CarbonSignal

Under Australia’s carbon pollution reduction scheme, some of the most polluting industries will receive most of their permits for free.  For example, companies that smelt aluminium will receive a 90% free allocation, and companies that export liquefied natural gas (LNG) will receive a 60% free allocation.  This means that about 25% of the permits will be given away for free in 2010, and as many as 45% could be given away for free in 2020 (by that time the agricultural sector - another trade-exposed industry - will be included in the scheme).

The Government has also announced that it will completely neutralise any price rise in road transport fuel during the first years of the scheme, and households will receive funds to compensate for the expected increase in electricity, gas and food prices.

Many of Autralia’s biggest and most polluting businesses have won millions of dollars in compensation, and most low- and middle-income households will receive thousands of dollars in compensation.  These policies help reduce resistance against the introduction of the scheme, but they also dampen the carbon price signal and consequently reduce the incentive to improve emissions intensity.  This is the kind of market distortion that economist Ross Garnaut specifically warned against.

So who will actually pay for Australia’s emissions reductions?  If the biggest polluters are protected from having to make big changes, and many households are also protected from having to make changes, then who’s left?

In the residential world, the middle-class and the wealthy will soak up the majority of carbon costs.  This seems fair considering that those with the deepest pockets are most capable of paying for a reform, however the low- and middle-income households still control a large quantity of Australia’s greenhouse gas emissions.

The business world has gone in the opposite direction.  Industry associations around Australia have heavily lobbied in favour of big business and have won major concessions.  But perhaps they have left the small and medium enterprises vulnerable and exposed?  Any economist will tell you that under a cap-and-trade scheme, each permit that is given away for free will increase the marginal cost of abatement that society as-a-whole must pay to meet the emissions cap.  Will the SME’s have to makeup for the concessions that have been given to the electricity sector and the “emissions-intensive and trade-exposed” industries?  Has the collective voice of the SME’s been missing from the climate change debate?

Today the Australian Government released their White Paper detailing the design of the Carbon Pollution Reduction Scheme.

In the lead-up to the announcement there was heavy speculation over the emissions reduction target for 2020 from 2000 levels.  The Government has set the target at 5% in the absence of an international agreement, but could increase it to 15% if a global agreement is reached before the scheme commences in 2010.

The following are other key aspects of the White Paper:

• The scheme begins in the 2010/2011 financial year. The first auction of permits will occur in early 2010.
• Coverage includes electricity generators, transport and oil & gas production.  Agriculture will be excluded until at least 2015.
• The government will compensate for any rise in the price of road transport fuel due to the scheme.
• The carbon price will be capped at $40 per tonne in the short term to prevent market instability.
• Modelling predicts that the market price will be $23 per tonne under a 5% target, and $32 per tonne under a 15% target.
• Firms have unlimited access to Kyoto-compliant offshore carbon credits.
• Australian permits cannot be exported in the short term.
• The impact on the economy will be a 0.1 percent reduction in GNP.
• The Energy-intensive, trade-exposed firms that emit more than 2,000 tonnes CO2e per million dollars revenue will receive a 90% free permit allocation.  Firms that emit 1,000 to 1,999 tonnes CO2e per million dollars revenue will receive a 60% free permit allocation.
• The reduced 60% threshold now compensates the petroleum and liquefied natural gas industries.
• Coal-fired power stations will receive $3.9 billion in free permits over five years.  The government will also setup a fund to progress clean-coal technology.

Greens Senator Christine Milne says the scheme is a disappointment:

“Five per cent is a global embarrassment, 15 per cent is way below even the minimum the rest of the world wants to see.  The Europeans have said 20 per cent targets by 2020. How can the Rudd Government face the rest of the world when Australia has done nothing?”

Belinda Robinson, CEO of the Australian Petroleum Production and Exploration Association (APPEA), is pleased:

“There’s no doubt that this has come a long way since the model was outlined in the Green paper. For that the LNG (liquefied natural gas) industry is very pleased and for that, we think Australia should be pleased, because it’s the LNG industry that represents Australia’s best chance for assisting the rest of the world reduce its greenhouse gas emissions.”

The US Department of Energy recently hosted a web based conference called the Virtual Energy Forum.

http://apps1.eere.energy.gov/news/progress_alerts.cfm/pa_id=135

It had all that you would expect from a conference.  There were quality speakers, an exhibit hall with suppliers showing there wares and the opportunity to network with other attendees.  What it didn’t have was travel expenses, jet lag or lost baggage.

In the words of the organisers “The Virtual Energy Forum is the premier online conference for private and public sector executives to learn, meet, and interact on topics such as sustainability, alternative energy, clean technologies, green buildings, and operations. It features live streaming video presentations and an ability to ask questions and receive answers in real-time, providing an unparalleled opportunity for public and private sector executives from around the world.”

