Carbon pricing policy a small start to tackling climate change

On Sunday the Gillard Federal Government announced it's carbon tax at $23 a tonne of carbon to be imposed on the 500 largest carbon polluting companies starting from July 1st, 2012. More than half the money raised will be returned to low and middle income earners, pensioners and retirees as compensation. Additional packages include $10 billion renewable energy and low emissions technology fund, substantial assistance packages to 'trade exposed' industries, $1.9 billion to fund carbon geo-sequestration in the land sector, and a $1 billion biodiversity fund.

The initial rate of $23 a tonne will be indexed at 2.5% for 3 years before an Emissions Trading Scheme is introduced in 2015 with a cap and floor price set by the Government. An independent Climate Change Authority will be established to recommend targets when the emissions trading scheme commences to take some of the politics out of the process. A target of 80% emissions reduction from 2000 levels by 2050 will be set.

See also: Carbon price in a nutshell according to the Australian Youth Climate Coalition. Full Details are available on the Government compensation package and of the carbon price modelling from Treasury Department.

The initial announcement was made in February 2011, with the Government being widely criticised for providing few details at the time. The negotiating process was long and tortuous with Julia Guillard's minority Government needing to negotiate with the Independent members Tony Windsor, Rob Oakeshott and the Greens in the Multi-Party Climate Committee. The Independent MP from Tasmania, Andrew Wilkie, has now also pledged support for the package ensuring it's passage through the House of Representatives. Although invited to participate in the MPCCC the Liberal party refused all input to this multi-party committee.

Climate change is too big an issue to be used for partisan adversarial politics, and the Liberals refusal to participate in the MPCCC showed a lack of commitment to tackling the big environmental and economic issues Australia is facing. In May the head of the IPCC came out publicly to say that a carbon price was needed for climate mitigation as it was reported that Global Carbon emissions achieved a record high in 2010.

Significant compromises were made by both the Government and by the Greens so that this scheme is more flexible and well rounded than the CPRS scheme the Government attempted to bring into law itself and then in negotiations with the Liberal Party headed by Malcolm Turnbull in the last parliament. Several commentators have remarked that it appears to be better rounded than the failed CPRS scheme.

The carbon pricing package sets in place four key elements: a carbon price signal to change business behaviour; support for clean energy and funding clean energy innovation for the future; support for energy efficiency; and implementing the storage of carbon in the landscape through sequestration programs. But it also involves significant taxation reform for low income earners lifting the tax free threshold to over $18000pa and reducing taxation rates for low and middle income earners as part of the compensation package.

Under Tony Abbott's leadership of the Liberal Party we have seen a climate policy that has been highly critical of the introduction of a market based emissions trading scheme and instead favoured direct taxpayer funding for reducing emissions while playing on people's fear of a new tax and the impact of the cost of living. The Liberal Party's 'direct action' climate policy has been heavily criticised by scientists as tinkering at the edges and by economists as ineffectual. Never mind that Europe has had an emissions trading scheme for the last 6 years, that New Zealand now has a scheme in place, that the US state of California will be introducing an ETS next year, and that even India has placed a tax on coal production. Abott even appeared to come out in favour of a carbon tax in an interview before the election last year. Abbott is stuck defending a policy that makes no scientific or economic sense even from a conservative perspective.

Climate and Conservation groups have been generally welcoming of the carbon price policy, although with some caveats that it is only a start to tackling the diabolical problem of climate change and its impacts on the economy, society and environment. Indeed, with current global pledges for emissions reductions we are on target for 4 degrees of warming by 2100, well above the international commitments to restrict warming to 2 degrees C. More on this at the end of this article. The policy is an initial start. The test will be whether it can be scaled up for greater emissions reductions when the electorate realizes the huge costs and impacts extreme weather events and climate change will have on society in the coming decade.

"The price on pollution package is a critical milestone in Australia's response to climate change. In decades to come we will look back on this package as the turning point that led to a fall in Australia's emissions." said Environment Victoria Campaigns Director Mark Wakeham in a media release.

"This package is not perfect, but it is absolutely essential Australia gets started. We commend the multi-party committee for establishing a $10 billion clean energy finance corporation, as proposed by ACF, to drive large-scale investment in renewables." said the Australian Conservation Director Don Henry in a media release. Watch Don Henry explain his initial impressions:

"These policies will finally break a political deadlock which has seen our politicians squabbling and dithering for over a decade. If passed by Parliament the scheme will start half a decade after John Howard first announced his backing for a price and limit on pollution, an emissions trading scheme." said John Connor, CEO of the Climate Institute in a media release.

"This policy package will also help break an investment deadlock which has stalled investment, not only in clean energy, but in Australia's overall power generation. Energy experts have shown that further delay will increase electricity prices and cost the economy billions, with investors forced to second guess the politics and invest in plants cheaper to build, but more expensive to operate." said John Connor. He also emphasised that the Australian carbon pricing policy will also boost international climate action negotiations at Durban, South Africa in December.

As part of the package it was announced that 2000MWe of coal-fired power generation will be closed down by tender to get rid of some of the most polluting power stations in reducing emissions. The Hazelwood plant in Victoria's La Trobe Valley, often cited as one of the dirtiest most polluting power stations in the industrial world, is one possible candidate. Some have welcomed this measure, while others such as Tony Wood from the Gratton Institute and Matthew Wright from Beyond Zero Emissions have criticised it as a waste of taxpayers money.

