Climate Change - Emission Trading Scheme – Objectives, Problems and Alternatives

By: AUSBUY

We are told that we have a man-made problem of global warming to be tackled and that Australia (responsible for less than 1½ % of global emissions) should take a leadership role. I make no claims to be a climatic scientist, but I distrust issues being put forward as a new religion. However I am not prepared to take the risk that the current orthodox thinking is wrong. I am also influenced by the belief that we should not squander the earth’s resources and should leave something for future generations.

The primary means of solving this problem (which is broadly supported by the majority of both parties) is an Emission Trading Scheme (ETS). This is also supported by the public who want to do something, but don’t know what it means. It would seem some sense is beginning to prevail by separating the ETS and Renewable Energy as the former is a new tax model. The latter has already been embraced overseas and is showing returns on investment and job creation where applied. This article is an attempt to analyse the issues in simple terms and to differentiate ETS from Renewable Energy. It also highlights examples where the principles are not applied in a reasoned and equitable way.

ETS Objectives and some of the prevaricating which is occurring:

• To force organisations responsible for major emissions to develop new methods of operation that will produce less carbon. This will be brought about by forcing them to buy permits for the carbon they emit, forcing them to cut costs by using less.
• Change people’s energy usage by increasing the cost.
• Encourage the public to install energy saving devices, eg low energy LED lights, power savers etc, by providing subsidies paid for by the sale of permits.
  • In the meantime State Governments are investing in desalination plants which, aside from the initial $ Billion investments, will demand enormous energy to operate.
• Encourage the public to invest in renewable energy, eg solar panels, by giving them grants and subsidies which would also be paid for by the sale of permits.
  • Some people believe these new industries should not be supported financially by governments, yet we are still propping up the car industry with government funds six decades later, and funding foreign companies to keep their manufacturing here in our food industry e.g Victorian Government grants $3 million to George Weston to keep Patties Pies here.
• Establish the infrastructure to support and distribute renewable energy and encourage households to be more sustainable (paid for by the sale of permits).
• Lock Australia into a carbon trading market which will allow big emitters to buy permits overseas to meet their requirements while Australia continues to meet its greenhouse gas reduction target.
• Provide grants to those who have difficulty paying the extra costs which would emerge from this scheme. This however would be at odds with sending a price signal to the public to cut down consumption and any scheme requires careful planning.

The Government and the Opposition have disagreements about the details of any scheme and there are sceptics who doubt the science of global warming. Each side quotes science which confuses the public even more.

Problems:

• The Government exercises some form of price control over power and we currently need new generating capacity. If current coal-fired generators are closed down there will be a huge demand for new base load capacity. Investors will not build them unless there is a reasonable return which will mean price increases in excess of the cost of any emission permits brought. Uranium has been touted again as an option, but the issues of safety and waste remain, and these will take up to 15 years to build. The question then arises, who will build these and do we allow foreign companies to build and own our energy resources all of which has economic, security and strategic implications, especially if they are not listed on the Australian Stock Exchange.  Energy Infrastructure bonds have been discussed where the people of Australia invest in these assets and Australians own them, but these do not seem to be on policy makers agendas.
• Unless there is a uniform ETS internationally the idea of having emission credits bought and sold in the world market seems unlikely. There is currently no discussion about how breaches of ETS schemes cannot be punished.
• Cost of Australian production compared with countries which do not have an ETS will rise. We already operate at a disadvantage with a high dollar, wages and countries like China which does not have a floating currency intent on keeping their prices down. This will discourage exports, suck in imports and significantly damage our economy.
• An ETS will be costly to administer and the allocation of free permits to trade with vulnerable industries is wide open to abuse and special influence.
• It is assumed that an ETS will produce new green jobs. These have never been identified nor the location and skill sets of these jobs and balanced against jobs lost.
  • However, the Renewable Energy industry will produce real jobs and is doing so in every other advanced country except Australia because of a seeming lack of will by our Governments. Evidence of this was in the last financial year when rebates were removed without notice to the industry before the due end date and more recently the reduction in solar heat pump rebates. Given that heat pumps are largely used in cities which produce high CO2 emissions and their inner urban areas with old rooves and limited sun actions such as this undermine the decision makers’ credibility. This makes those operating in this emerging industry nervous.
• The idea that Australian leadership, in drawing up and adopting an ETS, would influence the major economies and increase our influence at the Copenhagen Conference is laughable.
• There is a laudable belief that lower income people should be recompensed for the costs which will be passed on to them. This will reduce the effectiveness of the scheme by reducing the incentive of a large portion of the public to reduce their carbon consumption.

Alternatives Options to the ETS:

This would be a consumption-based carbon tax which would have the following advantage over an ETS:

• Australian production would not be placed at a disadvantage compared with production from companies with a watered down or no ETS. This would mean that exports would be protected and imports not sucked in.
• Cost of administration would be less as it could be collected with GST at the point of sale.
• It is more easily targeted as we don’t have to worry about the knock-on and cumulative effect on the cost of production.

This measure is not popular among the politicians of either party as it would involve creating a new tax which could cost votes. It would also involve a lot of work establishing the varying tax rate.

This article over simplifies a complex issue. Whatever scheme we finally decide on we must realise that we will have to pay for it both in money and in changes to our economic life. Something this complex deserves an informed debate not the search for a feel-good solution which has the potential to damage Australia. Europe the USA are already addressing these issues, but we need to do what is right for our economy and our people.

Copyright © - This document cannot be used without our express permission

---