The live sessions and networking lounge have now finished but many of the presentations are available for down load and the exhibitors hall is still open for the time being.

Is this the future of conferences?   It is hard to beat face-to-face meetings but considering the convenience and cost this came very close.

Speculation on Australia’s 2020 emissions reduction target ranges from a 5% reduction if no international agreement is reached, to 25% if other nations make similarly ambitious commitments.  Economists Ross Garnaut and Nicholas Stern have both advised Prime Minister Kevin Rudd that an aggressive target is the best approach for long-term prosperity.

What broad effects will the Carbon Pollution Reduction Scheme have on industry and citizens?  A Reuters summary of the European outlook provides some guidance:

Employment - While industries that are slow to adapt will suffer, more agile rivals will tap into the opportunities for “clean tech”. Denmark, home to the world’s biggest wind turbine maker Vestas, has already been quick to capitalise, as have Spain and Germany. The European Wind Energy Association predicts the renewables sector will deliver 2 million jobs by 2020.

Farming — Plans to get 10 percent of EU road transport fuel from renewable sources will initially be met using biofuels. That’s good news for EU farmers, creating new demand for biofuel crops such as sugar beet and rapeseed.

Power generators — Plans to make power generators pay for permits to emit carbon dioxide, the main greenhouse gas, will hit the biggest polluters hardest.  That’s bad news for coal-intensive generators like Britain’s Drax and Germany’s RWE , but good news for those with nuclear, like France’s EDF, or green energy like Spain’s Iberdrola Renovables.

Electricity users — Power generators are already passing the cost of emissions permits to consumers.

Car makers — Plans to curb average car emissions by a fifth by 2015 and 40 percent by 2020 will hit gas-guzzling luxury cars hardest.

Oil — Europe spends about $440 billion a year on importing oil, about 3.4 percent of the bloc’s gross domestic product and more than double a package now proposed to stimulate the economy. Most of the money goes to oil exporters like Russia, Norway and Saudi Arabia, and while the flow will continue it will not increase as quickly as before. Any future savings will be spent on renewable energy, keeping money and jobs at home.

Airlines — Air travel will gradually become more costly as airlines are forced to pay for the carbon dioxide they pump out high into the earth’s atmosphere.

Bus and Rail — Cleaner, greener cars will initially cost more to buy, which combined with rising vehicle taxes and fuel prices will push more people onto public transport.

The full article is available here.

The logistics and complexities of international climate change negotiations are mind boggling.   Last year in Bali 190 nations agreed that, over a two year period, they would push to build the foundations for a global climate change treaty, culminating in a formal agreement at Copenhagen in late 2009.  This treaty would then result in a successor to the Kyoto Protocol, which concludes in 2012.

If 2009 comes and goes without a treaty, or at least in-principle agreement on the direction of future negotiations, then the fledgling carbon markets established under the Kyoto Protocol could collapse, and many nations may abandon their efforts to curtail greenhouse emissions.

Many hope that the summit of 186 countries which is currently underway in Poland will progress these negotiations.  However, noises from the sidelines indicate that initial talks have been negative.  Reuters reports that “negotiators and analysts attending preparatory Dec. 1-12 talks in Poznan say that looks out of reach.”

Professor Ross Garnaut, Australia’s independent climate change advisor, published an opinion piece in yesterday’s Australian newspaper, warning that international agreement is absolutely essential.  “No country acting alone - not even the biggest emitters of greenhouse gases, the US and China - can cause the risks of dangerous climate change to fall substantially by its own actions alone.”

Climate change meetings are underway in Poznan, Poland, with over 9,000 delegates from 186 countries gathering for another round of multilateral negotiations.  Last year the Rudd government promised to formally announce Australia’s 2020 emissions reduction target during this summit, but has now stated that the target will not be announced until December 15.

Senator Wong recently announced that the decision would be postponed until the release of the Government’s white paper on the design of the emissions trading scheme, after the conclusion of the talks in Poland.

Some suspect this may be a sign that the Government intends to release a soft medium-term target, such as a 5 to 15 percent reduction from 2000 levels by 2020.  At the UN Climate Change talks in Bali last year, Australia and all other Kyoto signatories agreed to targets in the range of 25 to 40%.

ABC reports that “the chief executive of the environment group WWF, Greg Bourne, said Senator Wong would “be laughed out of Poznan” if she announced at the UN talks that Australia’s 2020 target was between 5 and 15 per cent.”  Green’s Senator Bob Brown said “this is a complete shemozzle from the Government. Here’s Australia, which was the big sensation at Bali is going to be the big cop-out at Poznan”.