Young people will decide who's the next PM

By MILLIE MUROI, Economics Writer

By now, it’s no secret that young people are the biggest voting group. While no demographic fits neatly into either the Labor or Coalition camp – or completely agrees on any given issue – it will be a relief for many young Australians to know they are more than an afterthought this election.

Neither party has been exceedingly visionary, but as Prime Minister Anthony Albanese and Opposition Leader Peter Dutton jet around the country in a final scramble to cement their messages in the dying days of the election campaign, one leader will be tossing and turning far less when they hit the hay every evening.

For the past few decades, voters have tended to be “rusted on” to the major parties. That is, there wasn’t much anyone could do to change their minds in the weeks leading up to election day – and “safe” seats, where one party was practically guaranteed to win, were actually safe.

But young people have thrown a spanner in the works. Not only do Gen Z (born after 1996) and Millennials (born between 1981 and 1996) make up more than 40 per cent of the national vote – outnumbering Baby Boomers for the first time – but they are increasingly pulling their support from the major parties.

The Greens have taken a bigger bite of the youth vote in recent elections, and the Australian Electoral Study – which has surveyed voters after every election since the mid-1980s – has found support for the major parties more widely has dropped to the lowest level it's seen.

That may also be thanks to the rise of independent or teal candidates who have offered platforms more in tune with issues such as climate change – especially hurting the Coalition in wealthier, inner-suburban electorates.

While there is diversity within the youth cohort, there are certain trends, shared experiences and grievances that have clearly shaped the major parties’ campaigns – and which will ultimately determine the result of the election.

Issues such as housing affordability, climate change and cost of living consistently dominate polling among young people.

With house prices continuing to slip out of reach of younger Australians (which their parents and grandparents are also seeing secondhand), both Labor and the Coalition have put housing policies front and centre in their campaigns.

Their demand-side policies are not especially helpful for dampening house prices because they increase the number of people bidding for a new home (and therefore push up house prices). Labor has guaranteed to allow all first home buyers to buy a place with a 5 per cent deposit, and the Coalition has promised to allow first home buyers to withdraw some of their superannuation and reduce their income tax by deducting their mortgage payments.

But these policies are short-term carrots that both parties know will appeal to first home buyers – many of whom are younger.

After facing a red-hot rental market, wage growth failing to keep up with the growth in everyday prices, and a pandemic which could have a long-term drag on their career progression, a seemingly lower hurdle to enter the housing market may be welcome for many young people.

It’s also more immediate than policies aimed at increasing supply, such as the Housing Australia Future Fund aimed at building thousands of homes, and the Coalition’s less direct promise to invest in housing infrastructure such as water, power and sewerage systems, which are more effective, longer-term responses. Both Labor and the Coalition know voters do not have the patience to wait (more) years to be able to crack into the housing market.

While cost of living has persistently been the number one issue for voters, one party has taken the extra step when it comes to easing pressures for young people. Labor’s promise, for example, to wipe 20 per cent off student loans, is a compelling proposition – especially for recent graduates who have racked up record levels of debt amid higher course fees. It’s a policy that has strong support – even among young Coalition voters.

The risks for Labor, of course, include the tendency of voters to “punish” or kick out whoever is in power during hard times, even if those hard times had little to do with the government, and the possibility of young people – who tend to be more progressive – choosing to back minor parties such as the Greens who have pushed for more radical policies such as capping rents.

While there’s recent evidence some young men are leaning more to the right and holding more conservative views than older generations, young people are, for the most-part, “issues-based” voters, meaning action on top offenders: housing affordability, climate change and cost of living are crucial to gaining their support.

Albanese, while arguably lacking extraordinary charisma, speaking ability or policy ambition, has done the basics well. He has relentlessly hammered home announcements on urgent care clinics, affordable medicines, childcare and fee-free TAFE, many of which matter to many, but especially young people.

By contrast, the campaign period has revealed some of the cracks and weaknesses in the Coalition. While their fuel excise cut is undeniably one of the policies with the strongest cut-through this election, they have been slow in releasing their costings, backflipped on their policy to end work-from-home for public servants, and only spoken about their nuclear policy when prodded.

Meanwhile, Albanese has consistently demonstrated he has a solid grasp of how systems, from health to roads and renewables, work – focusing on small improvements but never backing down or straying from his core policies.

Albanese has also connected more effectively in the social media space where young people tend to reside, at least much more than older generations. Dutton’s refusal to engage with influencers has narrowed his reach, while missteps such as his declaration that he would prefer to live in Sydney’s Kirribilli House over Canberra’s Lodge, did the rounds.

While Albanese has made his fair share of mistakes and neither leader has a natural flair for social media, the prime minister’s quips, vulnerability when speaking about his mother, and ability for banter may have put him in a stronger position on platforms such as TikTok where a sense of authenticity and personality are key to connecting with users, most of whom are younger.

Young people may have an appetite for bolder reform and back in more independents and minor party candidates this election, but Albanese will almost certainly secure a second term as prime minister. While there’s no one-size-fits-all approach to attracting young voters, doing the “ordinary” well is probably enough to get Labor across the line.

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Energy's a big part of living costs, but fixing it won't be cheap

The voters’ insistence that the election campaign must be about the cost of living has been a godsend to both major parties. They can look as if they’re lowering electricity and gas prices and avoid talking about their failure to tackle climate change.

Unfortunately, however, climate change and energy prices are closely connected – which does much to explain why their promises to cut power prices never mean much.

Voters seem permanently obsessed with energy prices, and they’ve figured in most election campaigns for decades. But it’s mainly been smoke and mirrors.

Julia Gillard introduced a tax on carbon in 2012 and, had it survived, we’d now be well advanced in reducing our emissions of greenhouse gases. Instead, Tony Abbott got himself elected partly by his exaggerated claims about what it would do to electricity prices, then promptly abolished it.

Today, Labor is still a supporter of climate action, with a legislated commitment to reduce emissions by 43 per cent by 2030. But it doesn’t want to talk about it because it’s proceeding slowly, and working both sides of the street by agreeing to new coal mines and gas platforms.

I doubt if Peter Dutton’s Coalition wants to talk about climate change either. They claim to believe in climate action, but their new plan to switch from renewables to using taxpayers’ money to build multiple nuclear power stations is really an excuse for doing nothing until those power stations may be built in a decade or two’s time.

The switch to distant nuclear resolves the Liberals’ disagreement with the Nationals who, being close to the mining lobby, have no enthusiasm for the Libs’ commitment to net zero emissions by 2050.

So, let’s not mention any of that. “You say the high price of energy has worsened your cost of living? Well, have we got a deal for you.”

Everywhere you look in this campaign you see one side or the other promising something to do with energy. Labor promises to extend its $75 a quarter discount on electricity bills for another six months until the end of this year.

The Coalition’s promising to cut the excise on petrol and diesel immediately by 25c a litre for a year. And it’s promising to reduce the wholesale price of gas by forcing gas producers to make more of it available to local users rather than exporting so much of it at high prices. (Gas is the most expensive fuel used to produce electricity, so reducing its local price would make power a bit cheaper.)

This has made the gas producers very unhappy. And Peter Dutton hasn’t provided much detail about how his gas plan would work.

Even so, Dutton has brought to light some truths that successive federal governments haven’t wanted us to know.

We’re always being told there’s a great shortage of gas because the three big gas liquefaction plants in Gladstone have lucrative contracts to export it all. But as Dutton has correctly said, there’s still a lot of it that’s uncontracted and so could be diverted for local use.

One way to discourage those companies from exporting so much of our gas would be to impose a tax on those exports, as Dutton has suggested. This has these largely foreign-owned companies reaching for their lawyers.

We always assume that our exports bring us great benefits. Mostly, but not always. We are one of the world’s biggest exporters of liquified natural gas, but research by the Australia Institute has found that no royalties are paid on 56 per cent of the gas we export.

Why? Because of loopholes in our petroleum resource rent tax.

Getting back to our complaints about the cost of energy, Labor’s always telling us that “renewable energy is incredibly cheap because its fuel [sun and wind] is free”.

That’s true, but misleading. At present, our grid of high-voltage power lines run from the coalfields to big cities such as Melbourne and Sydney. Switching from coal to renewables involves building a whole new network of powerlines running from solar and wind farms.

Building all those poles and wires is hugely expensive, and the cost will be passed on to you and me in the electricity prices we pay. Only when the new network’s been paid off will retail prices be a lot lower.

But this is where Labor has played a smart card in this election with its promise to subsidise the cost of adding a battery to your new or existing rooftop solar panels (and maybe the Coalition will announce something similar).

Some people have rooftop solar because they want to play their own part in reducing greenhouse gas emissions. Some people see it as an investment in reducing their electricity bills. And some people have panels because all the neighbours have them.

Whatever the reason, about a third of all Australian homes have rooftop solar which, on a per-person basis, makes us the world’s biggest rooftop solar country. Many people were encouraged to install solar by federal and state government subsidy schemes.

Obviously, the panels produce more power than you need during the day, and none at night when you have many gadgets running, especially in winter. So most people put power into the grid during the day and take it out night.

But the energy experts don’t really see rooftop as a key part of the complex distribution system they’re running, and sometimes rooftop can disrupt it.

So, although Anthony Albanese’s offer to cover up to 30 per cent – or $4000 – of the cost of buying and installing a home battery strikes me as likely to be pretty attractive as electoral bribes go, it will help reduce pressure on the grid.

True, it’s of no benefit to renters, or home owners who can’t afford the cost of panels or a battery. But it’s wrong to imagine it’s only the wealthy who’d benefit. If you’re really rich, you don’t worry how big your power bill is.

And don’t forget this: the more voters who see themselves as the good guys doing their bit to stop climate change, the more likely our politicians are to lift their game.

