So, the minister for climate change in the new Labor minority government is who, exactly? The official listing nominates Greg Combet, the Coalition would have us believe it is Christine Milne, and for a fleeting moment last week it seemed to have been Marius Kloppers.
But the person seeking to exercise the greatest influence over the climate debate in the first two weeks of the new government has been Martin Ferguson. No doubt the Minister for Energy and Resources (and Tourism) thinks this is as it should be, given the nature of his portfolio and his desire to do the best by both industries.
Ferguson, in an interview with The Australian Financial Review, gave his assent to an emissions trading scheme, pulled up the drawbridge, and fired a shot across the bow of banking types who would dare imperil the destiny of other economic sectors in the pursuit of an easy-traded dollar.
The weight of his comments offer a valuable insight into the battles ahead for a government that will rely on the support of the Greens and the independents — given the Coalition has effectively dealt itself out of the debate — and that has now decided that it doesn’t want climate change to be a festering sore at the next election.
Kloppers’ intervention gave the signal for the debate to resume, but Ferguson was clearly keen to make sure it didn’t get out of hand. Yes, a traded carbon price for the energy sector is a necessity — he has heard that message loud and clear from an industry that has tens of billions of dollar of investments to make and no signal to do so. But that is as far as Ferguson the progressive is prepared to travel.
Beyond energy, we return to Ferguson the inherent conservative, keen to restrict the ambitions of a carbon pricing scheme and to protect the remainder of his portfolio.
And most major business lobby groups are happy to play along, taking a safety-first approach when, if they analysed the nature of Kloppers’ remarks, it should be clear that early and broad action is by far the cheapest and most efficient measure.
Given the science that these policies are responding to, half measures make as much sense as being half pregnant. Nevertheless, the debate has been returned to its starting point of more than a decade ago — a trading scheme versus a carbon tax. Can’t decide? Hey, let’s have both, but in very small portions.
This is, of course, a well travelled path. One of the first documents the Labor government received upon its election in 2007 was the National Emissions Trading Taskforce conducted by the states and territories. This had started out as a study into a scheme affecting the energy sector only, but the overwhelming response from industry was that it needed to be extended to other sectors. Since then, of course, we’ve had the Garnaut review, a green paper and a white paper that all came to the same conclusion.
But it’s interesting to revisit what was said in 2007: “Emissions trading will be the central pillar in Australia’s strategy to reduce greenhouse gas emissions. However, emissions pricing alone will not be enough. The problem is too large, too widespread and too complex — other policy measures will be required to complement the emissions trading scheme.
“Australia faces a unique opportunity for co-operation among all levels of government to deliver a comprehensive, coherent and streamlined national climate change strategy. Action on stabilising and then reducing Australia’s greenhouse gas emissions should not be postponed. Leaving the emissions reduction task too late risks being forced to make abrupt, disruptive adjustments at a later date. A smoother adjustment path will be more manageable and less costly.”
Nothing much has changed. Yet here we are, back with the original premise of an energy sector only scheme.
The Climate Institute noted last week that putting a direct price tag on emissions in the stationary energy sector alone would require the sector to reduce emissions by 30% by 2020, just to meet the 5% reductions target. To meet a 25% target would require emissions to be slashed by more than two thirds. To offset this would require either direct regulation of emissions or a carbon tax, which all the models suggest is good at setting a price but bad at hitting a target. It’s seen as a blunt instrument that would end up costing more.
Europe has been down a similar path. When industry understood that a carbon price was inevitable and they were faced with regulation and a carbon tax, they were quick to push for an ETS. The difference in Europe was that the framework was relatively simple compared to the complexities of the CPRS, and Australia should be able to avoid the disastrous over-allocation of permits because it already has an effective measuring system.
Greg Combet, of course, is aware of this, and next week the real climate change minister will be able to put his own stamp of authority on the portfolio. Crucial to this, of course, will be the make-up and the intent of the climate change committee. One only hopes that there are enough members whose names fill in the alphabet between Ferguson and Milne to ensure an appropriate separation at the boardroom table. A name such as Malcolm could have been rather useful.
This story first appeared on Climte Spectator.
Note MOD: Your link identifier “Climte Spectator” needs correction.
A sound and saleable approach to CO2 emissions pricing entails the following features:
1. Specification of the true community cost of emissions
2. A clear path and timeline to reach the cost in 1.
3. Revenue neutrality so that the revenue raised by the imposition of a carbon price is returned to those parts of the public on or below average income in either cash or services, less perhaps other costs associated with administering the system, building new energy systems, or other suitable mitigation measures that can be undertaken at the CO2 cost. Thus a mitigation meausre that costs $23 per tonne or less would be permissible if that were the cost at the time. One that was above this price would not. This is a reality check.
