The Coalition’s reliance on the passage of US emissions trading legislation to delay a vote on, and justify further weakening of, the Government’s ETS may yet become problematic if a scheme similar to current Waxman-Markey bill that narrowly passed the US House of Representatives last Friday gets through the US Senate.
The Coalition’s rather changeable position on the Government’s ETS is based on a delay until after the Copenhagen conference later in the year and the passage of an ETS bill in the US, to where Coalition ETS point man Andrew Robb has headed for a second time to get across how the American debate is proceeding. The delay is important for Turnbull to secure sufficient support within his own ranks for the ETS, possibly with the help of some amendments to reduce or remove whatever burden on industry remains in the current Bill. It’s also an argument straight out of the protectionist manual: we should do no more than what other countries do.
But a comparison of the American Clean Energy and Security Act in its current form and the Rudd Government’s Carbon Pollution Reduction Scheme by the Australian Conservation Foundation shows the US version in its current form has significantly less industry assistance and is far better targeted at reducing emissions and increasing energy efficiency.
The ACES emissions targets (the Americans win on acronyms alone), based on 1990 levels, are 17-23%, compared to 4-24% under the CPRS; based on 2000 levels, which the Rudd Government uses, the comparison is worse: 27-32% under ACES, 5-25% here).
And despite criticisms about rentseeking and ineffectuality, the US bill has a different and more stringent approach to industry assistance. Trade-exposed industries will receive a maximum of 11% of permits under ACES, with industry bearing the risk that their emissions will be greater than the level for which they have been allocated permits. Under the CPRS, EITEs will receive 28% of permits and there will be no cap – if EITE companies expand, they will be given more free permits, meaning there is a risk the Government will have to call on budget revenue rather than permit revenue to fund its commitments under the CPRS.
The price of permits under ACES also won’t be capped: the CPRS has a ceiling on permit costs ($10 in the first year, $40 indexed thereafter). Under ACES, there will be no limit on carbon prices, but 2% of permits would be kept as a “strategic reserve” for release if the price increased too far or too quickly. The US bill also avoids the trap the Rudd Government fell into when it released its Green Paper at the height of last year’s petrol price hysteria, prompting it to promise to negate the effect of the CPRS on petrol prices, which will cost 17% of permit revenue. Under the US scheme, oil companies would be given 1.4% of permits, with no obligation to offset the increase in the bowser price.
The electricity sector would, like the local version, receive assistance under the US bill, but it would primarily be directed at energy retailers to fund energy efficiency programs aimed at reducing long-term electricity demand, rather than a direct, no-strings attached handouts like the electricity generation industry will receive here, or that households will receive to compensate for increased power costs. The Greens proposed a similar link between compensation and household energy efficiency measures here last year, to no avail. The American scheme would also provide up to 8% of permit revenue to developing countries to assist in emissions reduction, and direct permit revenue into energy efficiency and new technology research (including carbon capture and storage), and even funding for adaptation measures.
The most telling comparison is that 76% of permits under ACES are directed toward “clean, green and fair” purposes – energy efficiency, new technology, assistance for low-income earners – compared to 45% of revenue under the CPRS.
The US bill has come under heavy and familiar fire from all sides for its generosity to polluters, its likely lack of impact on emissions and predicted consequences for American jobs. It will almost certainly need to undergo amendment if it is to pass the US Senate, but it will need to be weakened substantially if it is going to be comparable in terms of its assistance to big polluters. If it doesn’t, the Coalition will be left with the task of explaining why, having elevated the passage of the US bill to critical status for its consideration of Australia’s ETS, it wants to wants a version even weaker than the Americans’.
The Government should also have some explaining to do. If a better bill than ours can emerge from the frenzy of lobbying and rent-seeking that is the US Congressional process, it clearly hasn’t tried hard enough to get a real ETS through.
A good comparison of the two schemes. Thanks.
The Americans are doing better than us with their proposed scheme! Now that is embarrassing….
I remember when Rudd was elected. He looked good. He said some good things. He signed Koyoto. Sorry Day….
But then Mr Obama started his efforts.
Now Mr Rudd by comparison, simply looks like a pawn in the hands of big business. ….
Awkward!…..
ETS is a global carbon dioxide (not carbon) tax to be administered by the banks.
Even Garnaut suggested this approach for Australia in an article in the Financial Review in February. It is a con job in my view.
Anti pollution laws need to be managed by national governments which are answerable to the voters -not by global bankers answerable to no one. These laws should not be designed to fleece the long suffering public of further dollars in a time of extended global deflation, but rather to foster change in energy use patterns.
