Rudd's Climate Change Game Plan

Much of the media talk, well at least prior to the spectacular Liberal policy implosion, on climate change has centred around the difficulties it presents to the Rudd Government. This is largely based around a conventional view of Australian politics which casts Labor as the union-worker party and the Liberals as 'good economic managers'.

However the odd thing about this analysis is that it ignores the fact that it was the previous Labor government that introduced free market reforms which made the market economy paradigm a bipartisan project and hence an inherent part of the political landscape. Consequently, the supposed opposition of former ACTU members such as Martin Ferguson is seen as fatal to Rudd's project. The narrative goes that coal mining unions will revolt and suburban battlers concerned with the new nanoeconomics of interest rates, fuel and grocery prices will descend on Canberra with pitchforks and lead Kevin to the one-term electoral guillotine.

The flaw in this theory is that it relies on the assumption that the public's long held interest in climate action will dissolve in the face of the economic consequences. It is clear that when Rudd was elected, the public flicked the switch from concern over Labor's macroeconomic credentials to a more nuanced worry about nanoeconomic issues and the integration of environmental and economic concerns. Not only that, but whereas immigration eroded Labor's position (roughly 70% of voters supported Howard's detention programme at its height), a similar level of support exists among Liberal voters for climate action. Given climate change and its economic underpinnings challenge the very basis of conventional politics, failure to act with bipartisanship may deal a cruel blow to the future of the Liberals.

In order to turn Liberals to the Labor cause, Rudd needs to complete the evolution process begun during the 1980s by breaking the final bonds with the vested coal industry interests. He also needs a second economic reform programme. Hence the Garnaut Report. It is no coincidence that Garnaut played a key role in the 1980s reforms. Rudd's plan appears to be to offer bold action on climate change, hence his defence of the 2010 starting date for the ETS. Thus he will get credit for 'strong action', but also leaves the way open to 'listen to the people' if problems arise that need a 2012 date. If the Liberals fail to at least meaningfully contest the climate action field, they are setting themselves up for irrelevance.

The draft legislation for the ETS is not due until late this year. This will give ample time for the customary Rudd technique of kite flying to see which measures the public will bear and which need more careful handling. Hence the equivocation on petrol, which may depend as much on the oil price in November as anything else. Rudd will probably remove the GST on excise as a minimum and possibly mandate no GST on carbon permits. As the essential purpose of an ETS is for prices of carbon fuels to increase, the Liberal policy of 'no net tax increase' contradicts this basic aim. A coherent policy either leaves petrol in and increases the price, or leaves it out and places the burden on other sectors. Energy price compensation will be means tested in line with the strategy pursued with the solar panel rebate, remembering of course that while energy usage does not change much versus income, the ability to purchase energy efficient appliances does.

On the global front, Rudd will push for Australia to play a major role as an emissions intense middle power, bridging China, India, the US and Europe into some kind of coalition. China has expressed interest in an emissions trading scheme and expect Rudd to cite the ETS and Chinese moves as complementary. This also dovetails with Labor policy to increase the role of Australia's financial services sector in China and India.

The Rudd Government has demonstrated a committment to climate action and expect to see a lot more claims to be exercising national and diplomatic leadership in this area, while we are told how we are acting behind the rest of the world. This paradox is vital to understanding the politics of climate change and their implications. The need to act is clear but the traditional sense of caution towards major reform is also alive and well.