Cutting to the chase on emissions
One of the biggest imperatives of Labor’s carbon pricing policy package has been to make the government as small a target as possible. That’s not easy when you’re seeking to transform the economy with the biggest structural change in a generation.
The government has tried hard. It has thrown generous packages (to be known as compensation until the Productivity Commission rebrands them as subsidies) to those with the most potent threats to close down business – steel, coal and generators – and sought to win back electoral support through handouts and tax cuts.
One of the core parts of its strategy has also been a rebranding of its policy, from the cumbersome Carbon Pollution Reduction Scheme to the more palatable Clean Energy Future. It appears at first glance to be trying to disperse the focus from a mere carbon pricing mechanism, to a broader economic agenda of taxation reform and a transition to cleaner energy.
That might be the spin, but it is crucial to look at the Treasury papers to understand the underlying issues.
Many in business – such as the Australian Industry Group, the Business Council of Australia and the mining lobbies – would have liked the government to present an even smaller target; a lower carbon price ($10) and greater compensation.
But the government advisors have laid the case that this is about as soft a start as can be imagined, given the task of reshaping the most carbon-intensive major economy on the globe.
Treasury gives, as an example, modeling for a starting price of $10 in 2012, with an annual escalator of 5 per cent plus inflation over a 10-year period. Treasury says there are two major problems. One is that Australian business would have to deal with an abrupt transition from a fixed price of $19 a tonne in 2022 to an anticipated global price of $49. What’s more, such a low price would achieve little abatement in the domestic economy, with only 26Mt CO2e of domestic abatement being achieved by 2020, less than one fifth of the abatement required under the minimum 5 per cent reduction target.
Even under the package proposed on Sunday, Treasury expects Australian business to export funds and import permits to meet nearly two thirds of its abatement target – with 94 million permits coming from overseas, and only 58 million tonnes of abatement sourced at home.
A key point here is the difference between Australian and European policy on international permits. In Europe, businesses are only allowed to source half of their abatement ”effort” – i.e. the amount by which they reduce emissions. In Australia, for the first few years after market-based scheme is in place, business will be able to source half of their total carbon liability from international markets. After that, there will be unlimited access. That’s a crucial difference.
By 2050, Treasury estimates, as the global price of carbon rises to around $130 to $140/t, Australia will be sourcing more than half of its abatement at home. But it will rely heavily on the international market, buying is 434 million tonnes of abatement per year from international sources, out of a total requirement of 897 million tonnes to meet the new 80 per cent target by 2050.
But this modeling is pitched in a “core” scenario where the world heads towards 550 parts per million and Australia retains its 5 per cent target. What happens if the world gets its act together, and pushes to cap greenouse emissions at 450ppm in an effort to limit average global warming to 2°C – which offers a better chance of avoiding runaway climate change impacts?
Under this scenario, Australia would need to lift its abatement target to 25 per cent and, for the purposes of modeling, the carbon price starts at $30/t, reaches $61/t by 2015/16 and more than $250/t by 2050. Here, domestic abatement reaches 130 million tonnes by 2020, just over half of the modified 248 million tonne target, while by 2050 domestic abatement accounts for three quarters of the 80 per cent target.
Some analysts think that the Treasury estimates are pessimistic on the scope of domestic abatement. Indeed, under the core policy scenario, the one outlined by the government on Sunday, Australia’s emissions do not even begin to fall from 2010 levels until the late 2020s. (If China continued on such a trajectory, we’d be well and truly stuffed). In Treasury’s high price scenario, Australia’s domestic emissions fall 8 per cent below current levels by 2020.
This could become the new political battleground between Labor and the Opposition. The question will be posed: Does the carbon price as outlined under this package have any impact at all?
It’s important to note that Treasury’s calculations do not include three important policy measures unveiled on Sunday: the buyout of brown coal generators; the $10 billion extra funding for renewables; and the proposed and anticipated energy efficiency measures.
Numbers are still being crunched by analysts, but it is thought that these measures would mean that at least half of the 2020 abatement target could be sourced domestically with the addition of these measures.
