Monday, December 8, 2008

We can't afford an ill-fitting carbon cap

THE Minister for Climate Change and Water, Senator Penny Wong, must have been very persuasive at the 2020 Summit in April. Her proposal that "before 2020, all Australians could have the tools to manage their personal carbon footprint — access to smart meters for energy and water consumption" was one of the summit's top 10 ideas.

But Wong's ability to create an illusion of positive action is without peer and her lack of leadership based on her reluctance to put the environment ahead of political advantage is now becoming apparent.

Wong has refused to show a batsqueak of courage in the face of recalcitrant state governments which have put their parochial interests ahead of saving the Murray-Goulburn Basin. The new Murray-Darling Basin Authority is a farce. It will have no authority until 2019 and, even then, its authority will be subject to veto by any state. Without radical action to supplement its water from outside the basin, involving a pipeline from Tasmania's north-west, the lower Murray, its environment and the industry that depends upon its water will be long dead.

There is not much point to individuals having meters to measure their carbon footprint unless there are policies that provide an incentive for individuals to reduce their carbon footprint.

The Rudd Government spent last week softening up public opinion for the announcement on greenhouse gas emissions targets that will require a cut on 2000 levels of between 5 and 20 per cent by 2020, depending on the commitments by other high-emitter industrial countries, and increase the free permits for high-emitter industries producing aluminium, coal, LNG and steel from 20 per cent to 25 per cent of their total emissions.

The International Panel on Climate Change in its 2007 report recommended that high emitters such as Australia would have to cut their emissions by 25 to 40 per cent if the world was to limit global warming to less than a two-degree increase, which is seen as the tipping point where carbon cycle feedbacks kick in, leading to catastrophic, uncontrollable climate change. This will result in the sea level rising by metres and, in Australia's case, the death of the Great Barrier Reef and the Murray-Darling-Goulburn river system.

But the panel's report is already seen as out of date. At the time the report was written it was expected that business as usual wouldn't see the Arctic sea ice and permafrost begin to melt until after 2050. The incipient signs of these melts are already well advanced.

Australia is the highest per capita greenhouse gas polluter in the world, with levels twice those of European countries and Japan, and seven times the per capita emissions of China and India.

The environmental lobby fears that if other major polluters take their cue from the policy being considered by Australia, this target will amount to a collective suicide note, drafted by the Rudd Government.

The carbon cap is conceptually flawed. The carbon pollution reduction scheme (CPRS) will set a cap on greenhouse gas emissions. Permits equivalent to this cap will be auctioned or given away to the 1000 largest polluters. Once the cap and its trajectory is established, the cap becomes the floor.

According to Richard Denniss, in a research paper for the Australia Institute, "once the Government has decided on an acceptable level of pollution, it will issue a corresponding number of pollution permits. If households use less energy and create less pollution, they will simply free up permits to allow other families or other industries to increase their own emissions".

This means that if a household spends money putting a solar panel on its roof to produce hot water or buys a more fuel-efficient refrigerator or a more fuel-efficient car, the energy savings will be reflected in a lower price for permits. The pollution cap won't be changed.

As Denniss points out, the only varying factors will be who pollutes and what price they have to pay to do so.

According to Denniss, the CPRS is not necessarily a problem if the emissions target is in line with the latest climate science. "If, however, the target is determined by political expediency (that is, less than 20 per cent) Australia will end up emitting more than its share of greenhouse gases, regardless of what action Australian households and businesses take to reduce their carbon footprint," he says.

It doesn't matter what households do to reduce emissions. Their actions have no net effect on Australia's emissions. The only beneficiaries are large polluters, who are able to purchase permits at a lower price.

As Denniss points out: "Under the proposed CPRS, households and small businesses will have no capacity to influence Australia's total level of emissions aside from buying carbon permits in order to rip them up."

One thing is for certain, personal meters as recommended by Wong would be of no practical use.

The cynical view is that business prefers "cap and trade" emissions to a carbon tax because the cap is easier to rort and provides a plausible excuse for postponing implementation.

The emissions trading scheme set up by the European Union three years ago did not reduce emissions. In fact, the exemptions for high emitters provided a multibillion-dollar subsidy at the expense of lower-emission industries.

The Rudd Government's excuse for a soft emissions target and generous exemptions is phoney. The anticipated slump in private investment creates an opportunity for new environmentally friendly investment without the necessity for government to "crowd out" private investment via higher taxes and interest rates.

The investment in environmentally friendly infrastructure such as new railways and rolling stock based on borrowings will stimulate employment, spending and, ultimately, private investment.

Setting high environmental standards either through regulation or relative price changes via carbon charges or taxes creates early adaptors who will gain a competitive advantage in international markets. The impact on the environment should be an integral part of industry policy.

Before the cabinet goes soft on emission targets, it should look at the recent study by McKinsey and Co which found that emissions could be lowered by about a quarter by simple measures such as improving fuel efficiency and insulation; saving money and reducing carbon footprints.

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