No Carbon Tax in Australia

No Carbon tax? Yes, you read correctly. Julia Gillard has announced the commencement of a price on carbon on July 1, 2012, not a carbon tax.

And while there is now much debate about how last year Julia Gillard promised not to implement a carbon tax (see, e.g., Sydney Morning Herald, or ABC Online)…

Here is what she actually said:

So there you have it. No carbon tax. She did not rule out a price on carbon per se. Gillard is not talking about a carbon tax, it’s a hybrid model based on emissions trading by implementing a safety valve. They are going to fix the price, but it is up to companies to either obtain permits from the government at a pre-set price, or from the marketplace. The transition carbon price model is based on Garnaut’s 2008 recommendations.

Despite the transitional period of fixed-price permits, fully tradable permits for use from 2013 should be sold into the market in small quantities from 2010 (or even sooner). This will support the development of forward markets and provide guidance to market participants on future prices.

So technically, she didn’t break any promises. As it stands, it could be considered to be like a tax, but it is not. The fixed price provides some certainty in the cost of compliance and lower administrative costs, making it possibly easier to plan long-term investments, that is, if the tax rate remains fixed or known for the period of the investment. The key is to abandon the safety valve as soon as possible in order to not distort the functioning of an emissions trading/ cap-and-trade system.

If there is no limit on the amount of emission or any assurance over the quantity of reductions, there is a risk of potentially sacrificing environmental certainty for price certainty. In line with scientific evidence warning about the ‘stronger-than‑expected’ and ‘sooner‑than-expected’ effects of climate change and urging significant emissions reduction, emissions trading has the advantage of setting a cap on overall emissions, and therefore controlling and providing certainty on the quantity of emissions directly.

As for the cost argument, there are most likely going to be, e.g., free allocation of allowances to emissions-intensive trade-exposed industries, as well as billions of dollars to be granted to eligible coal‑fired power plants, as was suggested under the CPRS. There appear to be sufficient means in place to avoid any significant price volatility. But rather than complaining to companies about their grandfathering/ strategic behaviour, production subsidies, and windfall profits, it’s just all about the policy. What people, politicians, business and the public alike do not seem to understand, the reduced competitiveness of emission-intensive technologies is the intended outcome of a price on carbon!

A revolt, as predicted by Tony Abbott, seems like an exaggerated response. Australia is already trailing the rest of the world in climate change policy and risks becoming uncompetitive. With either policy, tax or ETS, it is questionable whether political gamesmanship in the form of debates on industry support or exemption would be eliminated. There would still be the temptation to change taxes or push through politically motivated manipulations designed to benefit certain companies or industry sectors, undermining any long-term certainty and hindering necessary investments in low-carbon technologies.

It is a step in the right direction. After 3 years of going in circles, they’re finally seem to be  implementing Garnaut’s recommendations. Not that these are necessarily a silver bullet, but it’s a start.

Multi-Party Climate Change Committee | Fourth Meeting

On February 18, the Multi-Party Climate Change Committee held its fourth meeting in Canberra.

As was to be expected, no real decisions were made. Instead, the Committee continued to discuss possible options for the broad architecture of a carbon price.

Discussions are continuing on the broad architecture and therefore no agreed position can be released at this stage. However, Committee members will continue to explore the issues, including the release of information about the broad architecture that is the subject of discussion so as to better inform public debate.The Committee noted that agreement to the final design of a carbon price could only be achieved when all elements of the policy could be considered together, with final agreement taking place in the coming months.

 

 

Now Available: Greenhouse Gas Measurement & Management Journal

Greenhouse Gas Measurement & Management brings together information on the application of methods and techniques to estimate, measure, account and audit greenhouse gases. It presents conceptual, methodological and empirical analyses of policy-relevant metrics related to the management of greenhouse gases, and their impacts for industry, government and international organisations, with an emphasis on applied research.

About the journal
The world is now beginning to recognize the fundamental role of Measurement, Reporting, and Verification (MRV) to the success of any action to address climate change and the greenhouse gas (GHG) emissions that cause it. As the negotiations and legislative processes stutter, there is still an urgency to develop an infrastructure necessary to support real action. Further, despite an extensive literature on climate policy and technology, the literature on how best to manage GHG emissions is surprisingly limited.