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The outlook for house insurance is much worse than we're being told

The big news on house insurance this week was the response of the insurance industry’s peak body to a parliamentary committee’s extensive criticisms of its treatment of people claiming on their policies after the massive floods of 2022.

The Insurance Council of Australia accepted some of the committee’s recommendations, announced an “industry action plan” and generally promised to be good boys in future. But the consumer groups were unimpressed.

Drew MacRae, of the Financial Rights Legal Centre, said the insurers “have a long way to go to restore trust and confidence in a sector that systematically failed customers during the 2022 floods. Today’s announced plan to get there is welcomed, but ‘trust us’ just won’t cut it.”

Meanwhile, in their pre-election campaigning, Anthony Albanese and Peter Dutton are as one in portraying our insurance problem as a matter of misbehaving insurance companies.

Asked if he accepted a journalist’s claim that the companies had doubled premiums in recent years, “had plenty of money” and “are ripping us off”, Albanese flatly agreed. “We will certainly hold the insurance companies to account,” he added.

Dutton’s response was to threaten to split up the big insurance companies – until wiser heads in his team calmed him down.

Sorry, all this is delusional for some and, for others, a knowing attempt to mislead us on the seriousness of the problem. Have the insurance companies been behaving badly? Yes. Should they be forced to treat their customers fairly? Of course.

But will that fix the problem? No. Have the companies been ripping us off, putting up premiums just to increase their profits? No. They’ve been grappling with a problem they know they can’t solve: you can’t insure against climate change.

The cost of house insurance has been rising rapidly for several years because more bushfires, cyclones, storms and floods have led to more claims. We know that continuing climate change will cause extreme weather events to become more frequent and intense.

So the great likelihood is that house insurance premiums will just keep rising rapidly. The outfit that’s doing most to alert us to the deep trouble we have with insurance is the climate campaigning Australia Institute. Its recent national poll of 2000 people found that while 78 per cent of home owners said their home was fully insured, 15 per cent said they were underinsured and 4 per cent said they were uninsured.

As house insurance premiums rise, more people will become underinsured – many with no insurance against flood damage, for instance – and more will be uninsured. Many of the latter will be people whose homes the companies have refused to insure.

The insurance companies know what’s coming, as do the banks and the government. They know what’s coming, but they don’t want to talk about it before it happens, mainly because they don’t know what to do about it.

Remember, insurance is an annual contract. So if I’m confident there’s little chance of your house being destroyed in the next 12 months, I’m happy to give you the assurance of insurance. But when, sometime in the future, I decide you’re a bigger risk, it will be a different story.

The point is, there’s no magic in insurance. It can do the possible, but not the impossible. The way insurance works is that, if I can gather a “pool” of many thousands of home owners, each with only the tiniest risk of having their house burn down, I can promise all of them that, in return for a modest premium, they’re all fully covered in the event of a major mishap.

A few of them will have such a mishap, but I can pay them out from the pool of premiums and still have enough left to make it worth my while being in the insurance business.

Once the risk of your home coming to grief becomes less than tiny, however, the game changes. When more than a few people in the pool make claims, I make no profit, or maybe a loss. So I can start by making owners with bigger risks pay more than those with low risks, but once your risk is too high, I can either charge you a premium that’s impossibly high, or just refuse you insurance.

Because of their ever-growing record of claims, the insurance companies are well-placed to make a reasonably accurate assessment of how risky it is to cover your house – even to the point of charging more in some parts of a suburb than others.

This means, of course, that home owners in some parts of the country will be charged far more than others. Premiums will be highest in northern Australia, where cyclone risk is higher, but also in areas where flooding or bushfires are likely. And even people living well away from harm in the inner city will be paying more to help out.

All this is why we should be doing more – and have been doing more this long time – as our part in the global effort to limit climate change. But what should we do to reduce the damage that’s arrived or is on its way?

Well, certainly not having the government subsidise insurance. That would just encourage people to keep doing what they should stop doing. Taxpayers’ money should be used only to help people get away from the risk of fires and floods.

Just as fighting a fire is easier than fighting a flood, bushfires are less difficult to get away from than floods. We must start by preventing anyone else building in risky areas.

Then we need to move people off the flood plain. As for Lismore, the whole town needs to be moved to higher ground.

But here’s a tip. Don’t hold your breath waiting for Albanese or Dutton to raise these issues in the election campaign. That’s not the way losers behave. Much easier to shift the blame to the greedy insurance companies.

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How many more cyclones before our leaders finally do something?

Forgive me for being hard-headed while everyone’s feeling concerned and sympathetic towards those poor flooded Queenslanders and people on NSW’s northern rivers, but now’s the time to resolve to do something about it.

As the rain eases, the rivers go down, the prime minister flies back to Canberra and the TV news tires of showing us one more rooftop in a sea of rushing water, the temptation is to leave the locals to their days and even months of getting things back to normal, while we go back to feeling sorry for ourselves over the cost of living and waiting impatiently until the federal election is out of the way, and we stop hearing the politicians’ endless bickering.

But speaking of politics, let’s start with Anthony Albanese. He’s been forced to abandon his plan for an April 12 election because calling an election in the middle of a cyclone would have been a very bad look.

“I have no intention of doing anything that distracts from what we need to do,” he told the ABC. “This is not a time for looking at politics. My sole focus is not calling an election, my sole focus is on the needs of Australians – that is my sole focus.”

Ah, what a nice bloke Albo is. Convinced? I’m not. You don’t get to be as successful a politician as Albanese unless your sole focus is, always and everywhere, politics. It’s because his sole focus is politics that he knows now’s not the time to look political. “Election? Election? If I don’t make out I don’t care about the election at a time like this – I could lose it.”

One thing I’ve learnt from watching prime ministers is that, though they all make mistakes – buying a holiday beach house during a cost-of-living crisis, for instance – they never make the same mistake that helped bring down their predecessor.

Every pollie knows Scott “I don’t hold a hose” Morrison’s greatest mistake was to persist with his Hawaii holiday during the Black Summer bushfires of 2019-20. The ABC has helpfully dug up footage of people in the affected area refusing to shake Morrison’s hand after he turned up late.

Now do you get why Albanese’s been doing so much glad-handing up in the cyclone area?

The election campaign that’s already begun is between two uninspiring men, neither of whom seem to have anything much they want to get on and do. You’re going to fix bulk-billing, are you? Wow. Anything else?

But, perhaps in an unguarded moment, Albanese did say something impressive. He seemed to elevate climate change as a major election issue, saying all leaders must take decisive action to respond to global warming because it is making natural disasters such Cyclone Alfred worse and more expensive to recover from.

Actually, this is the perfect opportunity to make this an election worth caring about. You’ve got a Labor Party that cares about climate change but is hastening slowly, versus a Liberal Party that only pretends to care and whose latest excuse for doing nothing is switching to nuclear power. This would take only a decade or two to organise so, meanwhile, we can give up on renewable energy and abandon Labor’s commitment to cut emissions by (an inadequate) 43 per cent by 2030.

Both sides are likely to lose more votes to the two groups that do care about climate change – the Greens and the teal independents. Labor is delaying announcing its reduction target for 2035 until after the election. If Albanese had the courage, he’d promise a much more ambitious target and make it a central issue in the election.

The point is, Alfred is hardly the last cyclone we’ll see. Extreme weather events – including heatwaves, droughts and floods - have become more frequent and more intense. How many more of them will it take to convince us we need to do more to reduce our own emissions, as well as taking responsibility for the emissions from the coal and gas we export to other countries?

What’s different about Alfred is it hit land much further down the coast than usual. Reckon that’s the last time this will happen? Modelling by scientists at UNSW’s Climate Change Research Centre suggests that weakening currents may lead to wetter summers in northern Australia.

Other researchers from the centre tell us “our climate has changed dramatically over the past 20 years. More rapid melting of the ice sheets will accelerate further disruption of the climate system.”

A big part of our problem is the longstanding human practice of building towns near a good source of water, such as a river. Rebecca McNaught, of Sydney University, tells us Lismore is one of the most flood-prone urban centres in Australia.

Dr Margaret Cook, of Griffith University’s Australian Rivers Institute, reminds us that, until recently, 97 per cent of our disaster funding was spent on recovery, compared with 3 per cent invested in mitigating risk and building resilience.

That’s all wrong and must be reversed. Armies of volunteers – plus defence forces – emerge after disasters to help mop up. But Cook argues for an advance party that arrives before a disaster to help prepare by moving possessions, cleaning gutters and drains and pruning trees.

She advocates advanced evacuation, permanently relocating flood-prone residents, raising homes and rezoning to prevent further development in flood-prone areas.

“We must improve stormwater management, adopt new building designs and materials, and educate the public about coping with floods,” she says.

As we saw at the weekend, the defence forces have become a key part of the response to natural disasters. Great. Except that, according to a review in 2023, the Australian Defence Force is not structured or equipped to act as a domestic disaster recovery agency in any sustainable way.

It could be so structured, of course, though it might take a bob or two. And that’s before you get to the problem of houses that are uninsurable and insurance policies that are merely unaffordable.

The more you think about climate change, the more you realise it’s going to cost taxpayers a bundle.

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Why we'd be mugs to focus on the cost of living at the election

It’s a good thing I’m not a pessimist because I have forebodings about this year’s federal election. I fear we’ll waste it on expressing our dissatisfaction and resentment rather than carefully choosing the major party likely to do the least-worst job of fixing our many problems.

Rather than doing some hard thinking, we’ll just release some negative emotion. We’ll kick against the pricks – in both senses of the word.

