A Carbon Reduction Scheme for Australia

Last Thursday (24-2-11) Prime Minister Gillard announced the Government intends to introduce a price on Carbon pollution next July, this is long overdue.  Australia’s per capita1 emissions are a national shame, a price on carbon pollution is the most efficient and equitable way of reducing them.

We need to be clear about the role of carbon pricing, this is a mechanism to make low carbon products competitive with carbon intensive products.2  Distributing income from a price on carbon to buffer its impacts on consumers is counterproductive.  Yes, there are those in society who need financial help and should receive assistance, but the rest of us will have to change our consumption patterns, change our lifestyles, reduce our emissions or pay the price.

Whilst the announcement was short on details, we do know the Government intend to introduce a fixed price on carbon from 1 July 2012 for 3 to 5 years and then migrate to a market based cap and trade scheme3, with the rural sector being exempt.  Crucial aspects to be determined are nominating a dollar price per tonne and how income generated will be distributed.  What is predictable is these two aspects will be the focus of much industry and community lobbying.  This announcement has Clare Savage from the Energy Supply Association of Australian claiming this could trigger Sovereign Debt risk 4 for her members, which she claims, in extreme cases, could impact on consistency of electricity supply.  This is an illogical argument as the laws of supply and demand will maintain viability and consistency of supply.  Rather than focus on increased coal and gas electricity generation we need to moderate spiralling demand for electricity per se whilst concurrently transferring to renewable energy.  A price on carbon is the best way to achieve this.

Dedicating a significant portion of carbon tax earnings into renewable energy generation development would give the best bang for buck in terms of carbon reduction.  We can however, expect the big polluters to continue to lobby for their best interests; experience with the Climate Change debate indicates we can anticipate a public campaign sowing doubt over the efficacy of a price on carbon.  The impact of a carbon price on the cost of power ultimately depends on the price per tonne; we can only speculate on what the range of that impact might be.  100% Green Power users should expect no change due to their power being carbon neutral, thus it can be anticipated a carbon price will amount to a fraction of the Green Power surcharge5 which ultimately depends on the price per tonne.  The Grattan Institute’s John Daley believes the impact of a carbon price will be insignificant compared to inevitable rises as a result of infrastructure replacement, increased costs as Australia moves to international gas price parity and the impact of necessary work on inadequate distribution networks.  For the Prime Minister this represents a credibility challenge, detractors will blame any electricity price increases on the carbon price, whilst the Opposition will not let us forget the Prime Minister went to the last election with a ‘no carbon tax’ position.  The political imperative may result in polluters and the community being over compensated financially to gain support for a carbon reduction scheme, hence reducing its effectiveness.

Politics aside, a mechanism for reducing Australian’s large carbon footprint is urgent and a carbon price is the best way of achieving this.  The more vulnerable in society will continue to need assistance, the rest of us can adapt by reducing our emissions through changing our ways.  John Dales states that for most, power bills represent <2% of family income, so a single digit percentage increase on those bills will be a very modest impost to pay to put in place a mechanism to start the overdue task of reducing our carbon footprint.  Let us support the scheme Australia needs and deserves and not allow it to be undermined by financial or political interest.

Published in Fremantle Herald 5th March 2011

References

  1. A country’s total emissions divided by population, demonstrating national emissions from a personal perspective.
  2. Those which generate large amounts of CO2 in their production.
  3. A fixed price scheme sets a fixed price for each tonne of carbon emitted.  A cap and trade scheme allows a polluter to emit a fixed amount of carbon, after which they must buy offsets at market price.
  4. Sovereign Debt is brought about by the impacts of a Government decision on an industry’s ability to source credit overseas.
  5. 5.54c per unit

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