Captain Julia’s Climate Policy Announced

On February 23, Prime Minister Julia Gillard annouced her proposed climate policy for Australia at an event at the University of Queensland, Brisbane, Australia. But unlike the real Captain Planet, Captain Julia seems to fall short on delivering meaningful action on tackling climate change. In this post, I will summarise her proposed action. Only one thing seems certainalready… the continuous uncertainty and lack of political willingness around putting a price on pollution (or carbon)… or as Reuter’s appropriately reports: Australian Prime Minister Julia Gillard reaffirmed on Friday a delay in introducing a price for carbon pollution, angering environmentalists, scientists and business ahead of her bid to secure re-election.

Firstly though, I would like to apologise for my poor Photoshop skills. However, looking at BP, I’m sure there is worse…

Ok, so what does Captain Julia’s climate change policy look like? Here are the key facts:

• All new coal-fired stations will be required to meet best practice emissions standards, and be Carbon Capture and Storage-ready (CCS-ready). I have discussed the prospects of CCS technology in an earlier post. In essence, at this stage, CSS technology will require MORE energy to capture and hide 85-95% of emissions, so any efficiency gains are most likely to be offset by adding CCS technology to the process - a zero-sum-game? Also, these new emissions standards would not apply to already proposed power plants.
• A Connecting Renewables initiative intended to transform Australian energy grids by bringing more renewable energy into Australian households and businesses sooner. This would include ongoing support of the enhanced Renewable Energy Target and an additional investment of AU$100 million over four years in a new Renewable Energy Venture Capital Fund. The issue here seems to be a deifnition of “bringing in more renewable enery into the mix sooner”… How can the uptake be increased? I’m sure there must be some market-based mechanism to inceivise a more rapid uptake?! Any ideas, anyone?
• A ‘‘Citizens’ Assembly’’ (using randomly selected people from the electoral roll) will be appointed to examine the evidence on climate change, the case for action and a market based approach to reducing pollution, and to gain “community consensus“  – in other words, a 12-month-process that involves ordinary Australians discussing climate change and how they perceive it.
• The introduction of a so-called a Climate Change Commission of experts to inform the public about climate science and report on the level of international action to cut emissions – hopefully, the Commission will be able to inform the Citizens’ Assembly of some of the findings…
• Rewarding industry that make early cuts by promising to keep emissions trading compensation at the levels promised last year – What a great idea… Encourage emission reductions, but promise support based on previous emission-intensity.

Do these initiatives suffice? Certainly not. Are these initiatives actually effective? I doubt it. Where are the necessary emission cuts? Where is that market-based mechanism, be it an ETS or a carbon tax to drive commitment, compliance, and the search for the best technology solutions? Where is a clear stand on climate change in Australia?

And what about Abbott? While the Coalition’s Direct Action Plan draws heavily on on CCS technology, he recently announced that he would close down the CCS Institute if elected because there would be no point if Australia were the only country to act. Similarly, Mr Abbott clearly expressed opposition to any form of pricing carbon, then announced he would consider it if there were global consensus, only to reiterate how there would be no price on carbon under any circumstance. Did I mention he backed an ETS back in 2009?

Australia is going to elect its 43rd Parliament in just under a month… when it comes to climate change, voters may choose between Captain Julia and Mr Abbott… So, what is to be done about the “greatest challenge of our generation”? If I may borrow Captain Planet’s catchphrase… “The Power is Yours!”

Or to use Joseph Marie de Maistre’s famous words: “Every country has the government it deserves.”

Julia Gillard “Stepping” Up Australian Climate Policy

The Daily Telegraph reports on Ms Gillard’s pledge to reduce “our carbon footprint as a country” by starting with co-operation between households and energy companies.

Having delayed an Australian ETS until at least 2013, Ms Gillard had to come up with an alternative plan to achieve at least some of the commitments Australia made under the Copenhagen Accord. While this is not yet set in stone, Ms Gillard proposes the following:

• New initiatives on energy efficiency and to boost renewable energy sources such as solar, wind and tidal;
• Plans for a national “energy savings initiative” to replace existing State-based schemes by about 2012;
• Power companies are to go to the homes of customers to give energy efficiency advice and install “improved” technology;
• A rise in energy standards for homes, office buildings and motor vehicles; and
• tougher emissions code will also apply to consumer appliances including refrigerators, air conditioners and clothes dryers.

Is this a sufficient elements for a climate policy? Certainly not. What is missing is a clear signal to business and consumers that improving energy efficiency alone does not suffice, but that net emissions will have to be reduced. Then there is also the rebound effect to consider:  The rebound effect is the reduction of potential energy savings because of higher energy use in response to those savings. For example, an improvement of energy efficiency leads to an increase of energy use due to the decrease in the effective price (e.g., a more efficient appliance  is used longer or more often), or the low effective price of energy leads to demand for additional energy (e.g., the money saved is used to buy other consumer goods).