We face a choice between a weak leader in Anthony Albanese (someone who knows what needs to be done, but lacks the courage to do much of it) and Peter Dutton (someone who doesn’t care what needs to be done, but thinks he can use division to snaffle the top job).

By far the most important problem we face – the one that does most to threaten our future – is climate change. We’re reminded frequently of that truth – the terrible Los Angeles fires; last year being the world’s hottest on record – but the problem’s been with us for so long and is so hard to fix that we’re always tempted to put it aside while we focus on some lesser but newer irritant.

Such as? The cost of living. All the polling shows it’s the biggest thing on voters’ minds, with climate change – and our children’s future – running well behind.

Trouble is, kicking Albanese for being the man in charge during this worldwide development may give us some momentary satisfaction, but it will do nothing to ease the pain. Is Dutton proposing some measure that would provide immediate relief? Nope.

Why not? Because no such measure exists. There are flashy things you could do – another big tax cut, for instance – but they’d soon backfire, prompting the Reserve Bank to delay its plans to cut interest rates, or even push them a bit higher.

We risk acting like an upset kid, kicking out to show our frustration without thinking about whether that will help or hinder their cause.

Rather than finding someone to kick, voters need to understand what caused consumer prices to surge, and what “the authorities” – in this case, Reserve Bank governor Michele Bullock and the board, not Albanese – are doing to stop prices rising so rapidly.

The surge was caused by temporary global effects of the pandemic – which have since largely gone away – plus what proved to be the authorities’ excessive response to the pandemic, which is taking longer to fix.

It’s primarily the Reserve Bank that’s fixing the cost of living, and doing it the only way it knows: using higher mortgage interest rates to squeeze inflation out of the system. But doesn’t that hurt people with mortgages? You bet it does.

What many voters don’t seem to realise is that, by now, the pain they’re continuing to feel is coming not from the disease but the cure. Not from further big price rises but from their much higher mortgage payments.

So it’s the unelected central bank that will decide when the present cost-of-living pain is eased by lowering interest rates, not Albanese or Dutton. A protest vote on the cost of living will achieve little. Of course, if you think it would put the frighteners on governor Bullock, go right ahead. She doesn’t look easily frightened to me.

But there’s another point that voters should get. When people complain about the cost of living, they’re focusing on rising prices (including the price of a home loan). What matters, however, is not just what’s happening to the prices they pay, but what’s happening to the wages they use to do the paying.

When wages are rising as fast as prices – or usually, a little faster – most people have little trouble coping with the cost of living. But until last year, wages rose for several years at rates well below the rise in prices. Get it? What’s really causing people to feel cost-of-living pain is not so much continuing big price rises or even high mortgage payments, but several years of weak wage growth.

Why does this different way of joining the dots matter? Because, when it comes to wages, there is a big difference between Albanese and Dutton.

Since returning to government in 2022, Labor has consistently urged the Fair Work Commission to grant generous annual increases in the minimum award pay rates applying to the bottom fifth of wage earners.

This will have helped higher-paid workers negotiate bigger rises – as would Labor’s various changes to industrial relations law. Indeed, this is why wages last year returned to growing a fraction faster than prices.

These efforts to increase wage rates are in marked distinction to the actions of the former Coalition government. So kicking Albanese for presiding over a cost-of-living crisis risks returning to power the party of lower wages.

But here’s the trick: it also risks us taking a backward step on climate change. The party that isn’t trying hard enough could be replaced by a Coalition that wants to stop trying for another decade, while it thinks about switching from renewables to nuclear energy.

From the perspective of our children and grandchildren, the best election outcome would be a minority government dependent on the support of the pollies who do get the urgency of climate action: the Greens and teal independents.

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We've entered the era of gutless government

Sorry to tell you that I’m finishing this year most unimpressed by Anthony Albanese and his government. I’m still reeling from his last two weeks of parliament, pushing through 45 bills just to show how much he’d achieved and give himself the option of calling an election early next year should he see a break in the clouds.

Some of the measures pushed through at breakneck speed merited much more scrutiny, while some reforms that should have been put through were abandoned. One measure he’d hoped to rush through, fortunately, didn’t make it.

It all left me more conscious of his government’s weak performance, capping off 2 ½ years in which Labor turned its mind to many of the problems left by its Liberal predecessors, did a bit to help, but never nearly enough.

Why not? Because there were powerful interest groups Labor didn’t want to offend. And because it lives in fear of what the Libs might say. The two-party duopoly has painted itself into a corner, with neither side game to do what needs to be done.

Take the greatest threat to our future: climate change. Labor was elected in May 2022 partly because it seemed to be genuine in its determination to see Australia play its part in reducing greenhouse gas emissions, whereas the Coalition seemed only to be pretending to care.

In government, Labor kept its promise to legislate its target of reducing emissions by 43 per cent by 2030. It strengthened its predecessors’ “safeguard mechanism”, limiting emissions by major industries. It made speeches about how nice it would be for Australia to become a world superpower, using clean electricity to manufacture green iron, green aluminium and other things, then export them to Asian countries with far less sun and wind than we have.

So clearly, we’ve now accepted that our industries exporting coal and natural gas will start to phase down and out. What? Gosh no. No, no, if the coal industry wants to extend its mines, that’s fine. If the West Australians want assurance of the need for offshore gas beyond net zero emissions in 2050, that’s fine.

Under the shiny new slogan of Nature Positive, Labor had promised to end further degradation of our natural environment, including by setting up a federal environment protection authority. This was opposed by the Coalition, proudly proclaiming itself to be the mining industry’s great friend, but the necessary legislation could go through thanks to a deal Environment Minister Tanya Plibersek had reached with the Greens.

But then the WA premier phoned Albanese to advise that the state’s miners were most unhappy about further efforts to protect the environment, so the deal was squashed. But not to worry. Should Albo decide against an early election, the bill would be back on the drawing board when parliament resumed for a short sitting in February.

In his timidity, Albanese has introduced to politics the each-way bet. Strong support for the move to renewables? Of course. Continuing support for the use and export of fossil fuels? Of course. Welcome to the era of gutless government.

From the greatest threat to our future on this planet to the greatest example of populist cynicism. To great applause from voters – and with the whole world watching this Aussie reform, up there with the secret ballot – Albanese rushed through his bill banning children under 16 from using social media.

Had he figured out a foolproof way of enforcing the ban? Could the kids soon find ways around it? Would we all be forced to provide trustworthy tech giants such as Facebook and TikTok with documentary proof of our age? No. Let’s just push the bill through and worry about such details later. And never mind the experts saying what’s needed is to train our young people how to detect misinformation and disinformation.

This is politicians acting on their cynical maxim that “the appearance is the reality”. They don’t need actually to fix a problem, just create the appearance of fixing it. Just do something the unthinking punters, and the shock jocks who lead them on, happily imagine will fix things.

The promised measures that were dropped from Albanese’s frenetic bill-passing included action to curb the advertising of sports gambling and the plan – announced in February last year – to raise the tax on superannuation balances over $3 million (a needed reform despite what it would have cost a poor battler such as me).

One bit of good news was the disappearance of Labor’s bill to reform election fundraising. Although it included various valuable changes, its claim to be taking “big money” out of politics was a thinly disguised plot to knock out Clive Palmer and the teals’ funding from Climate 200 while ignoring the political duopoly’s funding from the unions and big business.

Fortunately, the duopolists couldn’t agree to push it through.

The sad part of Albanese’s unimpressive performance is that there’s little reason to believe the Peter Dutton-led Coalition would do any better at fixing the many problems the Morrison government left for Labor to deal with. One of which, of course, was the cause of what soon unfolded after the May 2022 election to become the “cost-of-living crisis”. Much of the surge in prices came from overseas disruptions to supply. The rest, according to the Reserve Bank’s reasoning, came from the stimulus applied by the Morrison and state governments that turned out to be far more than needed.

Albanese and Treasurer Jim Chalmers have done a good job in managing the unfinished return to low inflation, but they have no control over when the Reserve will decide to start cutting interest rates. If, as seems likely, Labor loses seats at next year’s election, that will be voters punishing it for the cost of living, over which it had little control, not for its weak performance in so many other areas.

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Playing a major role in saving the planet could make us rich

If you’ve ever been tempted by the thought that Australia forging our future by becoming a global “superpower” is a nice idea but probably not a realistic one, I have big news. New evidence shows it’s the smart way to fund our future.

Last week, while we were engaged in a stupid argument over whether the Future Fund should continue growing forever and earning top dollar by being invested in other countries’ futures rather than our own, few people noticed a report much more germane to our future.

The Superpower Institute – set up by the man who first had the idea, Professor Ross Garnaut, with former competition watchdog Rod Sims – put its money where its mouth was and produced hard evidence that the idea could work.

It employed Dr Reuben Finighan to test and extend Garnaut’s argument with a detailed analysis of the future energy supply and demand in five potential importing countries, which together account for more than half of annual global greenhouse gas emissions: China, Japan, South Korea, India and Germany.

Finighan’s report, The New Energy Trade, provides world-first analysis of likely international trade in clean energy and finds Australia could contribute up to 10 per cent of the world’s emissions reductions while generating six to eight times larger revenues than those typical from our fossil fuel exports.

He demonstrates that, though Australia’s present comparative advantage in producing fossil fuels – coal and natural gas – for export will lose its value as the world moves to net zero carbon emissions, it can be replaced by a new and much more valuable comparative advantage in exporting energy-intensive iron and steel, aluminium and urea, plus green fuels for shipping, aviation and road freight, with our renewable energy from solar and wind embedded in them.

Unusually, Finighan’s focus is on the role that international trade will need to play in helping the world reach net zero emissions at minimum cost to the economy. He reminds us that the world’s present high standard of living could not have been achieved without the use of fossil fuels, which required extensive trade between the countries that didn’t have enough oil, coal and gas of their own, and those countries that had far more than they needed for their own use.

