Emission trading Carbon tax or what

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Emission trading / Carbon tax or what?

• June 2007
• Ben Ewald
• For Climate Action Newcastle
• Examining the Prime Ministers Task Group report
  on Emissions Trading

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This talk has 2 parts

• Firstly, a description of carbon tax and
  emissions trading in general. The basic economic
  levers that could be used to turn the economy
  around from high carbon to low carbon ways of
  doing business.
• Secondly, a look at some of the details of the
  current commonwealth proposal, and to a lesser
  extent the states proposal.

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The gasses

• CO2 1
• CH4 Methane 21
• N2O Nitrous oxide 310
• HFC 23 11,700
• HFC 32 650
• SF6 23,900
• PFCs
• 100 year warming potentials

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To Reduce atmospheric CO2

Burn less coal, oil and gas
Take CO2 out of the atmosphere
Carbon sinks. Offsets.
Energy efficiency
Renewable energy
Price Signal
Carbon tax
Emissions trading
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What is a price signal?

• Jargon for consumers noticing that electricity
  costs money. Industries noticing that the price
  is going up.
• The increased price of electricity automatically
  makes non carbon generation more profitable.
• The beautiful thing about this price signal is
  that it is proportional to CO2 output.

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Carbon tax

• By regulation, CO2 emitters have to measure and
  report the amount of CO2 released, and pay a
  fixed amount of tax on each ton. OR domestically
  used fossil fuels have a tax imposed that
  reflects the CO2 they will produce.
• Raises revenue. Sets the price but not the amount
  of emissions. Simple to regulate, hard to dodge.

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Emissions Trading

• Cap and trade model
• By regulation, emitters have to hold a permit for
  each t of CO2.
• The country sets an emissions total for the year,
  and prints that number of permits, each one
  allowing the holder to emit 1 t of CO2.
• Permits are auctioned (sensible) or given
  (foolish) to companies that emit.
• The cap is tightened each year.
• Permits can be bought and sold.

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ETS fine points

• Most schemes allow offsets, eg a certificate from
  a forester declaring that 1 t of CO2 has been
  sequestered will be accepted in place of an
  emissions permit.
• Some schemes have an escape valve on the price,
  with a fixed penalty price that is substantially
  higher than the auction price. This limits the
  risk from price spikes. Ideally the escape price
  would be uniform across the globe.
• International trading of permits or offsets could
  be possible. Middle men are keen to take their
  percentage.

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ETS Grandfathering

• Grandfathering refers to granting emissions
  permits to current emitters.
• Disadvantages early movers, benefits maximum
  emitters.
• Preferred option of generators. Of course
• As the permits have value, it is in effect a
  subsidy.
• Too much grandfathering is a failing of the
  European trading system.

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In favour of grandfathering

• If a serious cost was imposed on carbon
  emissions, some coal fired generators would just
  not be worth running. Stranded assets would
  result if they were not able to pass on the price
  increases to consumers. Weep for the poor
  shareholders.
• This could result in blackouts / power shortages
  if alternate energy suppliers are not up to scale
  in time.
• BUT I think it is unlikely that generators would
  be blocked from passing on price rises to
  consumers, as blackouts are politically
  unacceptable.

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scope

• An ETS or Carbon Tax can specify the scope of
  activities that need permits electricity / heavy
  industry / transport / domestic gas / air travel
  / fugitive emissions from mines, landfill, gas
  transmission, petroleum industry flares.
• The more inclusive the scheme the better it can
  cap emissions, but the harder it is to negotiate
  and administer.

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1 ton per person per year is sustainable!
(5Gt/planet/yr)
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Notes for previous graph

• The timing of maximum emissions is critical. The
  sooner we go over the peak and start coming down,
  the less steep the line has to be. Delaying the
  peak means that in order to limit atmospheric CO2
  to 400ppm change has to be more severe and
  disruptive.
• We need a firm 2020 target as well as a 2050
  target.

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More notes on the graph

• The vertical axis shows 200 million tonnes from
  stationary energy in Australia. With 21 million
  people thats about 10 tonnes per person from
  that sector alone. A sustainable fair share for
  every human on the planet allows one tonne per
  person per year, so there is a long way to go.

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Social Justice

• Domestic energy prices will rise under any
  effective system.
• Either a carbon tax or a permit auction system
  raises revenue, which could be put into schemes
  to reduce the impact on poorer people. Simplest
  would be to reduce GST or payroll tax, most
  effective would be to subsidise energy efficiency
  retrofits.

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Part 2

• The report of the task group on emissions
  trading.
• Prime Ministerial Task group (PMT for short)
• It has a photo of earth from space on the cover,
  so is trying to look like an environmental rather
  than a mining document.

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ACF on both ETS proposals

• The schemes have elements that should be part of
  an effective ETS. However, neither proposal on
  its own is enough to avoid dangerous climate
  change. We can only argue that other countries
  must reduce their emission to the extent that we
  are reducing our own.
• http//www.acfonline.org.au/articles/news.asp?news
  _id1258

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CANA on ETS

• Either a good ETS or CT would achieve deep cuts,
  but a poorly designed ETS would not.
• Offsets should not be included. They divert
  investment and resources
• Include Electricity, transport, waste, industrial
  emissions. Exclude agriculture and land use
  changes.
• Full auctioning of permits
• Annual permits, not permanent property rights.
• No Aluminium subsidy, but performance based
  border tax adjustments for goods exported to
  countries that do not have a price on emissions
• Carbon levy on excluded sectors.

