12 July 2011

The 'Clean Energy Future' scheme

I have to admit I did rush to conclude that the Australian carbon pricing scheme would be a "leapfrog" ahead of the NZ Emissions Trading Scheme. Okay, I admit I generally think the NZ ETS is worse than nothing as a policy to reduce GHG emissions. So of course the Australian scheme must be more effective!

Now I have actually read Julia Gillard's carbon pricing proposal I can offer a slightly more considered opinion. The carbon price scheme has a name which we should be using; Securing a Clean Energy Future. The full document is Securing a Clean Energy Future, The Australian Government's Climate Change Plan, Commonwealth of Australia 2011, ISBN 978-0-642-74723-5.

First of all, the 'Clean Energy Future' is not a carbon tax. It is a cap and trade emissions trading scheme with a safety valve. Page 25 says "Large polluters will report on their emissions and buy and surrender to the Government a carbon permit for every tonne of carbon pollution they produce." Thats very much an emissions trading approach, but with a fixed carbon price for three years. The price is $AU23 per tonne from 1 July 2012, then $AU24.15 in 2013-14 and $AU25.40 2014-15 (p 26). From 1 July 2015, the carbon price will float within and upper and lower ceiling with the Government setting an overall 'Cap' or limit on GHGs (p 27).

The GHGs covered are; carbon dioxide, methane, nitrous oxide and perfluorocarbon emissions from the aluminium sector (p 28).

There will be 500 sources of emissions, which will be companies or sites with direct greenhouse gas emissions of 25,000 tonnes of CO2-e a year or more, Sectors covered will be; stationary energy, waste, rail, domestic aviation and shipping, industrial processes and fugitive emissions (p 27). But not farming or land transport fuels.

So how comprehensive is 'Clean Energy Future'? To me, the comprehensiveness of a carbon tax or an emissions trading scheme is a good metric of likely effectiveness. And its a metric to make comparisons between policies.

Lets say the comprehensiveness is the proportion of total GHGs emitted that is either taxed or included in an emissions trading scheme. 'Clean Energy Future' claims half to two-thirds. The report states that more than half of Australia's GHG emissions will be directly covered by the scheme, and almost two-thirds of GHGs will be included when other measures are included.

'Clean Energy Future' includes an appendix of forecast revenues. In the year to 30 June 2013, the 'Clean Energy Future' scheme will earn $AU 7.74 million (Appendix C, p 131). At the fixed price of $AU 23 per tonne, that gives 337 million tonnes of GHG (by CO2-e) that is taxed or priced. Thats 60% of Australia's 2009 GHG emissions (565 million tonnes) priced in 2013. That seems not a bad start, given that Geoff Bertram and Simon Terry have calculated that the NZ ETS, after free allocation, delayed start dates, only prices 3%, (12 million tonnes out of 378 million tonnes) of New Zealand's GHG emissions between 2008 and 2012 (Bertram and Terry 2010, The Carbon Challenge, p 111).

But is there any free allocation of carbon permits to emitters in the 'Clean Energy Future' scheme? Yes, if you look carefully there is.

The revenue forecast in Appendix C lists costs of $AU 2.85 billion for "Jobs and competitiveness program" and $AU 1 billion for "Energy security". Table 15 on page 114 notes that "Jobs and competitiveness" invloves the free "allocation of permits ...to new and existing entities undertaking an eligible emissions-intensive trade-exposed (EITE) activity". Table 16 Energy Security p 116 indicates that "Energy security" involves "allocation of permits and cash estimated at $5.5 billion over six years to assist highly emissions-intensive coal-fired generators" and "payments for the closure of around 2,000 megawatts of very highly emissions-intensive coal-fired generation capacity by 2020".

So of the $AU 7.7 billion collected from the 500 emitters in 2012-2013, possibly some $AU 3.85 billion will be rebated to the dirtiest and most carbon-intense emitters, as long as they are trade-exposed. The definition of emissions-intensive-trade-exposed isn't exactly tied down and has a number of parts. One is being imports or exports as greater than 10% of production. Also, rather like the NZ ETS, any assistance to emitters will phase out at a very gradual 1.3% a year (Table 15, p 114).

Lets assume that 100% of these two categories is spent on free allocation of permits or is just given as a subsidy to some of the 500 emitters. If we have 337 million tonnes of GHG emissions (by CO2-e) that is priced, and subtract 167 million tonnes for the gifting and assistance ( $AU 3.85 billion divided by $23AU = 167 mt) we get 169 million net tonnes of GHG emissions priced in 2013 under the 'Clean Energy Future' scheme. Thats 30% of 2009 GHG emissions of 565 million tonnes.

Okay, I am comparing 2013 for the 'Clean Energy Future' scheme with 2008-2012 for the NZ ETS, but 30% coverage of GHG emissions beats 3% of GHG emissions hands down. The 'Clean Energy Future' scheme is more comprehensive than the NZ ETS by a factor of 10, 30% of GHG emissions priced vs 3% priced. That certainly is a big "leap frog" ahead by our trans-tasman cousins, I would say.

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