Enough people are now seeing this for the scam it is. It won’t get through the US Senate I do not believe as more and more people work out that everything they buy will cost 10% more. It hasn’t worked in Europe and it wont help to fix anything here. In any “pay to pollute” scheme, the biggest and richest polluters get to keep polluting because they can afford to! Small busines will go out of business and we the people will continue to pick up the tab.
Bernard,
There are some key errors here in your description of ACES, and I have to disagree with you on the CPRS. First, ACES: the medium term targets are actually weaker than even the unconditional 5% target announced by the Government. The US targets are for reductions against a 2005 baseline, not 2000 (Australia’s chosen base year)) or 1990 (UNFCCC base year). The ACES 2020 target amounts to a cut of about 3% on 1990 levels; Obama’s campaign pledge was merely to return To 1990 levels by 2020. By contrast, if some sort of worthwhile successor agreement to Kyoto is negotiated, Australia will cut up to 15% on 2000 levels – and our 2000 emissions were roughly the same as in 1990.
On assistance for emissions- or energy-intensive trade exposed industries, it’s still difficult to make a judgment in which scheme is more generous. Both ACES and CPRS provide assistance based on production times an industry-wide average emissions intensity. The CPRS gives firms free permits for only a portion of the calculated liability – 90% or 60%, depending on their emissions intensity (plus the Global Recession Buffer or whatever it’s called, which still leaves the totals below 100%). as you say, the CPRS doesn’t limit the proportion of the emissions cap that can go to EITE firms. On the other hand, ACES provides EITE firms with allowances for 100% of their deemed liability, but limits the total proportion of the cap that can be given out for this purpose (I think it’s 15% from 2014, then reducing along with the cap). The definitions of EITEs may well not be quite the same under the two schemes; if given the structure of the US economy (bigger and less trade exposed than ours) the compensation offered is enough to cover all qualifying firms, ACES may be a bit more generous. It’s too early to tell!
More importantly, the EITE measures in both schemes are not nearly so bad as you paint them. Neither undermines the cap, and both provide incentives for firms to reduce emissions. There are two reasons for this. Firstly, allowances and permits still have a market value even if freely allocated at first. Using a free permit carries an equal opportunity
cost – a firm that emits gives up the money they could make selling the permit. EITEs will still have every incentive to choose abatement options that are cheaper than the permit price. And since assistance is based on industry average intensity levels, more efficient firms are overcompensated and dirtier firms undercompensated, providing further incentives for firms to cut their emissions intensity. These assistance measures do increase the costs of the schemes, because they are production-linked and hence provide no incentive to cut emissions by cutting production. In some instances – very dirty low-margin operations – cutting production may be the lowest-cost abatement option. But this cost does not radically undermine the schemes as is commonly argued.
This brings me (at length! Sorry!) to the larger point that the CPRS ain’t so bad at all. We can have a separate argument about what the targets should be. But as a mechanism for reaching those targets, the CPRS is pretty good. The compensation measures are certainly expensive in terms of foregone revenue, but with one big exception (the fuel excise offset – excruciatingly stupid; thanks, PM, for making Brendan Nelson look like a trendsetting policy thinker) they don’t increase the economic cost or undermine the scheme. The point of cap-and-trade is NOT to punish anyone or to make anyone poorer: it is to change incentives and the relative prices of less- and more-emitting goods and services. It doesn’t matter if people are partly-, fully- or over-compensated, so long as the compo does not interfere with those incentives. The EITE assistance gets a B+ on that front, while
the fuel excise offset gets an F. Everything else is fine.
That’s environmentally and economically speaking. There’s still the issue of whether the compo
is good value, rather than just harmless. Beats me – industry could probably scrape by with less, households could take it on the chin, and the spare
permit revenue could fund research or adaptation or tax cuts or deficit reduction. And if the CPRS is passed, my guess is that ultimately it will do all those things – the Government’s going to be strapped for cash for a long time, and all those handouts will look pretty tempting for clawing back. But if our priority is to get going with emissions cuts, rather than make sure public spending is sensible (so unfashionable!), the CPRS should be passed in a heartbeat.
There’s a lot more to be said, and many more criticisms to be answered; but this post has been sufficiently long-winded for now. Nerdy screeds aplenty may follow!
Full disclosure: I work for an industry organisation, but my views are my own.. I am not a grubby rentseeker, but I know plenty.