That explains the their presence and their importance. The carbon market may be able to deliver the transformation and the abatement needed over the long term. And Treasury and the government will argue that, in itself, is justification enough for an early start. But in the short term, it’s had no choice but to borrow heavily from the Opposition’s Direct Action plan. And that will give some added spice to the debate.
Comments on this article
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Re: Michel Syna-Rahme 2007-07-22 11:43
I am a member of The Climate Sceptics. However, I have never been and am not a paid lobbyist for any person or organisation or on any company's behalf. My views on climate change have been developed through my own research and belief in what is best for this country. Any imputation that I am a paid lobbyist is not factual and impugns my reputation. It should be withdrawn, and I make this request both of Michel Syna-Rahme and the site manager.
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NOTE: Readers should be aware
NOTE: Readers should be aware that Bill Koutalianos is an active member of the Climate Sceptics Party and is a paid lobbyist to misrepresent the scientific facts and confuse the debate.
Conflicts of interest
@ Guy Le Page. What's embarrassing is when grown-ups can't see the obvious conflicts of interest of bodies who sex-up the doomsayer science using "grey" literature from green lobby groups and then have the hide to call this 100% peer-reviewed science. Even after the scam has been exposed, complicit governments pretend it's still peer-reviewed science and argue we should pay more tax with a 10% cut going to the original perpetrators of the scam. The vested interests we should be critical of in this debate, are those seeking to feed off the taxpayer, based on a discredited theory.
"Then what happens?"
@ Grant Mason - "then what happens?"
At a guess, the fact that carbon abatement is trading at such high levels encourages investment in previously uneconomic projects which generate more abatement credits. This is the point of a market-based mechanism.
Re: Does not stack up
Good questions. Under an 80% global reduction target by 2050 there would be some countries that go negative in their emissions. They will have some coal and oil but they will be doing other things that suck CO2 out of the atmosphere - forests, some sea based type of means, and, of course, using some technologies not yet invented or commercialised. It may seem at present that this will not be enough for these countries to reduce their own emissions significantly and to also have substantial amounts of abatement that they could sell elsewhere. Forty years is a long time especially considering that technological advancement will accelerate.
The emphasis in the above is on new technologies. The "Holy Grail" is new technologies that are in themselves low cost, without need of massive subsidies (including carbon TAX/ETS), are attractive to those countries reluctant to adapt a 'market based mechanism,' and which are environmentally friendly so that they are compelling for countries like China, India, and others to adapt.
One way to spurr these technologies is Silicon Valley style technology incubators and venture capital. In many respects for Australia to say we will be a world leader in green technology is similar to saying we will be a world leader in a future generation of computer chips - not very likely. Australia needs to go for patents in green technology - that is how we will be in a global position of advantage and global respect for "doing our part."
Does not stack up.
The fact that you and treasury are saying that by 2050 we will be buying carbon permits at $130 to $140/t for half our abatement shows how expensive "clean energy" is.
If $150 a tonne for carbon still does not make renewables worthwhile then what the heck are we doing?
Plus who is going to use so little carbon that they have such huge amounts of credits to sell?
Just who exactly?
If the whole "world" by some crazy senario joins us in cutting emissions by 80% by 2050 that leaves only 20% of emissions to sell as credits.
Which country is going to go to 100% renewables and have such large amounts of credits to sell to us?
I suppose the USA could just "print" credits like they do dollars.
Interests
Surely it's obvious that all in favour of inaction have vested interests? They want to pay less tax. I'm embarrassed for them.
Strange indeed
@Russell Collie. I couldn't agree more, it is quite annoying to hear this constant nonsensical name calling of those who provide us with our electricity supply, amongst other energy intensive products like cars and buildings. How is a hardworking guy who works at a coal fired power generation facility supposed to get a date, when our politicians adopt this language propaganda.
Language is often a great weapon in propaganda wars and the terms "climate change", "global warming", "pollution", "big polluters", "carbon", "carbon footprint", "carbon credit" and more have all been created and/or redefined and hijacked by the alarmists to subliminally promote their cause.
This language and social engineering campaign has captured a couple of generations of our youth who have been indoctrinated with this nonsense even from within our educational institutions.