"We have known for years that coal and gas causes climate change. So any significant government money put into this compensation for big polluters is a potential rip off of the Australian public." said Matthew Wright in a media release, who argues against replacing Hazelwood with gas-fired intermediate emissions technology and instead going straight to building a baseload solar plant: "Let's go the whole hog and replace 2000MWe equivalent annual output of coal-fired power generation, with 2000MWe of baseload solar power such as the Torresol Gemasolar plant that was dispatching electricity 24-hours a day during the last week. It is the first of many solar thermal plants that operate 24 hours a day producing baseload electricity."

There has been strong critical voices from the mining companies, electricity generator companies, and Chambers of Commerce as you would expect. But there are also voices within the business community cautiously welcoming the policy and for the business certainty that the policy will provide in the next decade. The Australian sharemarket took a dive on Monday, although some of the movement was likely in response to overseas downward market trends, and there was a positive trend with renewable companies.

Scientists were also pleased that policy makers had at last taken a step in the right direction, according to expert responses on the Australian Science Media centre website.

Professor John Quiggin from the School of Economics, University of Queensland said "The proposed carbon tax is a substantial improvement on the heavily compromised emissions trading scheme agreed between the Rudd government and the Opposition under Malcolm Turnbull. Although there is substantial compensation for emissions-intensive industry it is temporary and based on historic emissions level, so that the incentive to reduce emissions is not compromised."

"The design of the compensation package for households is also welcome. The government has avoided the temptation to pretend that everyone will be better off, and has taken the reasonable position that high income households do not need to be compensated for the introduction of necessary reforms. This has permitted the very welcome measure of raising the income tax threshold and thereby taking more than a million low-income workers out of the income tax system."

"While the primary focus of the package is, correctly, on the imposition of a price on carbon emissions, there are a range of supporting measures designed to encourage energy efficiency and innovation. On the whole, these seem more carefully designed than the measures introduced under previous governments." concluded John Quiggin.

Professor Snow Barlow from the Melbourne School of Land and Environment at the University of Melbourne said "The specific Creating Opportunities for the Land package provides a welcome $1.9 billion over six years to support emissions reduction and carbon sequestration in the land-based sector. More than $200 million over six years is allocated for research and development to develop strategies, technologies and methodologies to achieve these emissions reductions. The implementation of these measures will be guided by natural resource management (NRM) plans for each of Australia's 56 NRM regions to ensure that carbon emission reduction measures do not result in perverse outcomes for land use and Australia's unique biodiversity. Most importantly there is a clear market for the carbon credits developed in these activities either directly into the Tax scheme or through a scheme regulator in the case of activities not currently covered by the Kyoto Protocol."

Tony Wood from the Gratton Institute, which criticised (PDF) the former Government's CPRS scheme for providing too much compensation to business, has continued with it's criticism of the industry assistance package saying that "compensation is based more on the loudest voice than clear analysis." He has welcomed the Productivity Commission's review to ensure that this remains a temporary issue.

The result of this package will be a saving of 190 million tonnes of carbon by 2020, the equivalent of taking 45 million cars off the road. Australia's emissions are actually forecast to still be rising by 2020 but at a reduced rate so this saving will be in reducing carbon intensity. The federal Government has a current minimum target of 5% emissions reduction by 2020, which is tied in with what other countries are doing globally as voluntarily committed in the Copenhagen accord.

The United Nations Framework Convention on Climate Change (UNFCC) made a commitment at Copenhagen in December 2009 and reaffirmed at Cancun in December 2010 to limit global warming to 2 degrres C or 1.5 degrees C temperature goals. But current emission reduction pledges falls far short of achieving this goal according to the United Nations Environment Program Emissions Gap Report.

If we examine the stated commitments of the Copenhagen accord as per June 29 2011 proposals the emissions gap will result in 4.1 degrees C average global warming by 2100. The pledges have reduced business as usual projections by 0.7 degrees from 4.8 degrees C by 2100. The gap is still substantial. See for yourself on the Climate Interactive scoreboard below:

Over the next three days I'll be attending a conference at Melbourne University - FOUR DEGREES OR MORE? Australia in a Hot World - with numerous climate scientists and a few climate policy analysts to examine the implications of what living in a world 4 degrees warmer will be like.

Unless Australia and much of the industrialised and developing world increases its emissions reductions we can expect a pretty frightening future for our selves, our children and our grandchildren. The carbon pricing policy announced on Sunday is barely a start....

videos

The press conference with Prime Minister Julia Gillard announcing the Government's plan for a clean energy future (24mins 17s):

Prime Minister Julia Guillard's address to the nation on A plan for a clean energy future (5mins 24s)

Watch the Greens Press conference as broadcast on ABC news 24 (31mins 43s):

Sources

• Environment Victoria media release, July 10, 2011 - Carbon package begins Australia's clean energy transformation
• 100% renewables media release, July 10, 2011 - Community campaigners welcome a new course on renewables funding
• Australian Conservation Foundation media release, July 10, 2011 - Australian action on climate change starts here
• Climate Institute media release, July 10, 2011 - Carbon pollution policies help break deadlocks
• Beyond Zero Emissions media release, July 10, 2011 - Carbon Price Response: Retired Coal Plants Should Be Replaced With Renewables
• Climate Action Centre media release, July 10, 2011 - Carbon price a historic step forward, but political compromise triumphs over scientific necessity
• AusSMC experts rapid response, July 10, 2011 - RAPID REACTION: Carbon price announcement - experts respond
• GreenMPs media release, July 10, 2011 - Carbon price agreement: historic first step towards a clean energy economy