Our participation in this trade, of course, explains much of our success in becoming a rich country. It will be the same story in the net-zero world, with much trade in renewable energy between those countries that can’t produce enough of their own at reasonable cost, and those countries with abundant ability to produce solar and wind power at low cost.

Again, we have the potential to be a low-cost producer of renewable energy, exporting most of it to the world and earning a good living from it. Finighan says countries with the most abundant and thus cheapest renewable energy available for export are those whose solar and wind resources are more intense, less seasonal and that have abundant land relative to the size of their population and economy.

Those few countries include us. Garnaut says we’re the country with by far the largest capacity to export to the densely populated, highly developed countries of the northern hemisphere. Finighan finds we can produce “essentially limitless low-cost green electricity”.

The required solar and wind farms would occupy about 0.6 per cent of our land mass. Include the space between the wind turbines and that rises to a shocking 1.1 per cent.

To put this in the sign language of economists, on a diagram plotting what would happen to our cost of supply as (world) demand increased, the curve would start very low and stay relatively flat.

But, Finighan points out, there’s one big difference between the old trade in dirty energy and the new trade in clean energy. Whereas fossil fuels are cheap to transport, shipping clean energy is prohibitively expensive.

Remember that a key strategy in the global move to net-zero is to produce electricity only from renewable sources, then use it to replace as many uses of fossil fuels as possible, including gas in households and industry, and petrol in cars.

You can’t export electricity, but transforming it into hydrogen or ammonia requires huge amounts of electricity, thus involving much loss of energy and increased cost. So it’s cheaper to use locally made electricity to produce energy-intensive products such as iron, aluminium, urea and so forth locally, before exporting them.

That is, the world trade in clean energy will mainly involve that energy being embedded in “green” products. This means, for the first time ever, making certain classes of manufacturing part of our comparative advantage.

Finighan finds that, by ignoring the role trade will play in the process of decarbonisation, and thus the need for countries with limited capacity to produce their own renewables to import them in embedded form, earlier studies, including those by the International Energy Agency, have underestimated how much more electricity production the world will need.

In examining the likely energy needs of the five large economies – four in Asia and one in Europe – he projects large shortfalls in their local supply of electricity. By mid-century, Japan, South Korea and Germany will have shortfalls of between 37 and 66 per cent. Because of their later targets for reaching net-zero, China’s greatest shortfall won’t occur until 2060, and India’s until 2070.

These calculations take full account of the role of nuclear energy. It’s one of the most expensive means of generating clean energy. Unlike renewable technology, it’s become much more costly over time, not only in the rich economies but also in those such as India.

Nuclear will play a minor role even in countries where heavy government subsidies render it competitive, such as China. Even if China triples its recent rate of building nuclear, it may contribute only 7 per cent of electricity supply by 2060.

In those shortfalls, of course, lies a massive potential market for Australia’s exports of green manufactures. So, to mix metaphors, the dream of us becoming a superpower turns out to have legs. All the Labor government and the Coalition opposition have to do now is extract the digit.

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How climate-denier Trump may leave China to save the planet

To a sensible person, the most worrying aspect of the re-election of Donald Trump is his refusal to take climate change seriously. He says it’s a hoax and a scam.

There’s no denying that Trump’s decision to again withdraw America from the 2015 Paris Agreement to reduce greenhouse gas emissions and limit the global average temperature increase to below 2 degrees is a setback.

It could tempt many other countries to give up their own efforts to reduce emissions. If the mighty United States has stopped trying, why should we bother? It could dishearten the rest of us, but I doubt it will.

On the contrary, it could prompt us step up our own efforts – something we needed to do even without the US government’s withdrawal. It will certainly stiffen the resolve of the Chinese, who’ve just been handed the vacant position of moral leadership of the world on climate action.

Which is funny when you remember the Yanks’ bipartisan obsession with stopping China usurping their place as the world’s top dog. Will they really take this lying down?

The more I think about it, the more convinced I become that our shift to clean energy is now unstoppable. For a start, as each day passes, we see more evidence around us that climate change is already upon us, not something that may or may not happen sometime in the future.

Who can forget the footage of Spain’s flooding? All those nice cars washed up in a muddy heap at the end of the street. An entire year’s rainfall in eastern Spain in less than 24 hours, leaving more than 200 people dead.

Our TV news is now dominated by stories of extreme weather events of every kind: cyclones, bushfires, floods, deadly heatwaves and droughts. How long before we see regular footage of houses falling into the sea? Not to worry, it’s all a scam. They fake the photos.

For another thing, the switch to clean energy is well under way in most countries, and it’s too late to stop it. In some developing countries – China, for instance – the move away from dirty fossil fuels, particularly coal, is being propelled by a popular revolt against air pollution.

Elsewhere, it’s being driven by straight economics: the rapidly declining prices of solar panels, wind turbines and electric vehicles. Why would anyone ever build another coal-fired power station?

Anyone who opens a new coal mine is taking a bet that it won’t become a worthless “stranded asset” long before it reaches the end of its useful life. I read that, had it not been for Russia’s attack on Ukraine, the world prices for oil and gas would have begun falling as demand for them declined.

Note, too, that there are limits to a US president’s ability to stop the move to renewables and efforts to reduce emissions. Emissions reduction is mainly a matter for the state governments. Some of them – including huge California – will persevere with their reduction schemes.

President Joe Biden’s dishonestly named Inflation Reduction Act of 2022 actually provides billions of dollars in subsidies for the manufacture of solar panels, wind turbines and batteries in America. Trump plans to abolish it, but a lot of money has already been spent and – whether by accident or design – it’s largely being invested in Republican states and congressional districts. He may not be allowed to cut it off.

And all that’s before we get to China – the great villain and hero of climate change. Although the vast mass of greenhouse gases in our atmosphere was put there by America and the other rich countries burning fossil fuels for the past century or two, when you come to the annual addition to the stock of harmful gases it’s a different story.

Although the Americans still fancy themselves as having the world’s biggest economy (actually, if you measure it more accurately, they’ve already been overtaken by China), and although their emissions per person are still far higher than China’s, they only come second in the comp to add the most to emissions.

Because China’s population is four times the size of America’s, and its economy has been growing much faster than America’s, China accounts for 30 per cent of the world’s annual emissions, compared with America’s 11 per cent. (Then comes India with 8 per cent, and the 27 countries of the European Union with 6 per cent.)

So what China does matters far more than what the US does. And China is big on both sides of the ledger. According to The Economist, its emissions rose by about 6 per cent last year. About half that comes from its power sector, mainly burning coal. Another third comes from factories, particularly steel foundries. Then come emissions from cars and lorries.

But although China is still building new coal-fired power stations, it has installed more renewable power than any other country, and is using big subsidies to encourage the trend. Chinese companies make 90 per cent of the world’s solar cells, used to make solar panels, 60 per cent of the world’s lithium-ion batteries and more than half of the world’s electric vehicles, The Economist tells us.

It’s because of China’s massive production of these things – for its own use and for export – that the move to renewables has become so much cheaper in other countries.

The rapid increase in China’s production of renewable energy makes it likely its emissions will soon stop rising, even before the government’s 2030 target date. So the next step is for it to start reducing annual emissions in pursuit of its pledge to eliminate net carbon emissions by 2060.

That won’t be easy, of course. But my guess is the Chinese will take great delight in showing the world how decadent the US has become.

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You can blame Albanese for all our woes - except the cost of living

I try not to be a pollie basher – we get the politicians we deserve – but I can’t remember a time when I’ve been more disillusioned and disheartened by the performance of both major parties. It’s fair to criticise them on every topic except the one that obsesses us: the cost-of-living crisis.

Let’s start with that. For several years, we had prices rising at a rate that was actually lower than the Reserve Bank and economists regarded as healthy: less than 2 per cent a year. But then, in the months before the federal election in May 2022, at which Scott Morrison and crew were tossed out, prices took off.

By the end of that year, consumer prices had risen by almost 8 per cent. As you remember, the Reserve Bank began trying to get inflation back under control the only, crude way it knows: to discourage households from spending so much by using higher interest rates – particularly on home loans – to leave us with less to spend on other things.

Why did the Reserve Bank start raising rates during the election campaign, rather than waiting until it was over? Because it foresaw that a change of government was likely and didn’t want anyone getting the idea that it was the new government that had caused the problem.

By the same token, it’s hard to blame the surge in prices on the Morrison government. Prices took off in all the rich economies for much the same reasons. First, because the pandemic caused major disruption to supply of many goods, and because Russia’s attack on Ukraine disrupted world gas and oil markets.

But second, because the efforts to prop the economy up during the lockdowns – by slashing interest rates almost to zero, and the shedloads of government spending on the JobKeeper scheme, the temporary doubling of unemployment benefits, and on many other things – proved to be wildly excessive. When people started spending all that extra money, demand for goods and services grew faster than businesses’ ability to supply them, so they whacked up their prices.

You could blame this gross miscalculation on Morrison & Co – except that it was the first pandemic the world had seen in a century, the medicos had no idea how bad it would be or how long it would take to develop a vaccine, and like all governments everywhere, our government and its econocrats decided it would be safer to do too much than too little.

Since then, the passing of the international supply disruptions and the Reserve Bank’s many interest-rate increases have succeeded in getting the rate of price increase down a long way. But the bank won’t start cutting interest rates until it’s convinced our return to the 2 to 3 per cent inflation target zone will last.

Despite the unceasing criticism of a largely partisan news media, the Albanese government’s part in helping get inflation back under control has been as good as it’s reasonable to expect.