This is not only equitable, but undercuts arguments about the policy being a ruse to increase levies on the population.
4. Simplicity of system design with minimal transaction costs
It seems very clear that the true community cost of CO2 emissions is at least $AUS100 per tonne, and very probably more, as a matter of practice. It should be made clear to everyone that whatver suite of measures is adopted will lead within five years or so, to an effective price in this range.
An early start could be made by removing subsidies for dirty fuel usage. Diesel fuel rebates and assistance with LPG conversion should be withdrawn. Last time I looked, diesel fuel rebates cost the taxpayer in the order of $AUS5bn, the vast majority of it to mining.
One should also change the tax treatment of dirty energy so as to make it no longer tax deductible. Make companies pay for their dirty energy out of after tax income. If an energy source is cleaner than the common industry benchmark, then it is, to that extent, tax deductible. Thus if gas fired energy sources were 50% of the CO2 intensity of coal, then 50% of the cost would be deductible. If a biodiesel product had an LCA 5% of the net emissions of conventional diesel, 95% of that would be deductible. Ditto with a petrol product.
This would imply a CO2 price of around $30 per tonne (though a lot more in the case of diesel — best guess about $144 per tonne)
One suspects that this would force very substantial changes in the way business was done, especially given that we would be on a path to a figure about three times that cost.
One could temporarily add a carbon tax in a couple of years time of about $20 per tonne and then ramp it up to $70 by 2015. If vehicles that could not be put onto the grid had been reconfigured to use biodiesel by then this would not affect their usage very much.
A BTA could protect us against fugitive emissions chicanery, pending an ETS.
Alternatively, if one or more of our trading partners were willing to do a deal on a cross-jurisdictional ETS, we might simply make the cap reflect the commonly decided price.
If much of our industry had retooled by then, we would win out of that.
I’ve read one of the key reasons Europe went for emissions trading was that the European Commission had the power to create it, whereas it did not have the ability to levy a tax against member states. So a carbon tax was not really an option.
Fran,
Much as I tend to agree with much of what you are trying to propose, your proposal is neither sound nor saleable. Indeed, it is far more scary than necessary.
1. Establish a public cost which each tonne of CO2-e represents. Review this (say) annually, as a public information tool. Publish it, but do not worship it, because it is only a number.
2. Remove stupidly generous oversupport of solar PV and wind, thus freeing up dollars for rational adjustment.
3. Establish a cap-and-trade GHG market based initially on $x/tonne CO2-e emissions. This will naturally ramp up as the cap is reduced to 2020 and beyond.
Sounds like the ALP proposal before Kevin got the chop? Yes, but without the freebies to existing polluters. Instead, it uses a ramped transition from nought percent (now) to a market-determined price for progressively reduced national target emissions each year as the program continues.
4. Establish a Hardship Commission or similar to determine where adjustments are economically and socially justified.
5. Institute a carbon tax at the point of entry for GHG emissions embodied in the manufacture of imports.
6. Institute a carbon tax rebate for the GHG tax paid in Australia in respect of exports – eg diesel fuel rebate on ore, or embodied CO2-e in manufactored goods.
7. Devise similar plans for transport, primary and manufacturing industries which generate GHG’s. This may be precdeded by a year or three of actual empirical carbon tax if the cap-and-trade is legislatively too complex, but I don’t see that this will be necessary.
8. As all 4 components are bedded in, merge them to permit cross-industry sales of emission permits. Not immediately, when they are bedded in.
And Fran, a carbon price of about $20 to $30 per tonne of CO2-e seems about right for starters to me. That should shake off some of the low hanging fruit, especially regarding electrical demand reduction.
That equates to roughly $70 – $100 dollars per tonne of coal, or $35 to $50 per wholesale megawatt-hour (MWh). This will show up on domestic retail bills as 3.5 to 5 cents per unit (kWh). Current domestic electricity is about 16 cents per kWh, so this is 20 to 30 percent increase of Joe Average’s electricity bill each month or quarter.
This starting point is thus not immense nor unmanageable. It is not the end of civilisation as we know it; it is the equivalent of an additional tank of fuel in the family car each 4 months or so.
Even if we had to go to $50 per tonne of CO2-e, it is manageable. Climate change and uncontrolled rising and warming of the oceans are not.
Has Crikey been surreptitiously purchased by the Business Spectator as a new front via which to pedal their right wing propaganda or what?
Surely the amount of recycled Spectator content now appearing on Crikey is not conducive to maintaining the integrity of it’s “independent journalism” branding?