Carbon pricing versus direct action

Australia’s carbon tax has copped an enormous amount of flak since even before it was implemented in July 2012.

Intense criticism by those against it, and poor efforts to defend it by those who support it, have left most Australians believing that it is highly expensive and largely ineffective.

The focus on the carbon tax has muddied the path we were on, which in my view is the right one: putting a price on carbon.

In fact, most Australians don’t know it, but the carbon tax was only ever intended as a transitional arrangement before moving to an Emissions Trading Scheme (ETS).

The recently elected Australian Liberal federal government – which has led the criticism against the carbon tax – has come up with a Direct Action Policy to replace carbon pricing.

In its first step towards implementing the new policy, the government has introduced legislation into Parliament to repeal the carbon tax. The final date for submissions on the carbon tax repeal bills is 5pm (AEST), next Monday 4 November 2013.

To help people who may want to make a submission, I’ve been researching the options. This week my posts will focus on why carbon pricing is the path Australia should continue to follow.

How the schemes work

The carbon tax

Under the carbon tax, the top polluting companies must pay a ‘fixed’ price for every tonne of greenhouse gases they emit. Presently that amount is $24.15.

Only the biggest 500 polluting companies pay the carbon tax. You and I don’t pay the tax directly, but the effects can flow through to the goods and services we buy.

The carbon price is premised on a simple idea about human behaviour: if you have to pay for something, you’ll be more careful about how you use it.

It’s very difficult to find statistical information on the effectiveness of the carbon tax. What has been reported is that in the first six months under the carbon tax emissions from the electricity sector dived, with much greater use of renewable energy and cutbacks in consumption.

In any event, its effectiveness is somewhat of a moot point as it was only ever a transitional arrangement before moving to an ETS that would actually cap pollution.

The carbon tax has received an enormous amount of criticism regarding its impact on household bills. But this appears to be unjustified. Hugh Saddler, a principal consultant for energy analysts Pitt & Sherry, said it had been ''almost impossible'' to see the carbon price footprint when it was introduced, and it would be no easier if it was removed. The Australian Bureau of Statistics agreed.

Not only that, a recent report has shown that scrapping the carbon tax is actually likely to increase electricity bills. The reason for this is because some of the proceeds the government had received from the carbon tax have been put towards renewable energy. Renewable energy has become far more efficient and cost effective, and now represents a very low-cost form of energy that displaces other fossil fuel generators, which have very high fuel costs. In fact, renewable energy, when it’s put onto the system, tends to cut household electricity bills, not push them up.

The Emissions Trading Scheme (ETS)

It had always been intended by the previous government that the fixed price carbon tax would move to an Emissions Trading Scheme (ETS).

A trading scheme places a cap on emissions and requires big emitters to buy a permit for every tonne of carbon dioxide they release. Permits can be traded, allowing businesses that cut emissions to save money.

The price of carbon would be set by the market under an ETS, and is therefore likely to go down.

The ETS is designed to link to international carbon markets. In other words, companies would be able to buy and sell permits in the international market if they wanted to do so. Currently, more than 30 other countries have carbon pricing schemes. This figure does not include state schemes like those in California and some Chinese provinces.

The benefits of the ETS are clear. It sets a cap on pollution; it’s flexible, as the pollution cap can be altered if our emission targets change; it is set by the market and it can be linked to international carbon markets. In my view, this is the route we should continue to take.

How direct action works

Under the proposed Direct Action Policy, polluters are paid to reduce their pollution. The Government will institute incentives for businesses, farmers, households and other entities to invest in technologies that will reduce our emissions.

The details of the policy are very vague. The Government has produced a White Paper on The Emissions Reduction Fund, which is the centrepiece of the Australian Government’s Direct Action Plan. The White Paper contains little detail.

What is clear however, is that with direct action there is no price on carbon and there is no limit on pollution. The cap is on spending, not emissions.

The payments will come out of a newly established Emissions Reduction Fund comprising taxpayers’ money. The costs of the ERF will be capped at $300 million (2014-15), $500 million (2015-16) and $750 million (2016-17) over the forward estimates.

The money budgeted for the policy is based on a target of reducing Australia's domestic emissions by 5 per cent by 2020.

However, modelling by Sinclair Knight Merz/MMA for The Climate Institute found the Coalition would have to find at least another $4 billion for its climate policy or else break its pledge to cut emissions by 5% by 2020 and instead allow them to increase by 9%.

Modelling by Reputex climate analytics, commissioned by the environment group WWF-Australia, found the Coalition funding would fall short by $5.9 billion a year between 2015 and 2020, or between $20 billion and $35 billion in total.

Australia has previously committed to higher emissions targets if there is a commitment for stronger action by the international community, which is possible at the 2015 UN Conference on Climate Change. Given how much money is required by direct action to enable us to just meet our 5% targets, it is unlikely direct action would enable us to meet these higher targets, or indeed even our existing target.

