A carbon market targeted to the end user might succeed where an emissions trading scheme failed. In property, Landcom’s “powerful” Precinx tool might come in very handy for such a scheme.

By Peter Newman and Vanessa Rauland,  of Curtin University Sustainability Policy Institute, Western Australia say

12 August 2010 – An Emissions Trading Scheme seems dead. The coalition wants nothing to do with it, the ALP has lost heart and the Greens just want a tax. Globally an ETS received a body blow at Copenhagen and the US seems unable to give it any priority.

Hard problems like reducing car use, water or carbon are all difficult to achieve politically through pricing. We can’t even manage to properly charge heavy trucks for the damage they do to roads despite having clear studies and policy advice for decades. Perhaps we are expecting too much politically when we seek a carbon price to decarbonise our global economy.

So what can we do about tackling climate change policy? Having a market for carbon seems like an obvious and necessary driving force but can we construct this carbon market differently, and more acceptably, than by a conventional ETS?

Front-End or End-User Carbon Market?
Emissions trading schemes across the world have been constructed at the front end of the economy where fossil fuels are first used – at power stations, refineries and large industries that use fossil fuels directly. There is an alternative way to tackle carbon that is focussed on where it is used by the majority of Australians – in their homes and businesses. Some attention has been given to policies targeting the end-user through energy efficiency schemes, renewable energy rebates and demonstration low carbon developments to name but a few. While some of these policies have dealt with various forms of credits (i.e. REC’s for renewable energy), generally they have not been considered possible to include in a large-scale carbon market as it would be considered double counting.

How can an end-user carbon market be created?
An end-user carbon market would depend on a realistic way of measuring the carbon involved. However, questions of where to begin, what to include and where to draw the line have made the idea seem far too difficult. Front-end markets that target far fewer sources appear much simpler and easier to measure, and hence have been the focus of most trading schemes. But this has also meant that the politics becomes difficult as you are dealing with big powerful lobby groups. Thus, emissions trading schemes have become incredibly complex and have left most punters (indeed most academics and commentators too) totally in the dark as to what was involved.

The front-end ETS in Australia no longer seems a politically realistic option in the foreseeable future, so could it be possible to create an end-user carbon trading scheme in its place?

The advantages of an end-user focus
On the green side of politics, there is too much blame for the climate change issue directed at fossil fuel power stations or fossil fuel providers, when the actual demand for the power, gas and fuel are ordinary Australians.

By focussing on how carbon is consumed at the end of the product chain, you can link much closer to the forces that are driving the demand for carbon. Driving the big polluters and providers of energy to change is ultimately going to be needed but perhaps by focussing on the end-user we could at least start the decarbonising process.

Consumers have begun to understand how carbon forms a part of everything they do. If an end-user focus is taken it is possible to reward those that are prepared to move towards a low carbon option. This addresses the issue of individual action, which was a key argument from the public against the CPRS. The evidence from households and businesses is that they will choose realistic, climate sensitive options as over 70 per cent want to see action on climate change.

By just focusing on big emitters we have generated an unwinnable and unfair blame game. Governments and big utilities have been on a hiding to nothing. The carbon price was largely going to be passed on to the end-user anyway but the invisible hand of the carbon market was not clear and has now been lost in the “great big tax” simplification.

An end-user carbon market would fit directly into the policy environment on how we choose houses, buildings, consumer products, neighbourhoods and transport options.

How would an end-user carbon market work?
While Australia flirted very briefly with the concept of personal carbon trading, it is unlikely to gain sufficient political support in the near future due to several unresolved issues surrounding it such as equity, legal and privacy issues.

There has, however, been considerable progress and momentum in the area of voluntary carbon trading with the lead for this being provided for in the Carbon Trust or in the previous government’s Greenhouse Friendly program. This program allowed businesses to become carbon neutral through a rigorous accreditation process based on the demonstration of a combination of efficiencies, adoption of renewable energy and purchase of carbon offsets.

Thus we now have numerous end-user carbon neutral products such as wine, paint and printing. News Corporation is the highest profile company to be given this status. By purchasing these legally recognised carbon offsets, these companies have directly participated in and supported the voluntary carbon market in Australia and internationally.

This end-user, voluntary carbon market has always been considered subsidiary to the emerging mandatory front-end cap and trade schemes – the most widely known form of ETSs. However, considering the recent shelving of the CPRS, with most people doubtful of any passage in the future, perhaps it is time to think about redirecting the focus. Could we not create a larger, more formalised end-user carbon trading scheme?

It would be similar to the current voluntary carbon market, however, carbon credits could be generated by an increased number of end-users (that is, businesses, products and services) that have demonstrated their carbon reductions. This means businesses can be financially rewarded for their carbon reductions while carbon-intensive alternatives will be given the disincentive of having to purchase additional carbon credits. Mainstreaming the carbon market towards end-users would mean a larger proportion of the economy could be included and larger carbon savings are then possible. Designed correctly, this scheme could also significantly increase investment in renewable energy through the increased adoption of green power, which would lower their carbon footprint.

The Built Environment as a subsector of the carbon market
One example of an end user sector is the built environment which is responsible for up to 40 per cent of greenhouse gas use in our cities. To draw this into an end-user carbon market, proper measurement and accreditation of the carbon involved in various developments will be required. This would include:

  • New and refurbished residential and commercial buildings
  • Land development – new suburbs and redevelopment projects
  • Infrastructure – new and refurbished
  • Materials, such as lighting, used in establishing a building.

It is possible to imagine a regulated built environment that requires better and better achievement of low carbon goals. This is beginning to appear anyway.

Many local governments and most state government land development agencies already require some form of low carbon development, Infrastructure Australia requires reduced carbon in all infrastructure bids and the Federal Government, through Council of Australian Governments, requires all capital city plans to show how they will reduce carbon. This can be formalised into a regulated market for the carbon savings that are produced.

Measuring carbon associated with the built form
The measurement of end-user carbon has come a long way in recent years, particularly in the case of the built environment. Groups such as the Green Building Council and the Australian Green Infrastructure Council are developing various schemes to measure sustainability. The most powerful tool, however, is a model developed by Landcom in NSW. This tool, PRECINX, makes it possible to measure and assess the carbon associated with different buildings and urban design scenarios, including variations in density, transport and infrastructure options as well as comparing the costs associated with the different scenarios. It has become a powerful urban planning and design tool for mainstreaming low carbon urban development.

Within a proper regulatory framework, this tool can help enable an end-user carbon market to be established for the built environment. The Carbon Trust would need to establish an accreditation process to enable an end-user activity such as this to be formally regulated into a market. This scheme could help to bring quantitative benchmarks and baselines for the industry and credibility to the reductions.

It is easy to imagine how other end-user consumer products and services could also be drawn into such a carbon market.

The whole approach needs an expert review as well as a public process to ensure it is properly developed and thought through. Perhaps a Climate Change Commission and a Climate Change Citizens Assembly are needed…

Send your brilliant ideas to editorial@thefifthestate.com.au