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My opinion on pmt

• Delays. Commonwealth scheme has 2012 start date
  rather than 2010 in the states proposal.
• The broad scope looks initially good, but may be
  designed to make the scheme more difficult to
  implement, eg will put up the price of petrol
  which is always politically unpopular.
• Energy intensive and trade exposed aluminium
  (cement steel) subsidies embedded in the plan.
• Failure to set a rigid cap shows lack of economic
  understanding. Permits only have value due to
  scarcity, and only a mug would pay good money for
  a permit if there is no rigid cap.

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My opinion cont

• Task group composition Several top Bureaucrats,
  Xstrata, Power generators, company directors
  (Qantas, ANZ, Esso, NAB, rice, biodiesel,
  alumina)
• Missing from the membership Sustainable
  generators, Building council, Environment lobby,
  academic economists.
• The group represents only one half of the story.

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Untruths in pmt

• The absence of a pathway for key developing
  countries to make commitments is a fundamental
  shortcoming in the Koyoto Protocol, which
  undermines its suitability as a model for future
  cooperation Ch 4, p51
• BUT developing countries can participate in CDM,
  and they could be brought into the next
  commitment period. See CANA beginners guide to
  KP. http//www.cana.net.au/kyoto/
• This is a continuation of Australias shameful
  attempts to undermine the only serious
  international agreement.

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Lies contd

• Untruths On p 8 of the executive summary
  Australia already has an emissions cap that is
  applicable until 2012 referring to the vague
  intention to limit Australias GHG to 108 of
  1990 levels. This however is unenforceable and
  there is currently no barrier to any industry
  that chooses to increase emissions that would
  break the cap.

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PMT finds against current policy

• P 9 Favoring certain lower emissions
  technologies over others places a higher cost on
  the economy and, consequently, unnecessarily
  lowers Australian living standards. (See Chapter
  3.) this directly contradicts the federal
  governments huge support of clean coal

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Aluminium Lobby success

• P12 ameliorates, through free allocation, the
  carbon-related exposures of existing and new
  investments in trade-exposed, emissions-intensive
  industries
• This suggests that Australia will be available to
  international corporations as a place they can
  set up new high CO2 industries and be subsidised
  to avoid carbon costs!
• P194 Appendix L Even suggests that energy
  intensive industries would be eligible for
  compensation for losses at the end of the period
  during which they receive public subsidy of free
  permits! AND that the Australian cap should be
  increased if new industries come to Australia!
  This shows that the report has been hijacked by
  the Aluminium industry.

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PMT on offsets

• P12 Recognises a wide range of credible
  offsets.
• Weak regulation or dubious offsets will lower the
  value of emissions permits, making it possible to
  continue to pollute and just buy offsets that may
  have no ecological value.

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AP6

• Asia-Pacific Partnership on Clean Development and
  Climate Aust, China, India,Japan, S Korea, US.
• No targets.
• No timetable
• No credibility
• BUT is promoted in PMT as where Australia should
  put its efforts.

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Summary opinion

• The PMT proposal protects some of Australias
  highest emitters from the effects of a carbon
  price signal.
• The wide range of offsets proposed may include
  offsets of no environmental benefit.
• The proposal lacks the required urgency.
• Citizens must watch the process closely or we
  will be sold an ETS that does no good.

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Extra bits

• The following slides include some related issues
• Baseline and Credit schemes.
• How environmentally sound are the available
  carbon offset schemes? (There are 17 retail
  carbon offset schemes available in NSW)

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Baseline and Credit

• These schemes estimate emissions under Business
  As Usual then give credit for changes that should
  reduce these.
• The baseline is subject to gaming.
• What is best practice?
• How long does the credit last?

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Baseline and credit gaming example

• If you replace an electric hot water system with
  a solar system you get a subsidy through
  renewable energy certificates.
• If you replace a solar system with a new solar
  system you dont get the subsidy, unless you
  temporarily install an electric system in
  between!

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Koyoto Protocol basics

• The United Nations Framework Convention on
  Climate Change 1994 (UNFCC) is the parent treaty
  for the KP.
• Ratified by 165 countries, 35 EU have targets.
  legally binding but its unclear what the
  penalty for missing the target is.
• First commitment period 08-12

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Koyoto flexibility mechanisms

• Clean Development Mechanism CDM, allows
  countries with targets to implement CO2 reduction
  projects in other signatory countries, and
  collect certified reductions
• Joint Implementation, allows the same thing
  between annex I countries, ie countries with
  targets.
• Emissions trading, allows the purchase of
  reduction certificates. Start date Jan 05.

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Total Environment Centre report on offsets
industry

• Telling people to plant trees (to address
  climate change) is like telling them to drink
  more water to keep down rising sea levels.
• A recent study by the Queensland Tourism Industry
  Council surveyed 10 carbon offset products and
  found that the level of emissions that each
  provider deemed to be associated with a flight
  from Australia to Europe varied from 3.5 to 11.5
  tonnes. Price 43 to 230!
• http//www.tec.org.au/dev/index.php?optioncom_con
  tenttaskviewid563Itemid328

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Offsets

• In terms of other effects of offsetting, some
  commentators have suggested that the practice
  allows prosperous Western nations to continue to
  enjoy carbon-intensive lifestyles at little extra
  cost while the most immediate effects of unabated
  climate change will be experienced in the poorer
  countries of the world.
• Selling absolutions