The Carbon Price Package

Mike Clark TTKD August 2011

The warming world
Temperature trend 1970-2010

Source: NASA GISS

Fingerprints of human-caused climate change

Source: skepticalscience.com

Why act on climate change?

Picture: Skeptical Science.com Source: Doran 2009, Anderegg 2010

*What are you sinking about?

Cartoon adapted from Jip Lenstra by Bart Verheggen (http://ourchangingclimate.wordpress.com/) and then again by me.

Tackling climate change is in Australia’s best interest
•  Australia risks being hit hard by climate change impacts. •  It is in our interest to play our part in global action to keep warming to under 2 degrees. •  Being a laggard doesn’t encourage action from other countries, it encourages others to be laggards (Garnaut). •  Oz is responsible for 1.5% of the world carbon pollution and is one of the worlds top 20 emitters. •  Countries with similar and smaller levels of pollution to Oz are responsible for ~40% of the worlds pollution, without action from these countries we can’t stop temperature rises.

Analysing climate action
•  •  •  •  Effective (Will it work?) Affordable (Will it be cost effective?) Sensible (Can we manage it?) Innovative (Will it spur innovation and transformation to a low carbon economy?)

Guts of the scheme
1.  Carbon price 2.  Household and business compensation 3.  Renewable electricity 4.  Supplementary measures (brown coal buy out, carbon farming etc) 5.  Independent governance

The carbon price
•  Carbon pricing means polluters pay to pollute •  Polluters now have a financial incentive to reduce pollution (no pollute = no cost=  profit) •  Carbon pricing is the cheapest way to reduce emissions (Source: Productivity commission, (2011); Garnaut (2011))
Reduce pollution Don’t pay = Higher profit or Goods cost less No action Pay price = Lower profit or Goods cost more

How the carbon price will work
•  Paid by ~500 biggest polluters •  Starts at $23 ton in 2012 •  Fixed price, by rises 5% yearly for 3 years
– the carbon “tax”

•  Moves to floating price in 2015, where total emissions are capped and decrease yearly
– the ETS

Transport and fuels
•  Household cars and business light vehicles do not pay a carbon price •  Farm, fishing and forestry vehicles also don’t pay for off-road use •  Domestic aviation, shipping etc and nontransport use of fuels do pay •  Charged through an increase in fuel excise or a decrease in fuel subsidies equivalent to carbon price (I think ~6c/l)

Sources of carbon pollution in Oz and those under carbon price
Deforestation; 5% Industrial processes; 5% Fugitive emissions; 7% Electricity generation; 36% Transport; 14% Waste; 3%

Agriculture; Direct fuel 15% combustion; 15%

Excluded: -  Agriculture -  Land use emissions -  Household and business light vehicle use -  International transport

Source: Australian Govt, DEECC analysis of National Greenhouse Gas Inventory, 2009

Who pays the carbon price?

Source: APH.gov

Effect on jobs and the economy
GDP

•  “The Australian economy will continue to prosper while cutting carbon emissions” •  “Employment is projected to grow strongly with a carbon price”
Source: The Treasury, Australian Government

Electricity generation to 2050

Source: The Treasury, Australian Government

•  A carbon price makes polluting electricity more expensive •  Renewables become a better long term investment i.e. Conventional coal is almost completely gone by 2050 i.e. Over 40% of electricity comes from renewables

Effect on prices

Source: The Treasury, Australian Government

•  Prices will rise a total of 0.9% between now and 2016 due to the carbon price •  Average household bills will increase $9.90/wk before any compensation and assuming you do not take action to avoid this

Household compensation
•  •  •  •  Over 50% of money from carbon price Tax cuts, pension and benefit increases Tax free threshold tripled to over $18 000 Average household compensation $10.10/ wk compared to average cost of $9.90/wk
https://www.cleanenergyfuture.gov.au/ Household-assistance-estimator

Household compensation
Household adjusted taxable income Single Couple without children Couple with children Single parent % households % Receiving some assistance % receiving >100% of expected cost of living impact 100 66 18

Low (less than) Middle (between) High (above)