One reason it’s taking so long is that both the government and the Reserve Bank have been trying to avoid causing a huge rise in unemployment, and in this, they’ve been spectacularly successful. The proportion of the working-age population with jobs is at a record high.

So if it’s not fair to blame Albanese and his ministers for the cost-of-living crisis, why am I so critical and disapproving of the government – not to mention the opposition?

Because on almost every other matter Albanese has touched, he’s done far less than he should have. And in their time on the opposition benches, the Liberals and their Coalition partners have laboured mightily to make themselves more extreme and less electable.

As always, we turned to a new government in 2022 full of hope that it would make a much better fist of dealing with our many problems. And it’s always been true that Albanese and his people knew what needed doing. It’s just that, somewhere along the line, he seems to have lost his bottle.

He’s done a bit to tackle each of our big problems, but with one exception, he’s stopped short of doing nearly enough. Everything gets a lick and a promise.

The one exception has been the government’s significant efforts to reduce job insecurity – to improve the wages and conditions of less-skilled workers – for which we can thank the unions. Under the Labor Party’s constitution, the union movement holds a mortgage over the party and its members of parliament.

On everything else, Albanese seems to live in fear of annoying some interest group somewhere. So he always does something, but never enough. When business and other interest groups lobby the government privately to tone down its planned changes, he invariably obliges.

You can see this in the government’s changes to gambling advertising, Medicare bulk-billing, the adequate taxation of mining and gas, the National Anti-Corruption Commission (no public hearings), the housing crisis, vocational education and training, aged care and so forth.

But on no issue has Albanese failed so badly as on the one most vital to our future: climate change. Sure, he’s shored up the Coalition government’s “safeguard mechanism” and legislated the target of reducing emissions by 43 per cent by 2030. At the same time, however, he’s acted to secure the future of natural gas extraction and authorised expansion of three big coal mines.

It’s as though he’s taking an each-way bet. He seems desperate to stay in office, but has no great plans to govern effectively.

Meanwhile, under Peter Dutton, the Liberals and their pro-mining National Party colleagues have used their time in opposition to make themselves negative, divisive and utterly unworthy to take over from a weak government. Their one substantive policy is to be off with the nuclear fairies.

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Let's all be more positive towards nature. But how?

Have you heard about Nature Positive? It’s a global movement to stop all the damage we’re doing to the natural environment – to forests, rivers, plants and animals – and start reversing that damage. It’s an idea whose time has come. And it’s coming to Australia next week.

Tuesday week will see the world’s first global Nature Positive Summit in Sydney, hosted by federal Minister for the Environment and Water Tanya Plibersek and NSW Minister for the Environment Penny Sharpe.

The summit will be “the next step towards turbocharging private sector investment in nature repair”. It will bring together ministers, experts, environmental groups, businesses, First Nations people, community leaders and scientists.

It will “bring together global leaders to discuss next steps for a nature-positive future, so that our kids and grandkids will be able to enjoy the wild places we love today”, Plibersek says.

Sharpe says that “getting nature on the path to recovery is as important as tackling climate change. Nature positive, and investing in nature, are newish concepts, and they are key to turning around destruction and pollution of land, waterways and air, and stopping biodiversity loss”.

The summit’s sessions and site visits will cover driving sustainable ocean economies and “blue finance”, developing nature reporting frameworks, business leadership on sustainability, boosting First Nations leadership in nature repair, and showcasing nature repair in practice, across landscapes, seascapes and borders.

Well, that’s great. At this late stage, you’d have to be pretty boneheaded not to agree with all that. The question is, what should we do to stop the continued destruction and start repairing the damage we’ve already done?

Well, the answer’s obvious – obvious to economists anyway. Surely, what we should do is create the incentives necessary to discourage destructive behaviour and encourage helpful behaviour.

We need to set up something similar to the present “safeguard mechanism”, which requires businesses in industries with major carbon emissions to limit and then reduce their emissions.

Where this is impractical, they must “offset” any excess emissions with “carbon credits” purchased from farmers and others who do things that reduce an equivalent amount of carbon emissions. These “Australian carbon credit units” are certified by a government agency to ensure they’re genuine.

Get it? Rather than just ordering companies to stop emitting greenhouse gases, the government uses an “economic instrument” that offers incentives to businesses to do the right thing. The government creates a new market where businesses unable to reduce their emissions can pay other businesses to reduce emissions for them.

The emissions are reduced by those businesses that can do so cheaply, rather than the firms for which doing so would be much more costly. The market thus allows the community to reduce climate damage at the lowest available cost.

Neat idea, eh? One small problem. We have to be sure the businesses being paid to reduce their emissions really do so to the extent they claim. But these carbon-credit schemes are notorious around the world for being dodgy or downright fraudulent.

One problem is ensuring the carbon isn’t locked up (“sequestrated”) for a few years and then let go. Another is being sure people aren’t getting paid to do something they fully intended to do anyway for other reasons.

Officialdom insists that our federal carbon-credit system is kosher. But various whistleblowers beg to differ – and that’s not hard to believe.

With nature first, the schemes you use to reduce carbon emissions can be adapted to preserving and repairing bushland and plant and animal habitat. With bushland, there’s a fair bit of overlap between the two problems.

The NSW government has been running a biodiversity offsets scheme since 2017. But in its own politely ponderous way, a performance audit by the NSW Auditor-General in 2022 tore it limb from limb.

It found that the government department responsible for the scheme had “not effectively designed core elements” of it. There were “key concerns around the scheme’s integrity, transparency and sustainability” creating “a risk that biodiversity gains made through the scheme will not be sufficient to offset losses resulting from the impacts of [economic] development, and that the department will not be able to assess the scheme’s overall effectiveness”.

The point is, by now we’ve had enough experience of attempts by governments to create “markets” out of thin air, just by passing laws and setting up regulatory bodies, to know this doesn’t leave us with markets that work the way real markets work – let alone the markets that exist in economics textbooks.

When it comes to the environment, the trouble with government-created “markets” is that governments are creating the demand for something – a carbon credit, or a biodiversity credit – and also determining the supply of that something, by deciding who’s done something that entitles them to sell a credit.

So the buyer has been ordered to buy things called credits, while the seller has been allowed to sell things called credits. See what real markets have that this market doesn’t? Customers.

A customer is someone who wants value for their money and, if they aren’t getting it, will either go somewhere else or decide to go without.

But in this so-called market without customers, buyers have to buy credits just to please the government, while sellers who’ve been granted a piece of paper called a credit have a guaranteed buyer.

So sellers can sell anything they’ve persuaded the government to class as a credit, while the buyers forced by the government to acquire officially designated credits, have no reason to care whether the credits they buy are good, bad or indifferent.

It’s hard to imagine a “market” where the risk of buying something that’s no good could be higher.

Now get this. As originally intended, the purpose of the Albanese government’s Nature Repair Act, passed late last year, was to establish a nature-repair market. But the Greens would pass the bill in the Senate only if it didn’t permit miners and other developers to harm nature. And if they did, the polluters would have to offset any damage by buying biodiversity credits.

So, in the end, the Act created only half a market. It gives the government power only to award farmers and others who do nature-enhancing things with “biodiversity certificates”, which they can sell.

Who’d want to buy such certificates? Only philanthropists, environmental groups, companies trying to enhance their environmental credentials, or governments coughing up taxpayers’ money.

You get the feeling the Greens don’t have much faith in creating artificial markets to fix the environment. They don’t seem to share most economists’ conviction that governments shouldn’t order people about – particularly businesspeople.

So how else can we pursue nature positive? Well, here’s a radical thought: governments could stop logging native forests, stop further land clearing, stop subsidising fossil fuels, stop permitting new mines and gas fields, and start spending a lot of money restoring land and habitat.

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Why the planet needs the economy to go round in circles

By MILLIE MUROI, Economics Writer

For as long as humans have walked the earth, we’ve grappled with this dilemma: how to satisfy our unlimited wants and needs with limited resources. Eventually, people started putting pen to paper, and called the study of this problem “economics.”

Over time, we’ve become better at making – and doing – more: by piecing together machines that can dig more out of the ground, stripping the soil, and producing all sorts of foods, gadgets and shelter. Our ancestors would be shocked walking through the supermarket, and trawling online, at the seemingly infinite choices at our fingertips today.

But all this has come at a cost – which we haven’t been particularly good at factoring in.

For the past few centuries, we’ve measured our success, economically speaking, mostly by how much we’re able to produce. The bigger the amount (often measured by gross domestic product (GDP). the better.

In simply prioritising greater output, though, we’ve been pumping out emissions, producing massive amounts of waste and damaging land and waterways. We’ve been scoring own goals, even as we press forward in this seemingly never-ending game of producing more.

Now, the solution isn’t necessarily to rewind the work we’ve done. But it does pay to look back in time. For many indigenous communities, it has been the case for millennia that people take only what they need, leaving enough for remaining resources to regenerate, and reusing and repairing things rather than tossing them away.

These principles are also at the heart of the concept of a “circular economy”.

Our economy now is mostly “linear”, meaning we tend to take raw materials from the earth, make things out of them, then pretty quickly dispose of them when those things start falling apart. A lot of the valuable materials we take from the land end up buried in landfill or drifting around in the atmosphere or our oceans – which, apart from harming the environment, is a problem when we’re on a planet with limited resources.

Now, most of us have a decent understanding of recycling. You probably divvy-up your hard plastics from your soft plastics, and you might even have a compost bin or worm farm.

Australia’s overall material recycling rate in the 2021–22 period was about 63 per cent – or 1568 kilograms of recycled material for each person, up from 57 per cent in 2011-12. It’s an industry which added roughly $5 billion in value to the Australian economy, more than 30,000 jobs, and paid over $2.5 billion in wages and salaries in 2021-22. And there’s room to grow.

