08. December 2021
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The PM’s ‘can-do’ climate capitalism won’t work without a price on carbon

the-pm’s-‘can-do’-climate-capitalism-won’t-work-without-a-price-on-carbon

Scott Morrison has advised “can-do” capitalism is the reply to climate change. And the Prime Minister is correct – however provided that he’s keen to reward initiative-taking companies with the proper set of incentives.

Some companies are going to earn cash from growing inexperienced vitality options – particularly now that the federal government is subsidising these companies and their entry to capital. It has been advised that the $1 billion Low Emissions Technology Commercialisation Fund would possibly end in new funding in rising methods similar to direct air seize and storage, or methane-reducing livestock feed. That’s excellent news for early stage green-tech companies in search of low cost capital.

Prime Minister Scott Morrison needs to create the right environment for firms to embrace carbon reduction.

Prime Minister Scott Morrison must create the proper atmosphere for companies to embrace carbon discount. Credit:Dominic Lorrimer

But many companies are going to take a look at these new inexperienced options and say: “I can, but I won’t.” These options don’t improve my backside line. Why? Because even with nice technological advances they’re more likely to be dearer than coal for fairly a while – except one accounts for the true social price of coal, which incorporates its environmental injury.

There’s a purpose fossil-fuel applied sciences have been so dominant for thus lengthy. It’s as a result of they’re low cost when one solely considers the monetary price, and never the environmental price. The success of a inexperienced know-how push requires factoring within the social price of vitality. This places all applied sciences on a level-playing-field, and thus supplies the proper incentives for adoption in addition to innovation.

Take carbon seize and sequestration – a know-how that may considerably scale back carbon emissions from coal-fired energy vegetation. This is an present know-how that might little doubt be refined. It exists and it really works – we don’t want a billion-dollar slush fund to develop it. But it’s costly to implement, and reduces the vitality produced by these vegetation by roughly 20 per cent.

So if vegetation are owned by personal corporations, who don’t take into consideration social prices and advantages, there will likely be little incentive to undertake carbon seize. The can-do angle for these companies is “yes we can pollute and stay profitable”.

The solely means can-do capitalism is smart, as an environmental coverage, is that if the federal government adopts a price on carbon, or an equal market-based coverage such because the cap-and-trade mannequin proposed by the Business Council of Australia by means of tightening the prevailing safeguard mechanism.

If there’s a price on carbon, polluting prices companies cash. So the can-do angle turns into about the right way to scale back these prices, and with them, the air pollution itself.

Other companies will then even have an incentive to spend money on inexperienced applied sciences, even without a authorities subsidy, as a result of they know that can-do capitalists will likely be concerned with buying that know-how – to cut back their tax burden, and prices.

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Capital markets may even see this and be extra keen to lend to green-tech start-ups.

A carbon price has a chequered political historical past in Australia. But that historical past shouldn’t obscure the actual fact that it’s the solely possible way for can-do capitalism to be a type of can-do environmentalism.

It can also be a coverage that has rising help within the enterprise group, and globally.

Without a price on carbon, we will likely be paying the price in misplaced tax income – as a result of our export-businesses should pay it anyway (however not in Australia) by means of carbon-border-adjustment taxes.

That extra income might additionally do a lot of excellent. It might be used to pay for the federal government’s can-do lending program to inexperienced companies. Or it might be used to pay a dividend to households, to compensate them for the rise in prices related to true motion on climate.

Can-do insurance policies are a good thought, however provided that they perceive how and when markets can work to our profit: when companies have an incentive to cut back emissions as a result of doing so reduces their tax burden, and will increase their revenue.

It is difficult for the federal government to confess this politically. But we all know they will.

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