Monday, December 15, 2008

Big emission cuts ruled out

The Age, December 15, 2008 - 3:13PM

The Federal Government has ruled out a deep cut to Australia's greenhouse gas emissions before 2020, believing the world will not get its act together on climate change soon.

- Emission cuts 15% at most
- Emissions trading to start July 2010
- Business gets many free permits
- Power, coal to get $4 billion aid
- Electricity and gas bills to rise about $6 a week

The Government has set an absolute maximum cut to emissions of 15% by 2020 - if the world signs an effective climate pact - in its greenhouse plan released today.

If no pact is signed, Australia will go with an unconditional 5% cut in emissions, compared with 2000 levels.

''We are not going to make promises that cannot be delivered,'' Prime Minister Kevin Rudd told the National Press Club as he launched his plan. 'We are starting the scheme with appropriate and responsible targets, targets that are broadly consistent with other developed countries.''

These targets, though, fly in the face of calls from scientists for countries to slash their emissions by 25% to 40% to avert catastrophic climate change.

''Basically there's a massive credibility deficit in the government on its own assessment of the national interests," said John Connor CEO of the Climate Institute. "It's crumbled to the polluters' interests.''

''We're ripping the heart out of momentum for a strong global deal,'' Mr Connor said.

For their part, businesses will remain apprehensive about emissions trading while the global financial ''firestorm'' continues, said Australian Chamber of Commerce and Industry chief executive Peter Anderson, adding that a compensation package worth more than $1 billion to help business and community groups adjust to emissions trading was ''not a bad idea''.

'Watered down'

Mr Rudd's target compares with the European Union's decision agreed over the weekend to cut emissions 20% by 2020.

Incoming US President Barack Obama has also pledged to introduce a so-called cap-and-trade system to reduce emissions, and promised to add US backing for talks on a global accord to combat climate change set for completion next year.

ANZ Bank economist Julie Toth said Australia's emissions reduction targets have been "watered down significantly.''

''Interestingly, the compensation measures are still significant although the target is much smaller," she said.

''Certainly it means that if the Government is going to meet its commitment by 2050 of a cut of 60%, there will have to be some very large cuts further out,'' said Ms Toth.

"It does look like at first cut, they're leaving the harder decisions and the hard work to a later generation."

Rudd heckled

Australia's targets will enrage conservationists, but the Government says it's unlikely the world can forge a strong greenhouse agreement so its targets are realistic.

Indeed, Mr Rudd was subjected to heckling by a female protester at the launch of the emissions trading scheme.

The female protester, believed to be a member of a Newcastle-based group, screamed ''No!'' as Mr Rudd began announcing details of the emissions target. She was removed from the Press Club launch. Separately, a group of protesters is occupying the PM's electorate office in Brisbane.

The unconditional 5% target was equal to a 27% reduction in carbon pollution for each Australian from 2000 to 
2020, Mr Rudd said.

''I believe ... that we must remain ambitious for a long-term target for the planet of (an atmospheric concentration of carbon dioxide of) 450 parts per million because that is relevant to Australia,'' he told the Press Club.

Australia's interests

''A fair and effective global agreement delivering deep cuts in emissions...would be in Australia's interests,'' the plan says.

''Achieving global commitment to emissions reductions of this order appears unlikely in the next commitment period.'' 

The Government has also heeded business concerns about emissions trading, the main mechanism for reducing pollution which will start in July 2010. Business fears have intensified in the wake of the global financial crisis.

''The lobbying from all groups has been intense. And it does look as though groups lobbying for smaller cuts have won out,'' the ANZ's Ms Toth said.

Business groups, though, say the plan will be challenging, particularly the July 2010 start date for emissions trading.

''These challenges for business will be exacerbated by the fact they will have to be met at a time when businesses are being called on to manage their way through an unparalleled global economic crisis and unprecedented domestic economic uncertainty,'' said Australian Industry Group Chief Executive Heather Ridout in a statement.

''For businesses, training personnel and putting in place the internal systems required for a 2010 start will be challenging,'' Ms Ridout said. ''This is especially so in view of the lack of certainty about the international response and huge uncertainty about the prospects for the world economy in both the near and medium term.''

Power, coal industries get $4 billion

The scheme will now be much more generous to business. Straight off the blocks, the scheme will hand about $4 billion to the coal and power industry to compensate it for efforts to tackle climate change. Electricity generators will get about $3 billion, with coal producers receiving about $750 million, according to the Australian Coal Association.

More businesses will receive free pollution permits than the Government first planned, and they will get more of them. By 2020, almost half the permits in the system will be given to business for free.

