Australian Carbon Pollution Reduction Scheme

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The Carbon Pollution Reduction Scheme is a cap-and-trade system of emissions trading for anthropogenic greenhouse gases, due to be introduced in Australia in 2010[1] by the Rudd government as part of its climate change policy, marking a change in the Energy policy of Australia.

The process followed is that the then Federal Labor opposition and the 6 Labor controlled states commissioned an independent review the Garnaut Climate Change Review which published draft and final reports. The Rudd Federal Labor Government then published a Green paper for discussion and comment. The Federal Treasury then modelled the financial and economic impacts of the proposed scheme.

The Rudd Federal Labor Government published a White paper which is a final statement of intention on Dec. 15, 2008. The draft legislation is the next step. After a period for comment the legislation will be introduced and likely passed in the House of Representatives where the government has a majority. After being passed there it will be submitted to the Senate. In the Senate, the Government will need the support of a number of other senators, from the Greens, Liberals, Nationals or Independents. The Government has announced that the legislation is intended to take effect in July 2010.

History

In the election year of 2007, both the Liberal-led Coalition government and the Labor opposition promised to introduce carbon trading. Opposition leader Rudd commissioned the Garnaut Climate Change Review on April 30, while prime minister John Howard announced his own plan on 4 June,[2][3] after the final report of the Prime Ministerial Task Group on Emissions Trading. Labor won the election on November 24.

Green Paper

In response to Garnaut's draft report, issued on July 4, the Labor government issued a "Green Paper"[4] on 16 July, describing the intended design of the carbon trading scheme. Draft legislation will be released in December 2008, to become law in 2009.[5]

The Carbon Pollution Reduction Scheme, as outlined in the Green Paper, is a market based approach to carbon pollution, to be implemented in 2010 (Department of Climate Change, 2008, 9). The main concern for the Australian government at present is getting the design of such a scheme correct, in order that it will complement the integrated economic policy framework, and need to be consistent with the government’s commercial strategy (Department of Climate Change, 2008, 10).

The objective of the Carbon Pollution Reduction Scheme is to meet Australia’s emissions reduction targets in the most flexible and cost-effective way; to support an effective global response to climate change; and to provide for transitional assistance for the most affected households and firms (Department of Climate Change, 2008, 14).

The basis of a Carbon Pollution Reduction Scheme is a cap and trade system, and is a way of limiting greenhouse gas pollution, as well as giving individuals and businesses incentives to reduce their emissions (Department of Climate Change, 2008, 11). The first step for the Australian Government is to set a cap on carbon emissions, which must be consistent with longer term goals of reducing Australia’s emissions by 60 percent compared with 2000 levels by 2050 (Department of Climate Change, 2008, 11).

There are two definite elements of the cap and trade scheme: the cap itself, and the ability to trade (Department of Climate Change, 2008, 12). The cap is the limit on greenhouse gas emissions imposed by the Carbon Pollution Reduction Scheme. The system aims at achieving the environmental outcome of reducing greenhouse gas emissions, the idea being that capping emissions creates a price for carbon, and the ability to trade assures that emissions are reduced at the lowest possible price (Department of Climate Change, 2008, 12). Setting a limit means that the right to emit greenhouse gases becomes scarce—and scarcity entails a price. The Carbon Pollution Reduction Scheme will put a price on carbon in a systematic way throughout the economy (Department of Climate Change, 2008, 13).

The ‘covered’ sectors are emissions that are subject to the cap, which are specified by the Government under the Carbon Pollution Reduction Scheme (Department of Climate Change, 2008, 12). Once this is established, and after setting the cap, the Government then issues permits that are equal to the cap. The Green Paper gives the example “if the cap were to limit emissions to 100 million tonnes of Co2-e in a particular year, 100 million ‘permits’ would be issued that year” (2008, 12). With each ton of emissions from a firm that is responsible for emissions covered by the Carbon Pollution Reduction Scheme, they are required to acquire and surrender a permit (Department of Climate Change, 2008, 12). As yet there are no limits or caps imposed on individual emitters or sectors.

There are around 1000 firms that are under obligations from the Scheme, which covers the bulk on national emissions. This means that 99 percent of all firms in Australia will not need to purchase permits for their emissions.

However, the price of emissions resulting from the Carbon Pollution Reduction Scheme will increase the cost of those goods and services that are most emissions intensive (Department of Climate Change, 2008, 13). This means that there will be a change across the prices of goods and services across the economy, reflecting how emission intensive the goods or service is. This therefore provides businesses and consumers with incentives to use and invest in low emissions technologies.

