet its Kyoto target without needing to activate the proposed scheme before 2012, providing that land clearing in Queensland continued to be constrained by the Beattie government. However, having the scheme legislated would provide industry with certainty and the time to prepare for what would be inevitably tighter targets.

Not only was the submission signed by the four key Ministers, including the Treasurer and the Foreign Minister, but it was supported by the Departments of Prime Minister and Cabinet, Agriculture Fisheries and Forestry, Education Science and Technology, and Transport and Regional Services. So why did Howard make a “Captain’s call” to overturn this consensus?

There had been signs and portents since 2001. On 10 September 2001 I had a cryptic call from Max Moore Wilton who was in Washington with the Prime Minister. He told me that he thought that Howard might have signalled to Bush that Australia would follow the US in not ratifying the Kyoto Protocol even though Australia was one of the first countries to sign the Protocol in 1998.

The suggestion that Australia might not ratify the Kyoto Protocol was odd – after all Australia had got everything it asked for in the negotiations. Robert Hill, who led the negotiations for Australia, had received a standing ovation from his Cabinet colleagues on his return.

In the months that followed there was no further discussion or direction to suspend the Kyoto ratification process which marched steadily forward. Then, out of the blue, while David Kemp who had replaced Robert Hill as Minister, and I, were in negotiations in Bali preparing for the World Summit later in 2002, Howard announced in Parliament that Australia would not ratify the Kyoto Protocol. It was World Environment Day. The symbolism was deliberate – and awful.

Kemp was shocked and embarrassed. In a huddle with myself, Howard Bamsey the head of the Australian Greenhouse Office, and Christopher Langman the Ambassador for the Environment, Kemp agreed we should write to the PM and secure an urgent acknowledgement that Australia would nevertheless meet our greenhouse emission targets as agreed in Kyoto and that we could announce this. Howard agreed. And we also secured agreement that we bring forward a submission on introducing an emissions trading scheme.

I had chaired and then co-chaired the Secretaries Committee on Greenhouse since 1996. This committee worked through the development of a series of Cabinet Memoranda on how best to handle emissions reductions over the long term (Cabinet Memoranda are generated by officials rather than Ministers and therefore lack recommendations although they often mark clear positions on issues that they request Cabinet to note). We also conducted extensive consultations with industry, states and community groups and commissioned economic modelling.

In all of these Memoranda it is made clear that industry was finding great difficulty in developing a common position – throughout these consultations, the Memoranda record that the energy intensive and resource industries only supported emissions reductions strategies funded by taxpayers providing them with subsidies to reduce their pollution.

This industry opposition was critical.

When Howard kicked the door closed on ratifying Kyoto he was probably driven in large part by geopolitical issues. Robert Hill told Marian Wilkinson: “Where Howard switched (on ratifying Kyoto)…He believed the Americans didn’t get a fair go, and we shouldn’t leave Bush to take all the pain alone” (Marian Wilkinson, The Carbon Club, 2021 Allen and Unwin p44). It is important to remember that the initial Bush meeting came hot on the heels of the Australian led INTERFET in East Timor which underscored our strategic dependence on the US and of course was followed the next day by the September 11 terror attacks. We had underlined our loyalty to the US by joining the invasion of Afghanistan. It was characteristic of Howard to want to be in lock step with the US across all major areas of international policy.

But by the time we got to the decisions in 2003 on how to manage emissions, the carbon intensive sectors had got their act together and shifted lobbying into top gear.

In the US this campaign was backed and funded by Chevron, but in Australia Hugh Morgan who was on the Board of the Business Council of Australia, his sidekick Ray Evans and the Lavoisier Group were at the forefront of challenging the science of climate change while the Australian Industry Greenhouse Network (AIGN), the Minerals Council of Australia (MCA) and cement and aluminium smelters were a constant lobbying presence in Canberra. Morgan was very influential within the Liberal Party.

It would be an understatement to say that the climate sceptics and the AIGN/MCA were furious at what they saw as an emerging bureaucratic consensus on emissions trading. They hired Andrew Robb, previous director of the Liberal Party at the time of Howard’s 1996 election win, to lead the lobbying on their behalf. They had direct access to the Prime Minister’s Office. Michael Thawley, Australia’s Ambassador in Washington also weighed in, noting that the White House and Republicans in Congress were strongly opposed to ETS. (Wilkinson Op Cit p48).

This is the background to the crucial meeting in the Sustainable Environment Committee of Cabinet on 22 July at which Howard attacked the proposals of the quartet of senior Ministers to introduce an ETS. Ministers rapidly backed away from their proposals leaving the discussion to be held between the PM and Secretaries. The result was a foregone conclusion.

Why was this a critical decision? After all didn’t Howard change his mind and go to the 2007 election promising an ETS almost identical to the one he kyboshed in 2003?

It was critical because if he had accepted his officials’ advice earlier, ETS would have been legislated and up and running. There would have been no reason for Kevin Rudd to set up the Garnaut Inquiry and waste time while the window of opportunity for a community consensus on climate was rapidly closing.

We are now paying the price in terms of our late and properly urgent rebuilding of our energy system and our lack of a comprehensive carbon price signal to drive change beyond the electricity sector, of those early failures to seize the opportunity to build and institutionalise a community consensus on tackling climate change.

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