If the opinion polls on a carbon tax are any guide, Julia Gillard's pre-election undertaking "not to introduce a carbon tax" has almost singlehandedly awoken a large part of the Australian population from their slumber.
Overseas Payments
The article makes note of the requirement of overseas payments for abatement. If Australia and Europe have to buy abatement from overseas then it is likely that lots of other countries will need to do this as well. Then there is extra demand for limited abatement to be purchased globally. As a result the price goes up. And it appears that there will be a shortage of abatement to be had - then what happens?
It's about power production
A 10% reduction in household energy consumption would deliver benefits - until the population rises by 10%. The only way to achieve lasting CO2 level reductions is by shifting power production away from CO2 intensive coal, and this can only be done if the externalities of coal are priced. This is why we must have a carbon tax. Anyone who has worked in corporate finance will know that this price will impact every investment model being built - and it WILL change investment behaviour. Of course, any model worth making a decision on should have incorporated this price into 10 years ago...
One cent compensation
@Beat Odermatt. I agree the carbon tax is stupid, but it sounds like you may have fallen for another statistical trick, like the ones often employed by climate change alarmists.
90% of people receiving compensation, doesn't mean they will be fully compensated. When Julia tells us 90% will be compensated, she is including people whose costs will go up well above average and who will receive the grand amount 1 cent or more in compensation.
Tony Abbott has already clarified this in his response. You obviously weren't listening very closely.
It took a statistician to unravel the statistical trickery behind the alarmist's "hockey stick" graph, but instead of using this information to overturn her climate policy, Julia has adopted statistical trickery as a method of selling her compensation package.
What effect?
Professor Graham Farquhar, ANU, Climate Change Institue, is Australia's premier carbon scientist. He was principal scientific adviser to Senator Hill at the Kyoto Protocol formative meeting in 1997. He is quoted in today's Australian as saying "The aim of the carbon tax is to reduce Australian emissions by five per cent. ----- If we are successful and ALL the countries OF THE WORLD reduce their emissions to 5% below what they would have been, then the (man induced) climate that we would otherwise have seen in 2031, WILL BE POSTPONED UNTIL 2032"! Go figure! Future generations may well ask - what caused this decline in collective intelligence in 2011?
Carbon Tax
Oh dear Michael you are showing a degree of naivety reserved for the 20%
Cutting to the austerity measures
@Damien Lynch. I find your argument that the renewables sector doesn't have the funds to lobby Canberra, an extraordinary position given the Renewable Energy Target Legislation of 2009 and the billions in subsidies which Federal and State Goverments have already commited to this sector. It's a sector that's totally reliant on taxpayer subsidies. It's absurd to suggest they can't afford lobbyists, when their very existence relies on them. The Government now proposes a $10 billion agency to invest in new technologies, which presumably means subsidizing more of the same infantile, unreliable, outrageously expensive wind and solar PV renewable technologies. Public opinion is as important as lobbying and you don't seem to appreciate how our mainstream media and especially television media regularly portray wind turbines as the answer to our future energy needs, as well as some sort of modern day crucifix (for the believers). If you're a believer you probably won't accept that it's propaganda, but please try and become aware by watching out for these regular subliminal propaganda images, especially on the ABC. Personally I see wind turbines as a means of impoverishing a once prosperous nation. Once upon a time, nations were taken over by propaganda wars and military force, nowadays it's through green propaganda and the resulting economic austerity measures that follow. The $1.3 billion that is going to protect jobs in the coal industry is the consolation prize in the Government's carbon tax package.This small pitance is what will help keep this computer running until the next election.
Carbon tax
That the poll has been stacked by deniers.
Carbon Tax
The results of the Nine MSN poll clearly shows the population is not convinced they are ready for a carbon tax....80% against ...20% for. What is that telling everyone ?
We are ALL polluters!
Great call Russell. We are ALL polluters!
From that starting point (of 'Personal Responsibility'?) the next step is what we do about it and how far we go. Often it is a progression over time: eg reduce inputs; eliminate waste; demand more from our suppliers, government departments and politicians; purchase or generate renewable power; continue to get informed; migrate to more efficient processes and appliances (transport included); and offset emissions etc.
