Piketty Digest #18: Conclusion
Forced Labour and Capital in the 21st Century

Climate Change: Back to the Market, Or…?

by Gareth Bryant on November 24, 2014

I recently spoke at the Greens.Reboot.Future conference at the University of Technology Sydney (UTS) on a climate change panel with Leslie Hughes from the Climate Council and Nikola Casule from Greenpeace. The conference brought together Greens members, community activists and speakers from progressive organisations to discuss a range of issues including Indigenous rights, global inequality and government surveillance. The question posed to my climate change session was ‘Back to the Market, Or…?’

This post is an edited version of my contribution. I draw on my PhD research into the political economy of carbon markets to make three main points: (1) we shouldn’t mourn the death of the Australian carbon price, (2) we can rethink the climate change problem by focusing on the biggest polluting corporations, and (3) we must look beyond the market to create a credible pathway to a clean energy economy.

The repeal of the carbon price was a retrograde move by a government that is deeply politically hostile to addressing climate change. But in policy terms, the impact will be nowhere near as bad. Unfortunately, the last decade of international climate policy shows that the market-based approach doesn’t work and Australia was poised to repeat these mistakes.

Originally, the Australian scheme was linked to the United Nations carbon offsetting instrument, the Clean Development Mechanism (CDM), which could supply 50 percent of our ‘emissions reductions’.  The price of carbon credits produced by CDM projects has been less than $1 for the last two years.

A year after the climate package was legislated, the government decided to restrict the link to the CDM and instead link to the European Union Emissions Trading System (EU ETS). However, the EU ETS hasn’t fared much better.

The European price experienced significant volatility between 2005 and 2009 and has been on a downward trajectory ever since. It is currently in single digits and expected to stay there until at least 2020. Australia’s carbon price was scheduled to follow suit in 2015 when the fixed price period transitioned to a floating price.

If we are going to rely on price signals to drive the transformation to a low carbon economy, volatile and low carbon prices aren’t much help. Further, low carbon prices are symptoms of the deeper problems affecting carbon markets, including financial fraud, polluter subsidies and political distraction.  The latter arises because marketised climate policy tends to cloud our understanding of the actual climate problem.

Instead of thinking of climate change as a ‘market failure’ and carbon pollution as an ‘externality’, we can start by looking at who exactly is responsible for Australia’s greenhouse gas emissions.

Matching annual data emissions data from the federal government with company ownership data shows that just 10 owners, made up of 7 corporations and 3 state governments, were responsible for close to two-thirds of the emissions covered by the carbon price. They were, in order: AGL, Energy Australia, GDF Suez, the Queensland government, Origin, Woodside, Rio Tinto, the governments of WA and NSW and BHP Billiton.

We can further demystify the climate problem by considering where those emissions are coming from. Looking at electricity generation alone, over half of emissions covered by the carbon price come from just 20 large coal-fired power stations clustered in 5 regions in WA, Victoria, NSW and Queensland.

Australian carbon price top polluters

Share of emissions by top polluting corporations under Australian carbon price

Recognising that responsibility for Australia’s contribution to climate change largely resides in a handful of corporations and state governments, and a small number of large coal-fired power stations, erodes the case for carbon markets. It dramatically simplifies what Ross Garnaut described as a “wicked” policy problem due to its overwhelming complexity.

Rather than allowing big polluters to trade away their responsibility, an approach which directly targets fossil fuel corporations becomes both necessary and feasible.

A couple of years ago, the NSW government would have been the biggest polluter in Australia, and in the 1990s, the Victorian government would have been up there too. What privatisation does is hand over control over the future of the climate to the profit motives of energy corporations, and those profit motives are completely at odds with a safe climate.

Private energy companies have a vested interest against things like energy efficiency because the more power they sell the more profitable they are. Likewise, investing in renewable energy increases the supply of electricity which decreases wholesale energy prices, which they also oppose.

Apart from stopping any further privatisation, including our electricity networks, the energy assets owned by the likes of AGL, Origin and Energy Australia must be returned into public hands as part of a plan to phase out each of the most polluting power stations. The Green Bans movement in the 1970s showed that the few hundred workers at each of the big power stations in the La Trobe Valley, the Hunter Valley and elsewhere are in an incredibly powerful position to be part of this change, but there must be a job guarantee for them in new, clean industries.

Then of course there is the question of how to replace those old generators with renewable energy. We often talk about levelling the playing field between fossil fuels and renewables by removing subsidies, reforming the grid and leveraging investment through the Clean Energy Finance Corporation. All of this is incredibly important, but the most glaring inequality is the historical one between a fossil fuel energy system that was built by governments and our current reliance on the private sector to develop renewables.

Fossil fuels are becoming increasingly uncompetitive  – issues such as the ‘coal death spiral’ and ‘stranded assets’ are real – but large-scale government investment in publicly and community-owned renewables is needed to transition to 100% renewables at the pace required.

So, to conclude on the question posed in the title of this session – ‘Back to the Market, Or…?’ – at best markets bring about marginal changes, but climate change is not a marginal problem. It is a transformational one that needs an equally transformational response.

Gareth Bryant
Gareth Bryant is a Lecturer in the Department of Political Economy at the University of Sydney.

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