The second essential element of a cap-and-trade scheme is the ability to trade. Since carbon pollution permits will be tradeable, the price of permits will be determined by the market (Department of Climate Change, 2008, 13). The main idea behind this part of the scheme is that a firm who can undertake abatement more cheaply than the permit price will, and that a company will pay for permits if the cost for them is more to change than the cost of the permits. By trading amongst themselves, firms achieve the scheme cap at least cost to the economy (Department of Climate Change, 2008, 13).

The cap will only achieve the desired environmental objectives if it is enforced. This means that firms responsible for emissions covered by the Carbon Pollution Reduction Scheme must monitor their emissions and report to government (Department of Climate Change, 2008, 12). Arrangements for the assurance of reported emissions data are required.

Treasury Report On The Economics Of Climate Change Mitigation

The Australian Treasury's report on the economics of climate change mitigation was released on Oct. 30, 2008.[6] The report is considered a key input for determining the structure and targets for the Carbon Pollution Reduction Scheme.

The Treasury’s modeling demonstrated that early global action to reduce carbon emissions would be less expensive than later action and stated that a market-based approach allows robust economic growth into the future as emissions fall.

The report also stated that:

  • Many of Australia’s industries would maintain or improve their competitiveness under an international agreement to combat climate change
  • Even ambitious goals would have limited impact on national and global economic growth
  • Australia and the world can continue to prosper while making the emission cuts required to reduce the risks of dangerous climate change.
  • Households would face increased prices for emission-intensive products such as electricity and gas, however real household income would continue to grow.
  • Strong coordinated global action would reduce the economic cost of achieving environmental objectives, reduce distortions in trade-exposed sectors, and provide insurance against climate change uncertainty.
  • There are advantages to Australia acting early if emission pricing expands gradually across the world: economies that defer action face higher long-term costs, as global investment is redirected to early movers.
  • Australia’s aggregate economic costs of mitigation are small, although the costs to sectors and regions vary. Growth in emission-intensive sectors slows and growth in low- and negative-emission sectors accelerates.
  • Allocation of some free permits to emission-intensive trade-exposed sectors, as the Government proposes, eases their transition to a low-emission economy in the initial years.
  • Broadly-based market-oriented policies, such as emissions trading, allow the market to respond as new information becomes available.[7]

White Paper

The White Paper was released on 15 December 2008. [8] The White Paper included the Rudd Labor government's targets for Greenhouse gas emission reductions, 5 percent below 2000 by 2020 on a unilateral basis or up to 15 percent below 2000 by 2020 if also agreed by the other major emitters. This compares to the 25 to 40 percent cut compared to 1990 emissions recommended by the IPCC as needing to be made by developed countries to keep CO2 below 450ppm and to have a reasonable chance of keeping global warming at less than a 2 degree Centigrade increase above pre-industrial times.

The White Paper also set an indicative national emissions trajectory for the first few years of the scheme:

  • In 2010-11, 109 percent of 2000 levels;
  • In 2011-12, 108 percent of 2000 levels;
  • In 2012-13, 107 percent of 2000 levels.

For comparison, in 2006, Australia's emissions were 104 percent of 2000 levels (under Kyoto accounting) Some of the features of the emissions trading scheme

  1. A modeled carbon price range of AUD 20 to AUD 40 per tonne of carbon.
  2. Less than 1,000 businesses will have to account for their emissions and buy or be allocated free permits.
  3. AUD 4.8 billion of assistance (in the form of free permits) for the most polluting electricity generators.
  4. Financial assistance to compensate low and middle income families from increased costs.
  5. Free permits to emissions-intensive, trade-exposed businesses - such as aluminium producers, iron and steel makers, petrol refiners and LNG producers, initially totaling 25% to 33% of permits and rising to 45 percent by 2020.
  6. There will be total offset of the impact on fuel prices on households for 3 years.
  7. Agricultural emissions are not included initially but may be included from 2015.
  8. There will be a price cap on emissions, that will start at AUD 40 per tonne of carbon dioxide equivalent.
  9. Firms will be able to purchase emissions allocations (CERs under the clean development mechanism and ERUs under the EU Emissions Trading Scheme) from the international market, but will not be able to sell them during the initial years.
  10. Reforestation can count as carbon credit, but deforestation and forest degradation do not count as a liability.