Furthermore, energy efficiency is not the first driver for consumers, who tend to choose new equipment according to other criteria (technical performance, comfort, design, technical capability).  For example, sales of plasma TVs have increased significantly in developed countries, even though most consumers know that they use three to four times as much energy as standard TVs or even LCD TVs. There is also the cost-difference between standard and energy-efficient equipment. When buying new equipment, users will consider the immediate investment cost instead of the total cost including operation over the whole product lifetime. Mandating power companies to pay for such upgrades does not seem like an appropriate approach.

As for a national energy efficiency scheme to replace state-based programs… there already is the Energy Efficiency Act 2006, which “encourages” organisations to identify and implement – as the name would suggest – energy efficiency measures. Why reinvent the wheel? All that what would have to happen is a reassessment of reporting thresholds and implementation liabilities, rather than develop an entirely new scheme.

The cost-effectiveness of Ms Gillard’s proposals will depend on the design of the proposed changes. For example, an undifferentiated uniform application often leads to higher overall compliance costs. What needs to happen is tailoring any energy efficiency standard(s) to the actual circumstance of firms. The energy efficiency approach should expand compliance options beyond energy consumption and should include measures such as process changes, reductions in output, changes in fuels or other inputs and alternative technologies.

A combination of a energy efficiency (or performance) standard PLUS an overall emissions cap could facilitate the transition to an emissions trading scheme.

To me, an emissions trading scheme still offers the best choice for a climate policy in terms of environmental outcomes and distributional considerations – Setting the overall emissions cap at a level that actually induces a change in behaviour and allows organisations to choose the most cost-effective measures to achieve that necessary reduction in emissions.

Introduction of EU-wide carbon tax?

A minimum tax of 20 € per tonne of C02 emissions from fuels that are not covered by the European Emissions Trading Scheme (ETS) was suggested by Taxation and Customs Union Commissioner Algirdas Šemeta at a meeting of the 27 EU Commissioners held on June 23 in Brussels.

The suggestion followed an earlier presentation by Climate Action Commissioner Connie Hedegaard on ways to increase the EU’s emissions reduction target from 20% from 1990 levels by 2020 to 30%. Hedegaard argued that introducing a carbon tax in sectors not covered by the EU emissions trading scheme could be one option for moving towards a higher target.

The previous Taxation and Customs Union commissioner, Laszlo Kovács, also drafted plans for such a carbon tax, but the drafts were never put together as a formal proposal.

The latest proposal is now subject to further investigation, as Šemeta was asked to prepare an impact assessment and to investigate the economic impact of the tax.

The introduction of a mandatory carbon tax is a controversial issue among EU member states. Scandinavian EU states Finland and Sweden - which already impose carbon taxes - welcomed the proposal. Other member states such as Poland fear that the introduction of any tax could endanger its coal industry. The UK and Ireland resent any compulsory tax being introduced by Brussels.

New Zealand’s Emissions Trading Scheme – Key Facts

Under the Kyoto Protocol, New Zealand has to reduce its greenhouse gas emissions back to 1990 levels by 2012 . New Zealand also associated itself with the Copenhagen Accord, officially announcing that “New Zealand is prepared to take on a responsibility target for greenhouse gas emissions reductions of between 10 per cent and 20 per cent below 1990 levels by 2020, if there is a comprehensive global agreement”. One of the Government’s strategies is an Emissions Trading Scheme as a cost-effective way of reducing emissions and creating an incentive to change the behaviour of business and consumers.

Overview of the key features of the New Zealand Emissions Trading Scheme (NZ ETS):

As of July, 2o1o, mandatory reporting and participation will apply to the transport fuels, electricity production, and industrial processes sectors. Synthetic gases, agriculture and waste may report voluntarily from January 1, 2011, with mandatory reporting as of January 1, 2012.

The primary unit of trade in the New Zealand Emissions Trading Scheme is a New Zealand unit (NZU).Participants are required to surrender one NZU per tonne of greenhouse gas emissions in order to meet their obligations under the scheme.

NZ ETS: 3 industry examples (Source: http://www.climatechange.govt.nz/emissions-trading-scheme/about/ets-diagram.html)

During the initial transition phase from July 2010 to December 2012,  participants will have to surrender only one NZU per every two  tonnes of greenhouse gas emissions. After this, one emission unit will be equal to one tonne of emissions.

NZUs can be bought from the Government for NZ$25 each. In addition, participants and secondary market traders can buy emission units from other participants or secondary market traders, either directly or by trading through a broker or trading exchange.

Participants may also surrender a range of ‘Kyoto units’, such as certified emission reduction (CER)units  from emission-reduction projects in developing countries, or emission reduction units (ERUs) from an emission-reduction or emission removal projects in developed countries.

Similar to the Australian CPRS, some liable participants (e.g., emission-intensive trade-exposed) will receive a free allocation of emission units from the Government to cover some of their emissions. For more information on the allocation process, please see here.

The following penalties apply:

• Failure to collect emissions data or other required information, calculate emissions and/or removals, keep records, register as a participant when liable, submit an emissions return when required, or notify the administering agency or provide information when required to do so, NZ$24,000.
• Knowingly altering, falsifying or providing incomplete or misleading information about any obligations under the NZ ETS, NZ$50,000.
• Deliberately lying about obligations to gain financial benefit or avoid financial loss,  NZ$50,000 and/or   prison sentence of up to 5 years.