The Australian Prime Minister has confirmed that he has dropped his emissions trading scheme until at least 2013. In response to this Brad Page, chief executive of the Electricity Supply Association of Australia had this to say: “Neither side of politics has a tenable {climate} policy.”
Mr. Page represents Australia’s biggest power generators and was a well known critic of the proposed carbon pollution reduction scheme last year. ”The consequences will be quite dire if people can’t make investment decisions,” he said.
However not surprisingly of all the political parties the Greens have produced a tenable, market based climate policy proposing an interim carbon price starting at $23 a tonne of carbon dioxide. In the main the Green proposal, put forward in January has been either misunderstood or ignored by the general populace, including the business community.
If they misunderstood it, it was probably because they wrongly assumed it would be a temporary fix, not a long term solution. If they ignored it, it was probably because they rightly assumed it would be Buckley’s chance of the government doing a deal with the Greens.
As Page said at the time: ”Short-term fixes to long-term problems are likely to exacerbate the level of investor uncertainty for the energy supply sector when they are based on a wing-and-a-prayer promise that a new long-term greenhouse policy will emerge after the interim period concludes. If the answer to the question of what comes after the tax is ‘don’t know’, then the answer in terms of business investment in new low-emission technology is going to be ‘not now’.”
Sounds great but that isn’t what the Greens originally suggested. Their idea was that a fixed carbon price would increase at 4% plus the consumer price index, each year until at least July 2012. This is consistent with the original proposal for a transition period under the Garnaut Climate Change Review.
It stated: ”This timeframe should be sufficient to conclude the debate on the design of the emissions trading scheme and the adoption of a 2020 target that … reflects a fair contribution by Australia to the global effort of limiting global warming to less than 2 degrees Celsius. In the event that no agreement is reached on the CPRS during the interim period, the carbon tax will continue to operate.”
The price of carbon could reach well above $23 a tonne if an agreement is struck on an ETS that is consistent with commitments under the Copenhagen Accord and lets the market put a price on carbon.
Speaking off the record, one senior energy industry executive said that a carbon price starting at $23 a tonne and increasing by more than 4% per annum, if permanent would be a ‘perfectly valid’ response to climate change.
”It would stop coal-fired power stations being built, and it would bring on a conversion to gas. I don’t realistically see anyone talking about it … but anything is better than nothing.”
Compared with the government’s estimated $1.5 billion loss scheme, the Greens proposal would have generated roughly a $4.4 billion surplus in 2010-12. The Greens would be able to achieve this because they capped assistance to heavy polluters to 20% of the scheme’s revenue, which is consistent to the Garnaut Review. The Greens would also have paid the same compensation to low-income households.
The Greens proposal is a plausible, market based response to the threat of dangerous climate change and is better than nothing, which has belatedly won the backing of the whole environmental movement. So it is strange that it wasn’t considered more seriously by the Climate Change Minister, Penny Wong. Milne says she had only three meeting with her and while there was no deal breaker or sticking point neither side terminated the talks.
Having given ground on their desired and perhaps highly unrealistic ‘25% by 2020’ emission reduction target Energy researcher Tristan Edis of the Grattan Institute said that the Greens were offering a ‘reasonable compromise’. In order to achieve the desired 25% cuts the Treasury modelling for the ETS showed a carbon price above $40 a tonne.
Milne has said that businesses should be concerned that ”if a carbon price is not to come in this way, then the logical next step is regulation.” However, having met the Greens the Business Council of Australia won’t discuss the issue publicly.
According to the Department of Climate Change figures Australia emitted 553 million tonnes of CO2 in the baseline year of 2000. Assuming business as usual but including the 20% renewable energy target then this will rise to 664 million tonnes a year by 2020. So it will be hard for the government to hit its own emission reduction target of 5% by 2020 without a carbon price. In order to get it 139 million tonnes of cuts a year need to be found. The Prime Minister Kevin Rudd has said that he will push hard on energy efficiency.
There are 51 million tonnes a year of economic energy efficiency opportunities, according to Climate Works Australia’s low carbon growth plan, which leaves a further 89 million tonnes a year to be found. These could come from opportunities in forestry and agriculture. The main opportunities are in pasture and grassland management, reducing deforestation and re-growth clearing, reforestation, cropland carbon sequestration, etc, costing around $11-$27 a tonne of CO2. Combined these strategies could save up to 83 million tonnes and would cost $2.2 billion per annum. Had they had a carbon price they would have been economic.
However, recent analysis by researchers David Stern and Frank Jotzo from the Australian National University showed emission reduction pledges under the Copenhagen Accord by China, Indonesia, Brazil and South Africa of a similar magnitude to those announced by large developed nations. These are strong enough in fact to satisfy the government’s criteria for a 15% target.
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