In this present context, a new journal, published by Earthscan in cooperation with the Greenhouse Gas Management Institute, has been launched to fill a gaping void. Greenhouse Gas Measurement & Management focuses on the infrastructure to support future GHG mitigation policies by providing a scholarly forum for both academic researchers and GHG professionals. It covers the application of the science, engineering, and economic principles of GHGs with the aim of improving the way society mitigates the anthropogenic causes of global climate change. This includes concentrating on developing and providing reliable performance metrics related to GHG emissions and removals and managing activities that reduce GHG emissions to and/or increase their removals from the atmosphere.

Contents for Greenhouse Gas Measurement & Management Issue 1.1

Letter
Welcome to Greenhouse Gas Measurement and Management
Authors: Michael Gillenwater and Tinus Pulles

Editorial
Greenhouse Gas Measurement and Management
Author: Tinus Pulles

Commentaries
Public Access to Comprehensive GHG Mitigation Information: The Example of Climate Relevant Investments
Author: Jochen Harnisch

Filling a gap in climate change education and scholarship
Author: Michael Gillenwater

Research Articles
The Global N2O Budget Revisited
Authors: Alfi Syakila and Carolien Kroeze

An Output-based Intensity Approach for Crediting Greenhouse Gas Mitigation in Agriculture: Explanation and Policy Implications
Authors: Brian C. Murray and Justin S. Baker

NAMA crediting: How to assess offsets from and additionality of policy-based mitigation actions in developing countries
Authors: Yuri Okubo, Daisuke Hayashi and Axel Michaelowa

MRV under the UN Climate Regime – Paper Tiger or Catalyst for Continual Improvement?
Authors: Anne Arquit and Melinda Kimble

Urban GHG inventories, target setting and mitigation achievements: How German cities fail to outperform their country
Author: Maike Sippel

Stochastic income statement planning as a basis for risk assessment in the context of emissions trading
Authors: Henry Dannenberg and Wilfried Ehrenfeld

Book Review:
The Economics of the Yasuni` initiative. Climate Change as if thermodynamics mattered
Review by Marco Buttazzoni

Climate Policy | International Updates

Some recent international climate policy developments – An overview.

The Australian Government plans to introduce a price on carbon in form of a carbon tax from July 1, 2012. The corresponding report is due for release next week. The proposal includes details on a fixed price scheme with a financial assistance system for energy-intensive and/or trade-exposed industries (EITEs). Debate around the scale and scope of EITE compensation and national emission targets is to be expected.  Last week’s report on Australia’s annual emissions shows that, without action, emissions are projected to be 24 per cent above 2000 levels.

In December, Japan delayed the implementation of its proposed national emissions trading scheme, over fears of job losses and international competitiveness. Japan is the world’s fifth largest emitter of greenhouse gases. A mandatory Tokyo metropolitan trading scheme is in place since 2010. Japan has also announced plans to develop an alternative to the Kyoto Protocol, claiming the existing framework does not include major emitters.

South Korea will commence its emissions trading scheme between 2013 and 2015, after opposition from influential business groups to start the scheme in 2013. The South Korean ETS would cover about 60% of national greenhouse gas emissions and become the second largest ETS in the Asia-Pacific region after New Zealand’s.

The European Union is revising its energy strategy which may result in putting it on track for a 25% reduction in greenhouse gas emissions by 2020 – 5% more than its existing 20% target. Emissions of greenhouse gases from EU businesses participating in the EU Emissions Trading System (EU ETS) fell 11.6 % in 2009 compared with a 2008, according to the information provided by Member State registries. Also, the EU will ban CDM credit (CERs) imports linked to hydrofluorocarbon- 23 and some nitrous oxide projects as of May 2013 in an effort to improve envrionmental integrity and geographical distribution of abatement efforts.

The UNFCCC has restored Bulgaria’s accreditation for participation in the trading schemes under the Kyoto Protocol and the EU ETS. The country had been suspended last year for violating greenhouse reporting rules. Bulgaria’s report to the UNFCCC was regarded as not sufficiently transparent and not trustworthy. It is assumed that it was only one person dealing with the country’s reporting to the UN.