$30,000 $30,000$80,000 $80,000

$45,000 $45,000$120,000 $120,000

$60,000 $60,000$150,000 $150,000

$60,000 $60,000$150,000 $150,000

34 40 26

100 97 74

Source: Australian Govt

•  Take home message:
- Oz has ~9 million households - 6 million will be fully compensated - 8 million will receive some compensation, many only face costs of $1 or $2 /wk

Business compensation
•  Includes both free permits and grants for emission reduction investments •  Trade exposed emissions intensive industries get very generous support
- Receive ~95% or 66% of emission permits for free - % of free permits decreases at 1.3% a year - Compensation based on industry average which creates an incentive to reduce emissions - Assistance worth $9.2 billion over 4 years - Level of assistance to be reviewed by the PC

Business Compensation
•  $1.2 billion Clean technology program for manufacturers
- help for less emissions intensive manufacturers - grants to improve energy efficiency and decrease their energy use - grants for business R&D into emissions reductions - government and industry share the costs of investments

•  Clean energy skills program •  Small business assistance (asset write-off) •  Assistance for any regions heavily affected by the carbon price

Renewable energy
•  $10 billion dollar “Green bank”
- Clean energy finance corporation - Support renewable energy, energy efficiency and low pollution technology - Invest in commercialization and deployment of plants plus in businesses that manufacture components

•  Australian renewable energy agency
- Merge $3.2 billion of existing programs (i.e: solar flagships into one agency) - Includes R&D

•  Renewable energy target (20% by 2020) retained

Other measures
•  Coal buy out - money to close ~2000 Mw of the most polluting coal plants •  5.5 billion over 6 years to coal generators (free permits and cash) •  Extra help for Steel and Gassy coal mines - government specific measure
Hazelwood power station
Source: Simpsons fan 66 at en.wikimedia

Other measures
•  Carbon farming
- Reducing pollution and capturing and storing carbon in soil and trees - Farmers who do this will earn credits they can sell to offset other business’ pollution

•  Billion dollar biodiversity fund

Biochar

Governance
•  An independent climate change authority
- recommend short and long term targets -  review progress -  aims to remove some of politics from CC action

•  Clean energy regulator
-  will administer the carbon price scheme

•  Productivity commission
-  review industry assistance, watch for windfall gains etc. -  track international action

•  Governance gives scheme flexibility

Targets and Emissions
•  Minimum 5% decrease by 2020 (24% decrease on BAU) •  80% decrease by 2050 •  During emissions trading up to half of emission reductions can come from international credits/offsets
Source: The Treasury, Australian Government

Is it EASI?
•  Effective
- package will reduce emissions - current 2020 target is below our fair share but scheme has flexibility to change this - exemptions for some, makes cuts harder for others

•  Affordable
- carbon pricing is cheapest method to cut pollution, but giveaways to various companies increase the cost of the scheme

•  Sensible
- only modest effects on the economy, little overall effect on jobs, both will grow strongly

•  Innovative
- package moves Oz towards a low carbon economy, essential for affordable long-term emissions cuts

Main criticisms
•  2020 target too low •  Doesn’t cover transport •  Too many polluter giveaways

But do these undermine the scheme? Answer: No

“Don’t throw out the good in preference for best.”
Professor Ross Garnaut, July, 2011

Thermometer and satellite temperature datasets all agree

Source: skepticalscience.com

Why it is warming?

The principal warming and cooling influences on climate since 1750 Source: IPCC AR4

Why are electricity prices rising?

Garnaut update paper 8. (2011)

China

Source: Garnaut, final report (2011)

•  Pledged to reduce its emissions intensity by 40-45% by 2020. •  “China’s actions represent by far the largest contribution to reducing global emissions below what they would have been under business as usual” Garnaut, final report (2011) •  Actions include: closing inefficient power plants and factories, raised taxes on some emissions intensive industries, massive support for low emissions power generation and transport, emissions trading schemes in pipeline.

Voluntary action
•  Voluntary action (VA) will be treated as additional to the cap. I.e.: with a 5% target to 2020, if VA reduced emission 1% the 5% target would mean a 6% total drop. •  VA include
1.  A tax deductable pledge fund that will help individuals buy and cancel pollution permits 2.  Greenpower purchases.

•  Remember to keep the effect of VA in perspective: the total cap will be ~500 million tons

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