Retreat now, before the cost soars
Prime Minister Julia Gillard is strongly promoting a carbon tax to combat what she calls an "externality warming the planet". The government's army of advisers promoting a carbon tax is also counselling the Multi-Party Climate Change Committee, which comprises non-Coalition parliamentary representatives.
The committee's briefings say that higher Australian electricity prices are an inevitable result of measures already enacted. These include requiring new renewables to supply 20 per cent of electricity by 2020, substituting unreliable windmills for coal-powered electricity at threefold the cost.
In addition, a prospective carbon tax means a virtual prohibition on new coal-powered stations. The financial risk is too great for any private firm to absorb.
As well as driving up electricity prices, this is now threatening to bring capacity shortages. The Australian Energy Market Operator is foreshadowing a 7 per cent supply shortfall in Queensland by 2013-14 (726 megawatts) and a 249 MW deficit in Victoria by 2015-16.
Australia's impositions on coal for domestic use are accompanied by encouraging its rapid export expansion. Such a reversal of the notion of trade protectionism is economic suicide. Nor can it have any effect without an international consensus to reduce emissions.
The prospects of this are receding. The US has abandoned cap-and-trade and Japan will not renew its Kyoto treaty pledges after 2012. Cancun will continue the retreat from global action that was recognised at Copenhagen by everyone except agitators for emission-reduction measures.
These developments mean we should rethink our carbon emissions policy after May next year once the Productivity Commission provides us with an accurate fix on Australia's carbon emission penalties relative to those in other countries.
In the interim, we need to avoid unnecessary waste and risk to the reliability of the electricity system. As a first step Australia should declare a moratorium on costly existing emission-reduction measures. This should include inviting bids for the required new power station capacity in Queensland and Victoria with the winning bids, subject to assurances that they are "'state of the art", being granted immunity from any future carbon tax.
In addition, the 20 per cent renewable program should be suspended alongside any subsidies for new wind facilities not yet financially committed.
Such an approach would leave us ready to re-embark upon emission reductions or dismantle existing measures depending on international developments.