In Taiwan, the EPA announced an early action crediting plan and a carbon offset program as part of a cap-and-trade scheme. As the Greenhouse Gas Emissions Reduction Act, a legal prerequisite for a full-fledged emissions trading program, still awaits legislative approval, the EPA decided to implement these administrative measures to encourage local industries to cut carbon emissions.

India will launch its Perform, Achieve and Trade system, a mandatory energy efficiency trading scheme, in April this year. Trading is to commence in 2014. The aim is to enhance cost effectiveness in improving industrial energy efficiency under the National Mission on Enhanced Energy Efficiency.
 The scheme will cover facilities that account for more than 50% of the fossil fuel used in India, and is expected to reduce CO2 emissions by 25 million tons per year by 2014/15. India already has in place a carbon tax on imported and domestic coal.

In the US, the Western Climate Initiative intends to commence its regional emissions trading scheme in 2012. It will comprise approximately two-thirds of total emissions in the WCI jurisdictions. When fully implemented in 2015, the program will cover nearly 90% of the GHG emissions in WCI states and provinces. The WCI will be the third regional trading scheme in the US, alongside the Regional Greenhouse Gas Initiative and the Midwest Greenhouse Gas Reduction Accord.

China’s latest Five-Year Program will include plans to create a carbon market that is likely to emerge as the world’s largest emissions trading scheme. The government announced that it will include targets to curb carbon dioxide emissions and energy consumption in its new plan, which will run from 2011 to 2015.

The Garnaut Climate Change Review – Update 2011 | Opinion

In November 2010, Professor Ross Garnaut was commissioned by the Australian Government to provide an independent update to his 2008 Climate Change Review. He is also an independent expert adviser to the Multi-Party Climate Change Committee. The Garnaut Climate Change Review – Update 2011 will release a series of papers in early 2011 and present its final report to the Australian Government by 31 May 2011.

The purpose of the Garnaut Climate Change Review – Update 2011 (the Update) is to provide an overview of developments in key areas such as international policy, climate science, emissions trends, policy instruments (i.e., a price on carbon) and technology since the initial 2008 Climate Change Review. The Update will be comprised of eight papers:

1. Weighing the costs and benefits of climate change action
2. Progress towards effective global action on climate change
3. Global emissions trends
4. Transforming rural land use
5. The science of climate change
6. Carbon pricing and reducing Australia’s emissions
7. Low emissions technology and the innovation challenge
8. Transforming the electricity sector

So far, the first three papers have been released on February 3, 7, and 11. The fourth paper is due on March 11.

The first update paper “Weighing the costs and benefits of climate change action” finds that:

• the Review’s choice of discount rate was sound and that the Australian case for climate change action is not affected by reasonable variations in the approach to choosing a discount rate;
• the presence of uncertainty in the range of possible climate outcomes strengthens the case for climate change action;
• the Review’s approach to the treatment of developing countries as part of a global response remains a robust and ethical basis for a long-term solution;
• the case for substantial and well-designed Australian action to encourage international agreement on climate responses remains compelling; and
• while the current and prospective realities of damage from climate change warrant effective efforts on adaptation, this does not weaken the case for strong focus on mitigation.

This is nothing new and should not come as a surprise. The proposition that the (economic) risks of inaction in the face of climate change are very severe, and that action, adatation to and mitigation of climate change, is worthwhile and likely to reduce these risks has already been strongly advocated, not only by the IPCC, but also by Stern in his Review on the Economics of Climate Change in October 2006 – 4.5 years ago. Of course there has been a lot of debate and criticism around the discount rate, but one might argue that what constitutes the “optimal” discount rate lies in the eye of the beholder. Stern and his team have released responses to the criticism in 2007 and 2008.