''We've had brutal lobbying from some sectors of business," said Mr Connor of the Climate Institute, speculating on the weakened reduction targets contained in the white paper.

''The most disheartening thing is that many businesses were actually coming out for stronger targets'' before the white paper was released.

''They recognise that in a context of a global deal, 25% and 450 parts per million, we'd have a number of sectoral agreement and flexibility mechanisms which would be much smoother than a 550ppm, 10%-15%-based agreement."

"But in this package, we've had a dramatic increase in free permits for trade-exposed exporters and a reduction in energy efficiency and other requirement for them."

"We've basically blown out the capacity for the economy to deliver significant cuts by wrapping our biggest polluters in cotton wool.''

'High risks' for business

ACCI'S Peter Anderson said the state of the global economy meant businesses were ill-placed to carry additional costs.

''(I)t does beg the basic question and that is whether or not these costs can be borne by business in the first place at a time when Australia is going through an international economic firestorm,'' Mr Anderson told ABC Television.

''We need to come through that economic firestorm with a strong economy and placing domestic stress on the economy is going to just make that more difficult.''

Mr Anderson says the process remains a ''high risk'' for businesses that will face transition costs and new technology costs.

Prime Minister Mr Rudd said the economy would be able to cope with the impost.

''Treasury modelling demonstrates that we can deliver on this 5 to 15 per cent commitment while maintaining solid economic growth.''


Some households will also receive generous compensation for the scheme, which the Government says will push up electricity and gas bills by $6 a week. Electricity prices will rise by 18% and gas prices by 12%.

Pensioners, seniors, carers and people on the dole will get an increase to their payments which are worth more than the cost increases. All up, the government is offering $30 billion over five years.

Ms Toth of the ANZ Bank said she was surprised the Government's planned compensations to households was unchanged. "I'm just wondering if it's necessary given that cuts are only 5%."

The reduction to the fuel excise tax, promised in July amid surging petrol prices, has also been kept intact, she said. "One wonders if that is really necessarily."

"The main changes is that the cuts will be much smaller. If the Government is going to maintain its commitment to a 60% cut to 2000 levels by 2050, there will still need to be some significant cuts and significant changes further out.''

Other low-income households will be fully compensated for the costs, partly through a small tax cut.

Middle-income households will also get compensation, which in most cases will fully cover the costs of emissions trading.

Free permits for many

The emissions trading scheme will give so much compensation and so many free permits to business that there is little money left over for other measures, such as energy efficiency, critics say.

Greenpeace climate campaign coordinator John Hepburn said the Government's minimum target of 5% by 2020 is totally unacceptable.

''Mr Rudd has betrayed the science, betrayed the community and betrayed the next generation who will have to live with climate change impacts,'' he said. ''He has caved in to the bullying tactics of the coal and other polluting industries.''

While experts such as climate adviser Ross Garnaut called for some of the revenue to be used to cut emissions, almost all the revenue will be churned back to households and businesses.

The scheme is expected to earn about $12 billion a year; the Government has promised all of this will go towards helping Australians adjust.

Of the $12 billion, about $10 billion will go for compensation and free permits. Some $700 million goes for energy efficiency measures.

In terms of how the scheme will work, as expected, petrol will be effectively excluded from the scheme for the first three years, and agriculture for the first five years. Emissions from logging will not be counted.

The Government thinks the carbon price will start at $25 a tonne. A price cap will be set for the first five years, starting at $40 a tonne.

Australia will be able to buy carbon permits from overseas.

Emissions trading is expected to cause a spike in inflation of 1.1%.

Details of assistance:
- Pensioners, seniors and carers receive $382 for singles, and $320 each for couples.
- Jobless to receive $307 for singles, and $276 each for couples.
- Low and middle income families assisted by increases in the family tax benefit and an increase in tax offsets.
- A typical family, earning $60,000 with two kids, will receive $1,037 in assistance.
- Low income households that don't benefit from other measures to receive $500 per adult.

Details of emissions trading plans

- Cap-and-trade trading mechanism sets a price for the right to generate carbon pollution.
- Initial starting price estimated at $25 per tonne of carbon, capped at $40 a tonne, increasing annually by 5 per cent above inflation until 2014-15.
- Companies buy or are given free permits, which are tradable.
- Number of tradable carbon pollution permits will be equal to the cap, which is the limit on aggregate annual emissions.
- No limit on emissions from individual sectors - firms or facilities and companies are free to emit at whatever level they choose.
- Companies surrender permits for each tonne of carbon they emit.
- Scheme due to start in July 2010. 

AAP with BusinessDay's Chris Zappone

No comments: