Labor wants to nobble the Productivity Commission on climate policy

One of the reasons why the Productivity Commission (PC) is so important in Australian public policy debate is its ability to remain detached from the government of the day and, if necessary, call bullshit on policies being pursued by that government.

Under its last two leaders, Peter Harris and Michael Brennan, the PC ended up being at odds with the then-government on key issues like the need for a carbon price, the lack of benefits of the Trans-Pacific Partnership deal and so-called “free trade” deals generally, the failures of drought assistance, and the wasting of money in the Murray-Darling Basin Plan. It has also been critical of bipartisan policy priorities like “anti-dumping” protectionism.

The use of the transition to renewables as a cover for interventionist industry policy rapidly emerged as an area of PC criticism of the Albanese government. In July last year, the PC devoted a section of its annual Trade and Assistance Review to “How Australian climate policy might act as a form of industry assistance”. The PC has long held that the only efficient way to drive the transition to renewables is through an effective price on carbon, and that other methods — regulation and various forms of assistance — are far more expensive and inefficient. Last year, it explained how tax policies like the exemption of electric vehicles from state and federal taxes, grants for hydrogen power or carbon capture, or exempting some sectors from the safeguard mechanism, could be a form of industry assistance:

The pursuit of significantly high-cost abatement policies — when lower cost credible abatement options are available — suggests the activity might be given industry assistance for reasons other than their potential contribution to national emissions reduction goals. For example, this might include a desire to build a domestic manufacturing capacity in a low or zero emissions sector — which should be considered distinct from emissions abatement to the extent that Australia’s emissions abatement targets can be readily achieved by importing the same technologies.

At the very least, the PC argues, we should be transparent about the cost of emissions abatement and the cost of industry policy. The PC also identified taxpayer-funded concessional finance as a growing area of industry policy, adding Labor’s national reconstruction fund to a list of existing, dubious funding programs.

The Albanese government, however, was undeterred by the PC’s complaint. And last week it doubled down, with Treasurer Jim Chalmers announcing “a new approach to industry policy” because the transition to renewables “demands direction, coordination, market modernisation and other incentives, guided by clear policy objectives.” The government’s priority areas are:

• refining and processing critical minerals
• supporting manufacturing of generation and storage technologies, including batteries
• producing renewable hydrogen and its derivatives like ammonia.
• forging green metals.

“Our focus,” Chalmers said, “is on the development of industries that diversify our economy and make Australia more competitive in global markets, in an enduring and sustainable way.”

That is, the transition to renewables is really about industry policy, with criteria like “whether it builds the capabilities and resilience of people and regions” and “whether it improves Australia’s national security and economic resilience and supports the strategic objectives of our global partners.”

The PC’s hope that Australians would at least have transparency about what is the cost of emissions abatement and what is industry assistance appears forlorn — good luck teasing out what is the effective cost of emissions abatement and what is the cost of diversification, the cost of regional development and the cost of national security.

But the PC might not have to worry about industry policy any more, because Chalmers wants to “refocus” it. He will be issuing a statement of expectations for the PC, the first in its history.

Statements of expectations — an invention of the Howard government — are a way for a portfolio minister to tell independent agencies and regulators what they should be doing, despite the fact that most of the agencies that receive them are established by legislation that details what exactly it is they should be doing. The PC has its own act that outlines its functions, centred around “matters relating to industry, industry development and productivity.”

Chalmers’ letter to incoming PC chair Danielle Wood “will make clear that guiding our country towards a successful net-zero transformation will be one of the key focus areas for a revamped and renewed Productivity Commission.”

What does “successful” mean? A transformation that embraces industry policy, that establishes, at taxpayer cost, new industries, using expensive and inefficient policies and subsidies?

In short, is Chalmers trying to make sure future trade and assistance reviews don’t devote chapters to explaining why Labor’s climate policies are just disguised industry policy wasting taxpayer money to pick winners?

Public policy doesn’t need the PC to be focused on specific areas like net zero. It needs the PC to continue its tradition of calling bullshit on bad policy dressed up with meaningless words like “security”, “critical”, “sovereign” and “strategic”.

Danielle Wood’s first order of business might be to show that the PC hasn’t been nobbled by a government determined to pick winners and build unviable industries under the guise of climate action.

Do you trust the Productivity Commission to stand up to Labor and do the job it was always designed to do? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.