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Sky NewsAustralian AgendaProfessor Garnaut8 July 2012
Interview with Professor Garnaut Australian Agenda program, 8 July 2012Peter van Onselen:We're joined now out of Melbourne by the special advisor to the government on climatechange policy, Professor Ross Garnaut. Professor, thanks for your company.Professor Garnaut:Hello Peter.Peter van Onselen:Can I just ask you straight off the bat, I mean what does it do to the government'soverall carbon pricing agenda, if it does drop the price on the floor base.Professor Garnaut:Well, the floor price in the legislation of $15 may or may not be a binding price. I'd besurprised if the international price, of which we're trading in credits was as low as that inthree years time. So it would probably make no difference.Paul Kelly:That's a pretty optimistic view, isn't it, professor, because given where prices are now,
Australian Agenda8 July 2012Professor Garnaut
there are many people who think that prices will still be fairly low in three years time. I just wonder why you're so optimistic about that.Professor Garnaut:I don't think so, Paul. If you go over the history of carbon pricing, now is a uniquely lowprice period. And the European price, the big market with some depth Friday night was in Australian dollars about 10.40. That's particularly low. There's lots of discussions inEurope about tightening targets. This, of course, is a low point in economic activity inEurope. The clean development mechanism isn't the relevant international price and itwill be less so in three years time.Paul Kelly:Professor, what would be the consequences for Australia, having legislated the schemewe now have in place, if this scheme was in fact repealed over the next couple of years?Professor Garnaut:The big issue, Paul, is how we go about reducing emissions. There's not a difference of opinion about the need to reduce emissions. That's not the act of political debate. You'vegot the common unconditional target of reducing emissions by 5% on 2000 levels by2020 against what the Department of Climate Change estimated as business of usual asplus 20%-odd. So that's a fairly big reduction. Both parties are committed tostrengthening the target in the context of demonstrated international action. So thequestion isn't how much we will do in reducing emissions, it's how we get there. Thereare two ways of getting there: one is through various forms of direct action; the other isthrough carbon pricing. One is much more expensive than the other. Around the worldpeople are mainly using direct action, the more expensive way. Direct interventions bygovernment is politically instinctively more attractive than market-oriented approaches, just like protection is instinctively more attractive politically than free trade.
Australian Agenda8 July 2012Professor Garnaut
Paul Kelly:Well, just on that point, I mean that suggests that the Coalition may be where theinternational community is. How do you think the international debate is going to evolve?Do you think that countries like the United States will stick with, if you like, variations of direct action or do you think we'll see a shift back to carbon pricing.Professor Garnaut:Well, the drift in the last couple of years is between - has been towards a greatercomponent of carbon pricing including, in some places where I didn't expect it so early,such as China. In places where it's already well-established, there's strong commitment toit. There's no debate about it in Europe. British Colombia, which had had a carbon tax, astraightforward tax, no compensation for trade exposed industries, of $25 a tonnedecided last week, just a few days ago, to increase it to $30 a tonne and use theproceeds to reduce income tax and company tax. So where it's in place, it's attractive andmore places are considering it. California, from the beginning of next year. So that's thedrift. But at the moment the main instruments in most places, including Australia, I mightadd, are expensive forms of direct action.Peter van Onselen:Well, can I ask you about that, Professor, because, on the one hand, Tony Abbott tells usthat he's committed to direct action and the 2020 target of a 5% reduction, but heequally tells us that the pot of money that they are going to put into direct action issubstantially lower than the amount of money that the government is spending in relationto its carbon pricing approach. Now, how can that be the case if direction action, as youtell us, as many other economists do as well, is more expensive than the marketmechanism of carbon pricing?Professor Garnaut:Well, we can't make a detailed judgment, Peter, about the Opposition's policies because
Australian Agenda8 July 2012Professor Garnaut

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