The case for strong and urgent action set out in the Review is based, first, on the severe risks that the science now identifies (together with the additional uncertainties [...] that it points to but that are difficult to quantify) and, second, on the ethics of the responsibilities of existing generations in relation to succeeding generations. It is these two things that are crucial: risk and ethics. Different commentators may vary in their emphasis, but it is the two together that are crucial. Jettison either one and you will have a much reduced programme for action—and if you judge risks to be small and attach little significance to future generations you will not regard global warming as a problem. It is surprising that the earlier economic literature on climate change did not give risk and ethics the attention they so clearly deserve, and it is because we chose to make them central and explicit that we think we were right for the right reasons.

It should be obvious that the risks posed by climate change raise a set of significant issues that go far beyond those related to discounting.

The second paper’s (“Progress towards effective global action on climate change“) key points are:

• The 2008 Garnaut Climate Change Review said that strong mitigation, consistent with Australia’s national interest, requires effective global action, with Australia playing its proportionate part. Effective global action requires comprehensive agreement among countries.
• The Copenhagen meeting in December 2009 and the Cancun meeting in December 2010 moved the world towards several elements of such agreement, but away from one important element.
  - The reality of considerable positive movement is obscured by the diplomatic fiasco at Copenhagen, which was rescued from comprehensive failure by the President of the United States reaching an understanding with leaders of China, India, Brazil and South Africa during the meeting itself.
• The Copenhagen and Cancun meetings have led us into a messy world in relation to the setting of each country’s ambitions on emissions reductions. But they have embodied strong progress on several crucial and difficult issues, and may have laid a basis eventually for the comprehensive and binding international agreement that is still necessary to avoid high risks of dangerous climate change.
• Most developed countries—members of the European Union, Japan, New Zealand and now Korea—are reasonably well placed to make full contributions to achieving strong global mitigation goals.
• Major developing countries seemed to be sources of weakness at the time of the Review, but are now making large emissions reductions below business as usual. Chinese climate change policy is at the centre of the international effort to reach global agreement, because it is the world’s largest source of greenhouse gas emissions, because it is by far the largest prospective source of emissions growth, and because economic and strategic competition between China and the United States is important in the policy dynamics of both countries.
• The three countries which have been the largest drags on the global mitigation effort are the three highest per capita emitters amongst the developed countries—Australia, Canada and the United States.
• The United States faces large domestic constraints on early action, but is still committed to a significant reduction in emissions. It is also benefiting from favourable developments, such as the ‘gas revolution’, in its efforts to reduce emissions.
  - The United States commitment is supported by substantial government support for low-emissions technologies; by extension of regulatory oversight of energy efficiency and emissions standards by Federal agencies; and by many state-based initiatives to establish ETSs and emissions-reducing regulations.
• If Australia were to introduce a carbon price, one that was seen as commensurate with carbon prices in other countries, it would cease to be a drag on international mitigation. Australian success in introducing a carbon price is likely to assist the United States and Canada to maintain momentum in policies to reduce emissions.
  - Australia could also exercise global leadership in the mitigation effort without making unrealistic demands on community support for action, by implementing efficient means of reducing emissions through policy innovation.

Probaby most interesting is the the reference to Australia being a drag on international mitigation. A statement that is certainly justified.  Australia has committed to an uncoditional greenhouse gas reduction target of 5% below 2000 level by 2020. There is now disagreement (again) about the appropriateness of such a weak target.  As discussed in a previous post, not only is a 5% (15% if there is global agreement) reduction by 2020 is unlikely to unleash the technological innovation and commitment that is necessary to shift towards a low carbon economy, but it is also well below those recommended by the IPCC and the Garnaut Review. In fact, GHG reductions of 5-15% are equivalent to a stabilisation at about 510-550ppm, not the 450ppm the Australian Government is lobbying for.