Essentially, a lot can be achieved.
very strange
I still hear the energy producers called big polluters.
Surely they only exist to supply power to the people so therefore by usage everyone is a polluter as there is no other use for it.
So why are the polluting users getting tax breaks???
Perverted
Damien, MP's and their respective Party affiliations pervert democracy as well. Consider that an absent MP cannot legally proxy their vote to the Party leader because it is not the Party's vote... it the people's vote. I wish a few of them could understand this concept.
With Party membership at an all-time low, why do we persist with this unrepresentative rabble who think they are still in the young Liberal, Labor or Green movements at university playing games while no one cares.
Things we won't discuss...
Here are some things actively not being discussed, here or elsewhere:
+ $4 BILLION blowout in admin costs for this "tax" - how and why?
+ Where the $10 BILLION in "extra funding" for renewables is coming from?
+ Swan says Coal = Strong; Greens say Coal = Gone...who's lying?
+ The creep in marginal tax rates from 15% to 19% and from 30% to 32.5%
+ The nations two largest petrol retailers are amongst the country's top 500 polluters. Don't think for a minute that there won;t be a carbon tax on petrol.
+ The entirety of Gillard's planned emmissions reduction of 160 million tonnes by 2020 would be eclipsed by Chindia in less than 5 days at their CURRENT predicted growth levels.
+ China has pledged that 87% of its future energy needs will come from fossil fuels.
+ The farcical proposition that the net economic impact to households will be only 20 cents per week.
+ A Fabian-inspired transference of wealth is underway under the guise of "tax reform" with no demonstrable benefit to the environment.
+ The flawed usage of a coal-poor EU (bankrupt) emissions trading scheme as the 'successful' blueprint for coal-rich Australia's emissions 'plan'.
+ Current (and collapsing) EU-traded carbon price is A$16; why would I buy an Australian permit at $23?
+ How important is the introduction of Australia's carbon tax to propping up the busted and broken EU scheme?
+ Where will the money come from toward meeting the pledge (courtesy of Greg Combet) that the UN will recieve 10% of any monies raised under a carbon tax?
relative prices
Beat - the idea is that the carbon price will change the relative price of goods and services in the economy, based on their carbon intensity. As prices changes, demand for less carbon intensive products will increase, and vice versa. This is what drives the overall change.
Damien - $13b for renewables seems like a good result for the industry? Coal gets $1.3b.
sequestration
The best sequestration is to not dig it up in the first place! The aim of all these carbon tax and cap and trade systems is to in the long term stop people from digging it up and burning it at all anywhere, and to shift the economy to a non coal based one. That is a plan for the future and our childrens future and most other western countries are doing it including China and India. To the climate change deniers and anti carbon tax lobbyists why is this kind of cleaner future so scary?
what is this about?
Is this about pleasing the UN or some sort of vanity about how we appear on the world stage? We appear stupid.
If I may be kind, the carbon tax is just plain stupid!
A carbon tax is about the most stupid thing any Government can do. For example, 90% of people are going to be compensated for higher cost of living resulting from the carbon tax. It means for 90% of people there will be no incentive to reduce energy use, the Government will compensate. The Government also promised to compensate business for higher costs due to carbon tax. Again, what incentive is there to reduce energy use if they get compensation? It leaves us with a few companies and individuals which will not be compensated. Either they are rich, which means it is unlikely they will switch off the air-conditioning in summer and stay frozen in winter. Then there are the large “polluters” like electricity companies. They will pay the taxes and pass it on to customers and the Government will compensate the customer for it. Where in the hell do we see any way that the energy use is going to be reduced? I am sure if we would use the brightest people in the country to come up with something as stupid as a carbon tax, they would fail.
carbon tax? an expensive way to do little
1652 Romeo and Juliet - a tragedy
2011 Bob and Julia - a disaster
lobbyists
The power of lobbyists again demonstrated by the amount going to coal and carbon sequestration in a package which supposedly is to cut carbon. If renewable had the funds to lobby, what would the outcome have been? (PS all lobbyists should be banned – they pervert the democratic process. MPs should talk to the their constituents’ and have their feedback noted by the government. Old fashioned of me)