Carbon reduction scheme: too complex and what’s the point?

When Kevin Rudd and his government swept to power in late 2007 his promise to take strong action on climate change rang loud in voters’ ears. Eighteen months down the track the central platform of Labor’s policy, the emissions trading scheme (ETS), has become a political hot potato, failing to pass through the Senate, and criticised by everyone from business through to the Greens.

Here, we examine the policy and look at alternatives proposed by key political parties and industry bodies.

Carbon reduction
Central to the Labor Government’s Carbon Pollution Reduction Scheme (CPRS) is the emissions trading scheme, also called a cap and trade scheme. Under the scheme businesses will pay to pollute the atmosphere, thus putting a price on carbon emissions.

The Government has set a target of a 5 to 15 per cent reduction in emissions from 2000 levels by the end of 2020, with a long term aim of a 60 per cent reduction by 2050. The lower target represents a minimum commitment, with the upper limit offering scope for greater reductions if other developed nations agree to comparable cuts at the next round of climate change talks in Copenhagen at the end of 2009.

Under the cap and trade scheme, emitters of greenhouse gases must acquire a permit for every tonne of greenhouse gas they emit. The quantity of emissions produced by companies will be monitored, reported and audited. At the end of each year businesses will be required to submit permits for every tonne of emissions produced in that year.

As the number of permits issued by the government will be limited, businesses will compete to purchase the number of permits they need, either through auction or on a secondary trading market. The theory is that it will be cheaper for some companies to lower their emissions output than to buy permits.

Criticism of the scheme

Free permits for heavy polluters

A controversial element of the ETS is that some trade-exposed heavy polluters will receive transitional assistance in the form of free permits – $1.5 billion of free permits in fact.

The government has been under strong attack for this from environmental groups and the Greens. Professor Ross Garnaut, commissioned by the federal Government to prepare a report on climate change, has also been critical of this type of assistance, writing in the Sydney Morning Herald late last year on the plan to give $3.9 billion in unconditional payments to big polluters (Oiling the Squeaks December 2008) that:

“Never in the history of Australian public finance has so much been given without public policy purpose, by so many, to so few.”
According to a study by Innovest, commissioned by the Australian Conservation Foundation, the biggest beneficiaries of the ETS will be Rio Tinto (Australia/UK), BHP Billiton, Xstrata, Bluescope Steel, Alcoa (US), Norsk Hydro (Norway), Alumina Ltd, BP (UK), Shell (UK/Netherlands), Onesteel, CSR, Chevron (US) and other multinationals and major local companies.

Another criticism of the scheme by Green groups is that it doesn’t count the voluntary actions of households and others to reduce emissions. They argue that if households reduce their emissions under the cap, industry will increase its emissions to the limit of the cap. But Minister for Climate Change, Penny Wong, denies this and says the caps will gradually be reduced, taking into account household improvements.

Criticism of the Government’s scheme from business has included the argument that it will impact on Australia’s economic growth and prosperity. The government counters this by putting forward results from Treasury modelling; the modelling results show that a scheme to cut emissions by 5 per cent would produce a one-off rise in the consumer prices of around 1 per cent and 1.5 per cent for a 15 per cent cut in emissions.

By 2020 20 per cent of Australia’s power is targeted to come from renewable energy. Photo: Lynne Blundell

Another key part of the Government’s policy is the Renewable Energy Target (RET) scheme, with 20 per cent of Australia’s electricity supply to come from renewable energy by 2020. The Government argues that the scheme will contribute to meeting Australia’s targets for the reduction of greenhouse gas emissions. The Scheme is also expected to provide a market incentive to accelerate uptake of renewable energy sources, such as solar, wind and geothermal energy. Red tape will be reduced by bringing existing state-based targets into a single, national scheme.

What the Opposition says

The Federal Opposition has not yet committed to a climate change policy but has rejected the Government’s ETS policy as too weak and announced it will formally examine alternative strategies. Leader of the Opposition, Malcolm Turnbull, has been vocal in his criticism of Labor’s proposal, signalling a more ambitious greenhouse gas reduction target than the Government’s and a less complex scheme for achieving the target.

The Opposition has been vague on the detail but some of the strategies that have been put forward include a carbon tax and biocarbon and bio-char approaches. Bio-Carbon, the carbon sequestered and stored in the world’s trees, plants, soils and oceans, is released into the atmosphere through deforestation and land degradation.

Bio-carbon approaches involve reforestation and land management strategies, while bio-char involves turning crop and forestry waste into charcoal and returning it to the soil. Mr Turnbull says these strategies have considerable merit in both lowering carbon emissions and improving the environment.