But the circular economy starts long before we decide to toss things out. It’s about designing things in ways that create less waste: from the process of making them (how can we limit by-products like carbon dioxide when building a house, or make a car using less material?) to designing goods that last the distance, or run more efficiently (how can we make T-shirts that hold their shape for years, or planes that run on less fuel and cough out fewer emissions?)

It’s also about a mindset shift – which could actually make us happier. In our consumption-led economy (household spending drives more than half of our economic growth), it’s easy to fall into the trap of buying things. Ads spruiking that thing you really need are everywhere. Whether it’s the newest iPhone, that cute outfit you’ve been eyeing up, or that power tool which will definitely complete your collection, the dopamine hit when you walk away with a new item is a fuzzy feeling many of us are familiar with.

But that excitement tends to wane over time, buyer’s remorse can creep in, and we often end up with a lot of clutter which we compare to other people’s clutter and fall into an endless cycle of sorting through.

Being more conscious about our purchases, buying things that are made sustainably, and thinking about how to extend the life of our possessions, are good places to start. “Buy Nothing” groups where people give away things they no longer need, and repairing things rather than throwing them away, are ways we can save money and feed into this circular economy.

The way we consume things is undeniably a game-changer. But the government and the country’s businesses also have a role. In October 2022, Australia’s environment ministers committed to speeding up the transition to a circular economy by 2030.

This week, the Productivity Commission opened up its desk to submissions for its inquiry into Australia’s opportunities in the circular economy. Requested by Treasurer Jim Chalmers, the inquiry will look into ways Australia can “improve materials productivity and efficiency in ways that benefit the economy and the environment.”

While we’ve tended to fixate on how we can improve the productivity of workers, international studies suggest a more circular economy can lead to higher economic growth and productivity, largely by boosting how productive we are with our inputs: essentially making more with a given amount of raw materials.

Australia has the fourth-lowest rate of materials productivity among OECD countries, generating $US1.20 of economic output for each kilogram of materials we consume. That’s less than half of the OECD benchmark of $US2.50.

Of course, it’s important to remember Australia is a bit of an outlier. We’re a highly resources-driven economy, with vast amounts of land separating us from our cows, sheep, mines and one another. While we can make transport less wasteful, achieving 100 per cent circularity is practically off the table.

Moving towards a more circular economy, though, is a worthwhile exercise – and one we’ve been making progress towards. Our material productivity has increased from $1.45 generated from a kilo of materials in 2010, to nearly $1.60 a kilogram in 2023, and we’re generating a bit less waste per person than we were a couple of decades ago.

Since the industrial revolution, we’ve rapidly fattened up our economy by pumping out products and consuming more. While going around in circles is generally a bad thing, the best way forward might be just that.

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The moribund political duopoly is rapidly self-destructing

Why do we have so many economic problems, and why do our governments make so little progress in fixing them? Because the two main parties just play politics and by now have boxed each other in. Neither side is game to make tough decisions for fear of what the other side will do to them.

Our tax system needs repair, but neither side dares to make changes somebody somewhere might not like. So we put up with poor government services, growing waiting lists, tax avoidance by the highly paid, bracket creep and phony tax cuts.

We have a system where people with mortgages get squeezed unmercifully whenever inflation gets too high. There are fairer and less painful ways to fix the problem, but neither side has the courage to change.

When occasionally the two sides agree on some policy, it’s often a bad one. Many defence experts quietly doubt the wisdom of AUKUS. By the time the nuclear subs arrive in many years’ time – if they ever do – they’ll probably have been superseded.

But the political duopoly’s most egregious failing is its inaction on climate change. For a while, it looked like the climate wars had ended, with the Albanese government making very cautious progress towards net-zero emissions.

Now, however, Peter Dutton has come up with a new reason for delay: let’s go nuclear instead. And we don’t have to do anything unpleasant for a decade or two. It will probably never happen, but what it has done is rob commercial investors of the certainty they need to keep investing in solar and wind farms at the rapid rate we need them to. With our ageing coal-fired power stations so close to the grave, our transition to renewable energy could be very bumpy.

So, what can we do to free ourselves from the clutches of a two-party political system that’s stopped working? Well, we’re already doing it. Voters are increasingly taking the law into their own hands by opting for the minor parties and independents. We saw this at the last federal election, in 2022, where the two big parties’ combined share of first-preference votes – which has been declining since World War II – fell to 68.3 per cent, its lowest level since the Great Depression.

So, the share of first-preference votes going to minor parties and independents is now just a little short of a third. In consequence, the number of crossbenchers in the House of Representatives rose to a record 16.

It’s not difficult to judge that the duopoly’s poor performance on climate change explains much of their decline. Labor loses votes to the Greens while, for the first time, teal independents took six previously safe seats from the Liberals.

Nor is it hard to believe that Labor’s caution and the Liberals’ nuclear red herring may add to the big parties’ loss of first preferences at next year’s election.

New research by Bill Browne and Dr Richard Denniss, of the Australia Institute, finds there are now no safe seats in House of Representatives. While some Labor seats are safe from being taken by the Liberals, and some Liberal seats are safe from Labor, such seats aren’t safe from the Greens or an attractive independent candidate.

In the supposedly safe Liberal seat of Mackellar on Sydney’s northern beaches, the teal independent Dr Sophie Scamps won the seat with a two-candidate preferred swing of more than 15 per cent. A strong independent candidate’s advantage is that they can pick up the preferences of the minor parties, plus those of the other big-party candidate who was never going to win.

It’s usual for the big parties to focus on the “marginal seats” that could be won or lost if a few “swinging voters” change their votes. And it’s mainly these marginals that one big party loses to the other.

But it’s not usual for the minor parties and independents to pick up such marginal seats. No, they’re much more likely to win supposedly safe seats.

So while the big guys focus on winning or retaining the marginals, they leave themselves open to the small guys when they neglect the concerns of voters in their heartland seats. Again, climate change would be the classic concern.

The standard way of predicting the results of elections using the psephologist Malcolm Mackerras’ famous pendulum has been overtaken not just by the lack of a uniform national swing between the two majors, but by the rise of the minors and independents.

I think it will be rare for governments to be elected with big majorities in future. Wafer-thin majorities will be the norm, with “hung” parliaments common. The big guys will warn us this will lead to chaos and inaction.

Don’t you believe it! It’s never been true at the state level where, at present, only five of the eight state and territory parliaments are dominated by a majority party.

I think a move to more power for crossbenchers at the federal level could be a good way to break the big-party logjam. It’s hard to see how it could be worse than what we’ve got.

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Australia's future to be made under Treasury's watchful eye

The Albanese government’s Future Made in Australia has had a rapturous reception from some, but a suspicious reception from others (including me). In a little-noticed speech last week, however, one of our former top econocrats gave the plan a tick.

Rod Sims, former chair of the Australian Competition and Consumer Commission, and now chair of Professor Ross Garnaut’s brainchild, the Superpower Institute, has been reassured by the plan’s “national interest framework”, prepared by Treasury and issued with the budget.

But first, the budget announced that the government would “invest” – largely by way of tax concessions – $22.7 billion in the plan over the next decade.

Treasury’s framework will be included in the planned Future Made in Australia Act. It will “clearly articulate” how the government will identify those industries that will get help under the act, to “impose rigour on government’s decision-making on significant public investments, particularly those used to incentivise private investment at scale,” according to Treasury.

So, Sims is reassured by the knowledge that the framework – and Treasury – will ensure that “sound economics has been applied”. “In my view, [the plan] represents a growth and productivity opportunity every bit as bold as seen under previous governments,” he says.

Some of those giving the plan a rapturous reception believed it was “a welcome return to activist industry policy and making more things and value-adding in Australia,” Sims says. But “despite what has been said for political reasons, this is not the logic driving [the plan] as described by Treasury”.

Sims says we don’t need to revisit old and tired debates about protectionism. But as it happens, he notes, making more things in Australia will be an outcome of the plan.

Some said the plan represented the end of “neoliberalism” and a return to interventionist thinking. “It is not that either,” he says. “[The plan] relies on sound economics, and any change in economic thinking is a return to the application of sound economics.”

The way I’d put it is that to intervene or not to intervene is not the question. A moment’s thought reveals that governments have always intervened in the economy. (One of the most incorrigible interveners is a crowd called the Reserve Bank, which keeps fiddling with the interest rates paid and received in the private sector.)

No, as we’ll see, the right question is usually whether the intervention is adequately justified by “market failure” – whether, left to its own devices, the market will deliver the ideal outcomes that economic theory promises.

Others have approved of the plan because it’s about encouraging some local production in necessary supply chains. Sims admits there’s an element of this, as local battery and solar panel manufacture are mentioned, but they are a small part of the program.

Similarly, some move to make supply chains less at risk of disruption may be involved, but it’s not the driving logic of the plan.

Yet others have said the plan is copying the United States and its (misleadingly named) Inflation Reduction Act. “This is incorrect,” Sims says. The Americans’ act “spreads money widely, whereas [the plan] is targeted to Australia’s circumstances”.

The US act “also has many destructive features that we will not copy, such as its protectionist approach.”

But, to be fair to the sceptics, he adds, “the policy’s introduction was poorly handled. It was linked to making solar panel modules, when they can be purchased much more cheaply from China, and then there was the announcement of $1 billion for quantum computing.”

“It helps neither global mitigation [of climate change] nor Australian development to force manufacture here, if the final products are produced most cost-effectively elsewhere.”

So, if the plan isn’t mainly about protectionism, what’s its main purpose? Achieving the net zero transition and turning Australia into a renewable energy superpower.

Treasury’s national interest framework says the net zero transition and “heightened geostrategic competition” (code for the rivalry between the US and China) are transforming the global economy.

