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
Emissions
Reduction Fund - Call for public comment
http://www.environment.gov.au/emissions-reduction-fund/consultation.html
Image
attribution: Jan-Joost Verhoef
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