What the greens say

The Australian Greens support an emissions trading scheme, arguing that a cap on Australia’s total emissions provides greater environmental certainty and will fit an international trading scheme, The main objection the party has to the Government’s strategy is the low target for emissions cuts.

Greens leader, Bob Brown, says a strong target and 2010 start-up is vital.

“Without a strong emissions reduction target, and we recommend it be 40per cent, it won’t matter whether the Rudd government adopts a carbon tax or continues with emissions trading – the result will be hundreds of thousands of jobs threatened in the Murray-Darling Basin and the Great Barrier Reef.

“A rapid move towards a clean, low-carbon economy will create thousands of green-collar jobs and ensure Australia’s economy powers ahead over the next century. “The Rudd government’s 5 per cent target and the billions of dollars it is planning to hand out to big polluters will hold Australia’s economy back,” Senator Brown said.

What business says

As the global financial crisis continues to impact on business profitability and confidence, there is increasing pressure from the business sector to delay the start of the emissions trading scheme and/or to increase assistance to businesses.

The Business Council of Australia (BCA), while broadly supportive of Labor’s scheme last year, now says the Government needs to think of ways to minimise the scheme’s impact of business in the early years after its introduction.

BCA policy director Maria Tarrant says that as a result of the economic crisis companies are likely to have trouble investing in emission-reducing technologies.

Heather Ridout, chief executive officer of the influential Australian Industry Group, recently sought a delay for the scheme, saying it should be pushed back to 2012 to give businesses a chance to recover from the global financial crisis. She is also calling on the Government to give more financial support to business for the transition.

“Business supports the passage in 2009 of the relevant legislation. This would remove a major source of business uncertainty which is currently acting as an obstacle to long-term business planning. A delay in the start date would provide much-needed breathing space in what has always been an arduous timetable from an administrative point of view.

“The 2010 timetable has also now become unrealistic because of the impacts of the global financial crisis on business confidence, cash flows and the availability of credit. One of the impacts of the crisis is that it is undermining the capacity for businesses to invest in the new processes, plant, equipment and training necessary for them to reduce their emissions,” Ridout said.

What the property sector says

There is considerable support in the property sector for emissions reduction, primarily through greater energy efficiency in buildings. According to the Centre for International Economics, buildings and their occupants account for 23 per cent of Australia’s greenhouse gas emissions (GHG).

A common criticism of the ETS in the property industry is that it does not provide incentive for developers and commercial building owners to improve energy efficiency of new or existing buildings because they do not pay for electricity use.

A group comprised of Lend Lease, engineering consultants Lincolne Scott and law firm Freehills, has proposed an efficient building scheme to complement the ETS. The scheme proposes a combination of tax incentives and a cap on the allowable emissions from buildings over time.

Buildings and their occupants account for an estimated 23 per cent of Australia’s greenhouse gas emssions

Research from Australian Sustainable Built Environment Council (ASBEC) demonstrates that through the Carbon Pollution Reduction Scheme (CPRS) alone the building sector is expected to reduce emissions by around 8 Mt a year; with complementary measures and incentives, this could increase to around 60 Mt per annum by 2030.
These findings are consistent with those of independent expert studies overseas and within Australia.

The Garnaut Climate Change Review assessed the evidence and identified that energy efficiency in the building sector offered significant opportunities for low-cost reductions in emissions through the deployment of existing technologies and practices and that this could be achieved relatively early

Similar findings were reported by McKinsey & Company, the International Energy Agency (IEA) and the UN Intergovernmental Panel on Climate Change (IPCC).

ASBEC’s Climate Change task Group (CCTG) proposes a range of policies to enable these cuts including:

a national white certificate scheme – this involves applying energy efficient targets to electricity retailers and is already being tested in some states including NSW.

• provision of green depreciation – this involves the provision of accelerated depreciation allowances for building investments that involve specific energy efficient fittings, fixtures and fabric or raise the overall energy performance of the building to a specific target.

• public funding for building retrofit – would require a range of government funded grants, subsidies and rebates for improvements undertaken by households and the commercial sector.

The Property Council of Australia is also pushing for greater action on these energy efficiency policies. It is here, says the Property Council, that the built environment can really make an impact, halving electricity use in commercial buildings by 2030 and 70 per cent 2050. In addition, if such policies were adopted, the sector would reduce GHG emissions by 30 per cent within two decades.
lblundell@thefifthestate.com.au