“These factors are changing the value of countries’ natural endowments, disrupting trade patterns, creating new markets, requiring heightened adaptability and rewarding innovation,” the framework says.

“Australia’s comparative advantages, capabilities and trade partnerships mean that these global shifts present profound opportunity for Australian workers and businesses.” We can foster new, globally competitive industries that will boost our economic prosperity and resilience, while supporting decarbonisation.

In considering the prudent basis for government investment in new industries, the framework will consider the following factors: Australia’s grounds for expecting lasting competitiveness in the global market; the role the new industry will play in securing an orderly path to net zero and building our economic resilience and security; whether the industry will build key capabilities; and whether the barriers to private investment can be resolved through public investment in a way that delivers “compelling public value”.

So, that’s quite a few hurdles you have to jump before the government starts giving you tax breaks. And proposals will be divided between two streams: the net zero transformation stream and the economic resilience and security stream. We can only hope that a lot more of the money goes to the former stream than the latter.

To justify government intervention, the framework requires evidence of “market failure” such as “negative externalities” that arise because the new clean industry is competing against fossil fuel-powered industries which, in the absence of a price on carbon, haven’t been required to bear the cost to the community of the greenhouse gases they emit.

Another case of market failure are the “positive externalities” that arise when the first firms in a new industry aren’t rewarded for the losses they incur while learning how the new technology works, to the benefit of all the firms that follow them.

Politicians being politicians, I doubt whether Treasury’s policing of its national interest framework will ensure none of the $22.7 billion is wasted. But we now have stronger grounds for hoping that Treasury’s oversight will keep the crazy decisions to a minimum.

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How Albanese can make Australia's future the smart way

Thank goodness we’ve finally got someone saying something sensible about Anthony Albanese’s Future Made in Australia. So far, it’s been a phoney war between the old fogeys from the Productivity Commission – all government subsidies are rent-seeking – and the Bring Back Manufacturing Brigade, pushing the notion that making goods is more economically virtuous than providing services and quoting bulldust measures of “economic complexity” to prove it.

The man talking sense – adroitly picking his way through the blind ideology, partisanship and rent-seeking to find the sound economics – is Rod Sims, former chair of the Australian Competition and Consumer Commission and now chair of Professor Ross Garnaut’s brainchild, the Superpower Institute. Sims spoke to the Melbourne Economic Forum last week.

For reasons I’ll explain another day, the Productivity Commission old-timers are right to insist that the basic principles of economics haven’t changed. We must resist the false promise of self-sufficiency and stick to doing the things we’re particularly good at – our “comparative advantage” – which, throughout our history, has included exploiting our “natural endowment” of some of the most valuable deposits of minerals and fossil fuels in the world.

On the other hand, though the basic economic principles haven’t changed, the Back to Manufacturing Brigade is right – or half right – in saying that the circumstances in which the world economy now finds itself have changed radically.

This is not because, in its present period of craziness, the United States has turned protectionist, staging a trade war with China and subsidising various local industries. Others acting contrary to their own best interests – their comparative advantage – is not a sign that we should go crazy too.

No, the big change is the world’s grudging realisation that if we want to stop global warming, we must cease burning fossil fuels and switch to renewables. The move to net zero emissions of greenhouse gases by 2050 will surely be the biggest and fastest structural change the industrialised world has ever experienced.

The implications of this euphemistically named “transition” are huge for every economy, but for ours, they are monumental. Why? Because, as Sims points out, Australia is the world’s largest exporter of coal and gas, combined.

What everyone knows but doesn’t seem to get is that, within a decade or two, our economy will have been hit by a meteor. The world will have stopped buying our fossil fuels. It will have taken a huge chunk of our natural endowment and declared it worthless.

So, our greatest comparative advantage is in the process of ceasing to exist. This is what Albanese lacked the courage to say in his happy-clappy speech about a Future Made in Australia.

This is what the generals busy fighting the last war don’t get. This is why their implication that the government should sit back and see how the market reacts to this sudden drop in our standard of living is bad economics.

What we must do is something we’ve never needed to do before: hunt around in our natural endowment to find something else offering us a new comparative advantage. This is why we’re so heavily indebted to Garnaut for being the first to realise and trumpet the news that, in a decarbonised world, all our sun and wind have suddenly gone from being of little value to hugely valuable.

Australia has much more sunlight than most other countries and as much wind as the best of them. What makes this so valuable is that it’s so expensive to turn renewable energy into a form that can be exported.

Sims demonstrates the value of our new comparative advantage with the example of iron metal. At present, we export iron ore, the metallurgical coal used to reduce the iron ore to iron metal, and both the thermal coal and gas, which can provide the heat to make the iron metal.

We export the ingredients and let others bake the cake because that’s what makes economic sense. In the coming zero-carbon world, however, it will make economic sense to produce green iron in Australia.

Green iron is likely to need green hydrogen in place of the coking coal that turns the ore into metal. However, making green hydrogen requires a massive amount of renewable energy to power the electrolysers that split water into hydrogen and oxygen.

So green iron should be made in Australia because the economics has been turned on its head. If it costs, say, $100 to mine a tonne of metallurgical coal in Australia, you can send it to China for just an extra $5 or $10. But if hydrogen costs $100 to make here in Oz, it will cost at least another $100 to ship it to China.

With hydrogen, you need to turn it into ammonia, at great expense, to be able to ship it, and then you need to turn it back into hydrogen at the other end. This is complex and will involve much leakage.

So renewable energy should be used close to where it’s produced. Sims says all overseas studies he’s seen suggest that Australia is likely to be the cheapest place in the world to make green iron. Those trying to make green iron by importing hydrogen will be uncompetitive.

It should be the same story for green aluminium, green fertiliser, green silicon and green aviation fuel. We will be able to export our masses of surplus renewable energy embedded within those many products.

So, yes, we can have a lot more manufacturing in our future. And the best place for this further processing will be close to the regional sources of sun and wind-produced electricity.

But while green iron-making technology is proven, it’s not yet been done at scale, Sims says. Those who go first will inevitably make mistakes, from which others will learn. Those mistakes will be costly for the first mover but hugely beneficial to those who come after.

In other words, this learning by doing is a “positive externality” – a benefit to other businesses and the community generally for which the first business isn’t rewarded.

This is the hard-headed economic justification for temporary government grants to firms starting out in industries directly related to the exploitation of our new-found comparative advantage.

(The key “negative externality” relevant to the transition to renewable energy is the cost to the environment from the use of fossil fuels to make steel and many other things that the relevant businesses aren’t required to pay for, thus putting renewable energy producers at a price disadvantage – something the former Productivity Commission bosses keep forgetting to mention.)

But, Sims rightly warns, if all the Made in Australia talk means subsiding businesses making solar panels, wind farm components, batteries and electrolysers – in none of which we have a comparative advantage – then there’s no way we’ll become a superpower, and the extra manufacturing jobs will come at the expense of jobs in all other industries. Labor voters and the ACTU take note.

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Buildings as batteries. For net zero, we need bright ideas like this

There’s a joke about the economist who thought he saw a $20 note on the ground but didn’t reach down for it because he knew that, if there had been such a note, someone else would have picked it up long ago. Sometimes we don’t see what’s there to be seen because we aren’t expecting to see anything.

Have you ever been in the city at night, looked up to see all the office blocks with lights ablaze, and wondered why they were wasting so much electricity? Perhaps it’s because people are working late, or the cleaners are busy. In any case, it’s not lighting that uses so much power: it’s heating and cooling.

But your instincts are right. All those office blocks have an important part to play in our efforts to limit further climate change. How? Keep reading.

As every sensible person knows, but prefers not to think about, the most important single challenge we face as a nation is to play our part in achieving the global goal of reducing emissions of greenhouse gases to net zero by 2050.

This is far more important to our kids’ future than the housing calamity or the cost-of-living crisis, both which will pass soon enough.

And, as most people realise, the main strategy we’re pursuing to reduce emissions is to eliminate the use of coal and gas in the production of electricity, then use this clean power for as many of our energy needs as possible. The move to electric vehicles is a big part of this.

All of which is much easier said than done. We’re already getting much of our energy from renewable sources – solar and wind power – but we need a lot more of it. And we need it to be available before our ageing coal-fired power stations give up the ghost. We can use some gas to tide us over, but it too must go.

Another part of the problem is reconfiguring our huge system of “poles and wires” transmitting electricity around the country. We need high-voltage powerlines joining up the eastern states. Currently, powerlines mainly transmit from huge coal-fired power stations located near coal mines to the nearest big city.

Trouble is, the solar and wind farms replacing the old power stations are spread all over the place. And then there’s the need to link all the solar systems on people’s roofs into the network.

Further complicating the transition from fossil fuel to renewables is the problem all those looking for an excuse to do nothing love pointing to: what happens when the sun’s not shining and the wind’s not blowing?

The short answer is that we have to capture and store some of the free energy that’s coming while the sun is shining, so we can use it at times when it isn’t. Batteries are the obvious way to do this. But we can achieve the same effect by pumping a lot of water up a hill, then letting it run back down to power a generator at night. Or you can do something vaguely similar in an office block.

While we’re working on all this, however, climate change is making our summers hotter and increasing the demand for air conditioning. The way we see it at present, we have to increase the capacity of our electricity transmission network so we can cope with peak demand on a few very hot afternoons each year without blackouts.

But this extra capacity goes unused for all the other days of the year, which is wasteful. Surely there must be a cheaper way to avoid blackouts?

This is where Craig Roussac, founder of Buildings Alive, a company that helps commercial building managers to better manage their use of energy and so reduce their emissions, has had a bright idea, which he’s developed with Dr Richard Denniss, boss of the Australia Institute.