Direct action also delivers disruption and uncertainty to an industry that’s already adapted to the concept of carbon pricing.

Is Direct action the right course of action for Australia? According to many leading economists it is not. A Fairfax Media survey released today of 35 prominent university and business economists found only two believed direct action was the better way to limit Australia's greenhouse gas emissions.

Of the two economists that supported direct action, one described it as "no action", which he felt was the right path to take for Australia. The other economist, from Commsec, was skeptical whether humans were having a serious impact on climate.

Thirty – or 86% – of the economists surveyed favored the existing carbon price scheme. Three rejected both schemes.

Internationally renowned Australian economist Justin Wolfers, of the Washington based Brookings Institution and the University of Michigan, has expressed surprise that any economists would opt for direct action. He has said that direct action would involve more economic disruption but have a lesser environmental pay-off than an emissions trading scheme.

Direct action a more expensive way of doing much less

It’s incredibly disappointing that political debate over a transitional arrangement – the carbon tax – has gotten in the way of our move to an Emissions Trading Scheme. 

When comparing carbon pricing against direct action, carbon pricing wins hands down.

In fact, direct action is just a much more expensive way of doing much less.

Useful links:

Repealing the Carbon Tax – Call for public comment

http://www.environment.gov.au/carbon-tax-repeal/consultation.html

Emissions Reduction Fund - Call for public comment

http://www.environment.gov.au/emissions-reduction-fund/consultation.html

Image attribution: Jan-Joost Verhoef

How climate change impacts bushfires

On Thursday, Sydney saw its worst bushfires in more than 10 years.

Of the more than 100 bushfires that raged across the state of NSW, at least one life was lost and the number of homes destroyed is still being counted.

Some of the bushfires still continue to burn out of control. Even right now as I type inside my home, I can smell smoke. Outside the trees are shrouded in smoke. I live nowhere near the fires.

Today, firefighters are desperately trying to contain the remaining fires, because tomorrow we are expecting yet another hot day.

Unusual weather patterns

As a Sydney-sider, I am shocked for the people whose lives have been, and will be, devastated by the fires.

But I haven’t been surprised by the bushfires. Not even by the scale of them.

This year we experienced a surprisingly early start to the bushfire season. Fires started in our first week of spring, in September. Since then we’ve had many hot days in the late 30C and late 20C, which is very uncommon. We’ve also had lots of very strong wind.

In fact, Australia as a whole has been going through some pretty unusual weather patterns and breaking various records. We’ve just had our hottest 12 month period on record, we’ve had an unusually warm winter, and the hottest September on record. We also had 28 days in a row without rain. All this is occurring with the El Niño cycle being neutral.

While climate change deniers have focused on a 'pause' in atmospheric land temperatures over the last 15 years, the oceans, which absorb approximately 30% of our CO2, have continued to warm. In fact, claiming that global warming has ‘paused’ is deeply misleading: it is factually incorrect and also selectively seizes on a very specific timeframe where a strong El Niño causing hot weather had been in play.

Bushfires and climate change

Although climate change doesn’t start bushfires, it does contribute to the conditions that exacerbate the risk of the bushfires. It also creates the conditions in which bushfires can flourish.

Global warming amplifies the risk factors for extreme weather events. The extra heat pulls water from the soil and plants on land, making it very dry. Meanwhile, as the atmosphere becomes warmer its capacity to hold water increases. As a result, downpours become more amplified. The rainfall may in turn lead to grass growth, which can then end up fueling fires.

Scientists and researchers are making it increasingly clear that a serious consequence of climate change for Australia will be an increase in the frequency and severity of bushfires.

Australia’s CSIRO (Commonwealth Scientific and Industrial Research Organisation) predicts that under extreme climate change, the kind of bushfires we saw in Victoria on Black Saturday may happen on average once every two years.

A leaked draft document of a forthcoming report from the Intergovernmental Panel on Climate Change's (IPCC) – which is the internationally accepted authority on climate change – says that climate change will increase the likelihood of deaths from heat stress and bushfires in Australia.

Moving backwards in the fight against climate change

The timing of these terrible bushfires is ironic. They happened in the same week that Australia took a significant step backwards in the fight against climate change: its recently elected federal government released draft laws to axe the carbon tax.

By moving away from an effective model of dealing with climate change we are ignoring the fact that climate change poses the biggest ever threat to Australians and the Australian way of life.

In doing so we are also perpetuating the problem of bushfires, which puts our people and our firefighters at tremendous risk.

In November 2009, appearing before Parliament, the United Firefighters Union of Australia urged it to take real action on climate change:

"We are asking you very clearly, stop making this a political football, put in place the action that's required to secure the future because by 2020 we are going to see a frequency like we've not seen before."

Since then, Australia has made very little climate change progress. In fact, we’re currently moving backwards. We’re ignoring the facts being put before us and in doing so putting more lives at risk.

Image attribution: Desi