Criticism

Sources of criticism included:

  • Greenpeace, the World Wildlife Fund, the Wilderness Society and the Climate Institute were joined by the Greens and other environmentalists in calling for more ambitious 2020 targets of 25 to 45 percent reductions. [9]
  • Two scientists on the IPCC, one a lead author, said the cuts ere inadequate. [10]
  • Professor Barry Brook, the director of the Research Institute for Climate Change and Sustainability at the University of Adelaide, stated that "the 14 percent cut in our total emissions by 2020 announced today is such a pitifully inadequate attempt to stop dangerous climate change that we may as well wave the white flag now."[11]
  • Dr. Hugh Saddler, managing director of Energy Strategies Pty Ltd, stated "the white paper does not include measures to reduce emissions from the major non-energy sectors such as agriculture and land clearing. While it is a good decision not to include these emission sources within the CPRS, it is essential that there be other strong programs specifically directed at these sectors."[11]
  • Dr. Regina Betz, Joint Director of the Centre for Energy and Environmental Markets at UNSW, stated "The proposed 2020 targets of emission reductions of 5 to 15 percent are, according to the climate science, entirely inadequate for an equitable global response to avoid dangerous global warming."[11]
  • Dr. Frank Jotzo, deputy director of the ANU Climate Change Institute, and former advisor to the Garnaut Climate Change Review, said "ruling out a 25 percent reduction is a mistake, since Australia's overwhelming interest is strong global climate action. An international agreement with deep cuts has just become a little bit more unlikely, as a result of Australia not putting a compatible offer on the table" and "the Treasury modelling has shown that even deep cuts won't carry big economic costs for Australia, if the policies are sound."[11]
  • Australian Chamber of Commerce & Industry chief executive Peter Anderson said his members were "apprehensive" about the scheme because it was "too risky" and warned the costs would be borne not only by emissions-intensive, trade-exposed industries but also by "small and medium businesses through higher energy costs and the flow-on from restructuring of larger industries". [12]
  • Mitch Hooke, vocal boss of the Minerals Council of Australia, said his organisation was "profoundly disappointed that the white paper was not better aligned with progress towards a global agreement on reduction commitments, new low emissions technologies and emissions trading schemes in other countries" [12]
  • Australian Industry Group chief executive Heather Ridout said the scheme was "a big ask and will have a big impact on the Australian economy" and estimated it would add about $7 billion to business costs by 2010. [12]
  • South Africa's environment minister, Marthinus Van Schalkwyk, has described the scheme as an inadequate "opening bid", and warned that it is not "nearly good enough to bring developing countries to the table".[13]
  • The national climate change adviser, Professor Ross Garnaut, damned the Rudd Government's carbon policy on three main grounds[14]:
    • Gross over compensation of coal fired electricity generators
    • Taking the possibility of 25 percent cuts off the table when they are in Australia's best interest
    • The lack of a principled basis for support of trade-exposed industries
    • The proposed compensation to industry represents a potential threat to public finances

Support

Statements of support included:

  • United Nations climate chief says the Government's emissions trading scheme is very encouraging and Australia should be applauded for entering the carbon market. [15]
  • Gerard Henderson, the former chief-of-staff to John Howard, has described Rudd's emissions targets as "responsible".[16]

Other

Whether or not the Federal Opposition will support the proposed legislation will depend on an independent assessment of the Government's carbon emission scheme it will commission. [17] Without support of some Opposition members in the Senate there is a possibility the enabling legislation may not be passed unless it gains the support of the Greens and independent senators.[18]

See also

Bibliography

  • Department of Climate Change (2008), Carbon Pollution Reduction Scheme - Green Paper
  • Department of Climate Change (2008), Carbon Pollution Reduction Scheme: Australia's Low Pollution Future - White Paper

References

  1. Good oil on carbon trading needed now - Business - Business
  2. Australia to launch carbon trading scheme by 2012 | Environment | Reuters
  3. Taipei Times - archives
  4. Carbon Pollution Reduction Scheme Green Paper
  5. Australian Emissions Trading Scheme - Timetable
  6. Australia's Low Pollution Future: The Economics of Climate Change Mitigation
  7. Australia’s Low Pollution Future. The Economics Of Climate Change Mitigation, Summary Report, October 30, 2008
  8. Carbon Pollution Reduction Scheme: Australia's Low Pollution Future, White Paper, Retrieved 16 December 2008
  9. Angry Greens accuse PM of going easy on polluters Retrieved 16 December 2008
  10. Scientists call for stronger emissions targets Retrieved 16 December 2008
  11. 11.0 11.1 11.2 11.3 Australian Science Media Centre Rapid Roundup: Carbon Pollution Reduction Scheme - White Paper - experts respond
  12. 12.0 12.1 12.2 Business leaders fear extra instability from carbon cuts Retrieved 16 December 2008
  13. Rudd has surrendered on carbon, says climate chief The Australian. Retrieved on 2008-12-24.
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  15. UN hails 'encouraging' emissions scheme Retrieved 16 December 2008
  16. Responsible Rudd carbon target is the right course The West Australian, 23 December, 2008. Retrieved 25 December, 2008
  17. Coalition coy about Rudd's emissions target Retrieved 17 December 2008
  18. Greens, Nats want Senate inquiry on emissions Retrieved 23 December 2008