On hot summer days, building managers could turn their cooling a degree or so lower in the morning, then let the temperature rise slowly in the afternoon, while everyone else had their air conditioners going full blast.

Because the wholesale price of electricity jumps at times of peak demand, this would save the building owners money. Lower peaks being cheaper, this would reduce the average retail price being paid by the rest of us.

It would also reduce the need for new investment in transmission capacity – the cost of which is passed on to electricity users. Above all, it would immediately reduce emissions, at zero extra cost.

But if it’s such a smart idea, why aren’t people doing it already? Mainly because the electricity industry makes its living by selling more of the stuff, not less. But also because the energy efficiency ratings awarded to buildings don’t encourage businesses to change the timing of their demand.

Now, obviously, sorting out our office buildings would make only a small contribution towards achieving net zero. But the idea of changing the timing of our demand during peak periods could be spread to other classes of buildings, including apartment blocks and even detached houses.

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Climate change is taking over the news - in case you hadn't noticed

I keep reading psychologists warning that talking about how terrible climate change will be is counterproductive. Rather than causing the deniers to see the error of their ways, it just makes them close their minds to further argument.

So this column isn’t for them. Rather, it’s to speak to the rest of us – those who don’t try to tell the scientists they’ve got it all wrong – to review the latest evidence that climate change is already upon us (what sane person could not have realised it?) and getting worse as each year flashes by our eyes.

I fear for my five grandkids’ future (as I may have mentioned before) but, to tell the truth, I’m glad I’ll be dead and gone before it reaches its worst. What we must do, like all those who voted teal at the last election, is to press both major parties to speed up our efforts and make Australia a leader rather than a laggard in the global push to limit how bad it gets.

Professor Albert Van Dijk of the Australian National University, an expert on precipitation, is part of an international team of researchers who’ve issued a report, the Global Water Monitor, using data from thousands of ground stations and satellites to document the effect of last year’s record heat on the world’s water cycle.

“We found global warming is profoundly changing the water cycle,” he says. “As a result, we are seeing more rapid and severe droughts, as well as more severe storms and flood events.”

Van Dijk says the most obvious sign of the climate crisis is the unprecedented heatwaves that swept the globe in 2023. Some 77 countries experienced their highest average annual temperature in at least 45 years. This “gave us a glimpse of what a typical year with 1.5 degrees Celsius of warming may look like,” he says. Warming consistently more than 1.5 degrees above pre-industrial levels is expected to have extreme and irreversible impacts on the Earth’s system.

“The high temperatures were often accompanied by very low air humidity. The relative air humidity of the global land surface was the second-driest on record in 2023. Rapid drying of farms and forests caused crops to fail and forests to burn.

“Lack of rain and soaring temperatures intensified multi-year droughts in vulnerable regions such as South America, the Horn of Africa and the Mediterranean ... This continuing trend towards drier conditions is threatening agriculture, biodiversity and overall water security.”

Get this: “The world’s forests have been soaking up a lot of our fossil fuel emissions. That’s because plant photosynthesis absorbs carbon dioxide from the atmosphere. Large disturbances like fire and drought reduce or even reverse that function.”

Rising sea surface and air temperatures have been intensifying the strength and rainfall intensity of monsoons, cyclones and other storm systems, Van Dijk adds.

We saw this when Cyclone Jasper battered northern Queensland and severe storms formed in south-east Queensland, leaving a trail of destruction. The cyclone moved much slower than expected, causing torrential rains and widespread flooding.

Enough of that. Australia’s Climate Council, a community funded organisation created by former members of the Climate Commission after it was abolished by the Abbott government in 2013, has created a “heat map” using thousands of data points from the CSIRO and help from the Bureau of Meteorology.

If we assume, perhaps optimistically, that all countries meet their present UN commitments to reduce emissions, the heat map predicts that western Sydney will swelter through twice as many days above 35 degrees and three weeks above 35 degrees every summer.

Temperatures will be worsened by the “urban heat-island effect”, as materials such as asphalt and concrete amplify heat by as much as 10 degrees during extreme heat.

Melbourne, too, faces double the number of days above 35 degrees by 2050. Will it take that long for the Australian Open to be moved?

Which brings us to last month, when six transmission line towers in Victoria were destroyed by extreme wind gusts from thunderstorms, leading to about 500,000 people losing power. The intense winds knocked trees onto local power lines or toppled the poles. Some people went without electricity for more than a week.

A month earlier, severe thunderstorms and wind took out five transmission towers in Western Australia and caused widespread outages. In January 2020, storms caused the collapse of six transmission towers in Victoria.

And, of course, in 2016 all of South Australia lost power for several hours after extreme winds damaged many transmission towers.

Recent research by Dr Andrew Dowdy and Andrew Brown, of the University of Melbourne, suggests that climate change is likely to cause more favourable conditions for thunderstorms with damaging winds, particularly in inland regions. But more research is needed to confirm this.

Van Dijk gets the last word: “Overall, 2023 provided a stark reminder of the consequences of our continued reliance on fossil fuels and the urgent need but apparent inability of humanity to act decisively to cut greenhouse gas emissions.”

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We can't escape a carbon tax, which is good news, not bad

When economists are at their best, they speak truth to power. And that’s just what two of our best economists, Professor Ross Garnaut and Rod Sims, did this week. In their own polite way, they spoke out against the blatant self-interest of our (largely foreign-owned) fossil fuel industry.

They sought to counter the decade of damage done by the former federal Liberal government which, for short-sighted political gain, engaged in populist demonisation of Julia Gillard’s carbon tax.

And, by their willingness to call for a new “carbon solution levy”, they shamed the present Labor government, which dare not even mention a carbon price and isn’t game to take more than baby steps in the right direction, for fear of what Peter Dutton might say.

But the two men’s message is actually far more positive than that. In launching a new think tank, the Superpower Institute, they pursue Garnaut’s vision of how we can turn the threat of climate change into an opportunity to revitalise our economy, raising our productivity and our living standards.

Sims, former boss of the competition watchdog, says that, following a decade of stagnant production per person, real wages and living standards, Australia’s full participation in the world’s move to achieve net-zero global emissions is the only credible path to restoring productivity improvement and rising living standards.

Climate change is a threat to our climate, obviously. But it’s also a threat to our livelihood because Australia is one of the world’s largest exporters of fossil fuels. Garnaut points out that, as the rest of the world moves to renewables, two of our three largest export industries will phase out.

This will send our productivity backwards, he notes – as all the big-business people reading us lectures about productivity never do.

The good news, however, is that “putting Australia back on a path to rising productivity and living standards doesn’t mean going back to the way things were”. It’s now clear that “Australia’s advantages in the emerging zero-carbon world economy are so large that they define the most credible path to restoration of growth in Australian living standards.”

Garnaut says that “In designing policies to secure our own decarbonisation, we now have to give a large place to Australia’s opportunity to be the renewable energy superpower of the zero-carbon world economy.”

Other countries do not share our natural endowments of wind and solar energy resources, land to deploy them, as well as land to grow “biomass” – plant material – sustainably as an alternative to petroleum and coal for the manufacture of chemicals.

From a cost perspective, we are the natural location to produce a substantial proportion of the products presently made with large carbon emissions in North-East Asia and Europe.

The Superpower Institute champions a “market-based” solution to the climate challenge. We shouldn’t be following the Americans by funding the transition from budget deficits, nor become inward looking and protectionist.

Rather, everything that can be left to competitive markets should be, while everything that only governments can do – providing “public goods” and regulating natural monopolies – should be done by the government.

Sims notes a truth that, since Tony Abbott’s successful demonisation of the carbon tax, neither side of politics wants to acknowledge, that markets only work effectively if firms are required to pay the costs that their activities impose on others and, on the other hand, if firms are rewarded for the benefits their activities confer on others.

When the producers of fossil fuels don’t bear the cost of the damage their emissions of greenhouse gasses do to the climate, and the producers of renewable energy don’t enjoy the monetary benefit of not damaging the environment, these two “externalities” – one bad, the other good – constitute “market failure”.

And the way to make the market work as it should is for the government to use some kind of “price on carbon” – whether a literal tax on carbon, or its close cousin, an emissions trading scheme – to internalise those two externalities to the prices paid by fossil fuel producers and received by renewables producers.

The price on carbon that Garnaut and Sims want, their “carbon solution levy”, would be imposed on all emissions from Australian produced fossil fuel (whether those emissions occurred here or in the country that imported the fuel from us) and from any fossil fuel we imported.

Only about 100 businesses would pay the levy directly, though they would pass it on to their customers, of course. It would be levied at the rate of recent carbon emission permits in the European Union’s emissions trading scheme.

Imposing the levy on all our exports of fossil fuel, rather than just our own emissions, makes the scheme far bigger than the one Abbott scuttled in 2014. It would raise about $100 billion a year.

But it’s bigger to take account of the Europeans’ “carbon border adjustment mechanism” which, from 2026, will impose a tax on all fossil fuels imported from Australia that haven’t already been taxed.

Get it? If we don’t tax our fossil fuel exports, the Europeans or some other government will do it for us – and keep the proceeds.

What will we do with the proceeds of our levy? Most of them will go to a “superpower innovation scheme” that makes grants to support early investors in each of our new, green export industries. In this way it will lower the prices of carbon-free steel, aluminium and other products, helping them compete against the equivalent polluting products. The positive externality internalised.

Garnaut says we need to have the new levy introduced by 2031 at the latest. But the earlier it can be done, the more of the levy’s proceeds can be used to provide cost-of-living relief of, say $300 a year, to every household and business, as well as fully compensating for the levy’s effect on electricity prices.

Thank heavens some of our economists are working on smart ways to fix our problems while our politicians play political games.

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