The fundamental question about the Government’s ETS is whether it will work. If the scheme will not provide the right signals and incentives for a shift to a low-carbon economy, then doing nothing or doing something else is the better option, because an ETS will inflict costs on businesses and households.
New work commissioned by the Australian Conservation Foundation suggests the Government’s ETS will provide virtually no price signals for Australia’s largest polluters.
Last year the ACF asked Innovest to assess how much large polluters were receiving from the Government’s proposed ETS via free permits. Innovest (now part of RiskMetrics) has updated its calculations each time the Government has amended its scheme in favour of polluters. The latest figures receive plenty of coverage in the press today.
This time, however, RiskMetrics has also looked at exactly how much the biggest polluting industries would have to pay for emissions permits — in short, what sort of price signal they would face.
During what was to be the first year of the scheme, of course, they now face no signal at all as it has been delayed. In the first year of the revised scheme, the aluminium smelting industry will face a total net permit obligation of $23m. In 2012-13, when we move to an actual emissions trading scheme, it will face an obligation of $82m. Alumina refining will face an initial permit obligation of $57m, rising to $171m in 2012-13.
In 2007, the aluminium and alumina industry produced over $11b in export revenue. It is responsible for 9% of Australia’s greenhouse emissions by itself.
The cement industry does even better. It faces a bill of $4m in 2011-12 and $14m the following year. In 2008, the industry generated turnover of just under $2b, and 1.4% of the nation’s emissions.
Steel: $6m, then $23m, for an industry with $21b turnover and just under 4% of emissions.
Woodside’s Don Voelte called the recent amendments “lipstick on a pig”. Some pig. The whole LNG industry faces a bill of $41m in the scheme’s first year — more than $200m less than it would have paid under the previous iteration of the scheme. Woodside itself, courtesy of Voelte’s incessant whingeing and the lobbying efforts of the APPEA, has gone from getting nothing under the Government’s Green Paper to getting $64m worth of handouts in 2012-13.
Note, by the way, that the biggest polluting industry of all, the cattle industry, which accounts for 11% of emissions, won’t be in the scheme until 2015 at the earliest either.
Get the feeling we’re running out of candidates to actually do something substantial about climate change?
It provides a fascinating contrast with the Government’s treatment of the coal industry, which it has steadfastly refused to include as an emissions-intensive, trade-exposed industry. The Government claims that coal is below the lower threshold for inclusion as an EITE (1000 tCO2/$m revenue. Industry figures show an average emissions intensity of more than 1300 t/$m, comfortably in the range that would qualify it for 60% (initially 66%) assistance. An industry-commissioned reported by ACIL Tasman says the coal industry faces total cost increases from the ETS of over $1b a year.
Even assuming the normal bias inherent in industry-commissioned studies, it is clear that the Government’s decision to single out coal for political, rather than economic, reasons will be extraordinarily costly for that industry when other big polluters — who generate perhaps 15% of the country’s emissions — will face a negligible price signal, one smaller than a foreign exchange fluctuation or a major industrial dispute.
Given the Greens’ success in Perth on the weekend, it is a decision unlikely to be reversed by the Government. Coal, however deserving or undeserving, gets to be the scapegoat for a Government with one eye on its left flank.
I’d be interested to see how those prices wash-out into costs on actual goods. There’s bugger all price signal to the actual industries, except in higher prices for electricity, which they’ll pass on to their consumers anyway.
My understanding of the price signal mechanism is that goods with relatively higher CO2 content will be relatively more expensive, so consumers will choose the cheaper item (or so the theory goes). The numbers here look pretty small to me, something like an increase in costs over revenue of 1.55%. So their goods will go up 1.55%, then there’s essentially no price signal for consumers. I very much doubt it will ‘work’.
Saw Andris Piebalg, the EU Energy Commissioner speak last night, and I was shamed at how much more the EU are doing. They got an agreement from 27 countries! Also, their 20% (below 1990, as opposed to our 2000) target is bold and incisive. With some luck though, they might blackmail some of our industries into reducing their carbon footprint anyway, in an opposite mechanism to our EITE protectionism. IE, they’ll be taxed on import to the EU, because the goods were sold in a country with a weak scheme. They did a similar thing over GM crops, so maybe it’s not so far fetched?
EB
A carbon tax, on the other hand has very few loopholes. If all carbon pays tax at the time it leaves the ground, the cost is spread throughout the economy. Perpetrators pay for their emissions at the time they buy. The tax could be made sufficient for nonfossil energy to be preferable on grounds of price alone.
What excuses are left? Exports? A carbon audit system could calculate how much carbon tax should be rebated on exported goods or levied on imports.
And speaking of costs rises, the electricity retailers in NSW are raising prices by 20%. Without an ETS.
Good call Oz. It’s to guarantee supply though, so that counts. Saving the environment is not worth anything, apparently.
Why doesn’t the average voter realize that it is THEIR money which is paying all the bills to support the big polluters. Why are we so apathetic about the misuse of OUR money. Hasn’t anyone hear of civil rebellion?
Look at what is happening in Tasmania. Gunn’s are going ahead with their pulp/paper mill. Who will pay for the restoration of the forests, the medical bills from breathing suddenly polluted air, the sheer and utter destruction of once beautiful native forests, for what? Well the latest answer is the boys need the work, it’s a depression, etc. Perhaps if the boys had studied harder at school they wouldn’t be in the position they are currently in.
As long as people regard education being less important than footy, so long will Oz be the land of the little Ozzie Battler. I can feel my stomach churning.