The question is whether taking the same level of commitment to Cancun that was demonstrated in Copenhagen and Poznan was actually going to be the catalyst for change both domestically as well as for international negotiations.  Already in 2008, Australia’s targets have been deemed insuficcient. Australia has repeatedly voiced a desire to take a leaderhsip role in tackling climate change, but a 5% target and the lack of a clear climate change policy fall extremely short of a leadership role. Now with a number of trade partners discussing the implementation of  emission trading schemes and/or carbon taxes (despite recent delays in Japan and South Korea), Australia really need no longer fear of “going it alone“. The EU has an emissions trading scheme (with some member states also having in place various carbon taxes), so does New Zealand, there are two regional emissions trading schemes in place in the US – despite their stance during international climate negotiations – with a third one about to be launched (RGGI, MGGRA, and the WCI), India has a carbon tax on coal, and China is investigating the option of a cap-and-trade scheme to redcue emissions. The time has come for serious commitment and action. These countries and companies operating there are already gaining valuable experience and expertise in dealing with a price on carbon.

While emissions of greenhouse gases in the EU ETS fell 11.6 % in 2009 compared with a 2008, Australia is still debating the best approach to a price on carbon, despite previous findings and recommendations. Again, the Update findings are neither new now particulalry surprising. The biggest contribution of this update paper probably is the summary of the outcome of recent COPs.

The update on “Global emission trends” comes to the following conclusions:

• Without mitigation, and in the absence of negative feedback from climate change, global emissions will double between 2005 and 2030. This updated business as usual projection is in line with the projections of the 2008 Review.
• The shift in global growth momentum towards developing countries discussed in the 2008 Review has become more pronounced.
  - Developing countries are now projected to account for 70 per cent of global emissions at 2030 under business as usual, compared with the Review’s projection of 63 per cent.
  - China and India are growing strongly, and other developing countries are also experiencing an acceleration of growth that began in the early twenty first century.
  - China is heading towards developed country income levels even more rapidly than anticipated in the 2008 Review, and therefore will need to accept developed country emissions constraints at an earlier date, if global objectives are to be met.
  - China’s Copenhagen mitigation commitments to 2020 are stronger than anticipated by the 2008 Review, providing a platform for what will subsequently be required.
• The Great Crash of 2008 has pushed the developed countries of the northern hemisphere onto a lower long-term economic growth trajectory. This and other factors will result in lower underlying emissions growth in developed countries, but is fully offset by stronger emissions growth in the developing world.
• There has been a large recent expansion of known gas reserves that has reduced the relative price of gas and which may provide significant opportunity for reductions in business as usual emissions over the next decade beyond what is anticipated in these projections.
• Australia is unique among the developed countries: its business as usual emissions are set to grow considerably.
  - Growth in projected business-as-usual emissions is primarily due to expected strength in the resources sector in the years ahead.
  - The Department of Climate Change and Energy Efficiency estimates that Australia’s emissions are projected to rise by 24 per cent above 2000 levels by 2020, under current policies (which are below ‘business as usual’).
• Mitigation efforts in higher income developing countries will need to be stronger earlier, and other developing countries will need to be brought within emissions constraints sooner than once may have seemed necessary.
• This is unlikely to be possible without an acceleration of mitigation effort in the developed countries. Achieving a given abatement target has become easier in most developed countries, given lower growth prospects.

Once again, the Update does not really provide any new or previously unknown facts. The need for early and drastic cuts in greenhouse gas emissions in order to prevent a dangerous runway effect of unmitigated climate change has been highlighted in reports such as the Stern Review (2006), the IPCC (2007), the 2008 Garnaut Review, the 2009 Climate Change Congress’ Synthesis Report, UNEP’s 2009 Climate Change Science Compendium, and the 2010 Emissions Gap Report. Data on global emissions and trends can be found at the UNFCCC’s website.

However, what is interesting are the latest emissions projections by the Department of Climate Change and Energy Efficiency. Emissions in Australia are projected to increase 24% above current levels without “decisive and effective new policy action”. Obviously, Mr Combet blames Tony Abbott and the Opposition for the very slow progress (or complete lack thereof). However, it must be said that the Government itself has not done that much either other than going through the same debate over and over again. While according to Mr Combet not all is lost, one has to remember the insufficient commitment made by Australia so far.

In summary,  the Update does not really provide any new information or knowledge. It is rather an agglomeration of already available reports, research and information. Just like the initial 2008 Garnaut Review seems to be more of an Australian Version of the 2007 IPPC’s Fourth Assessment Report, the Update, too, conveys the impression that while the information was/is already available, it was not compiled by an Australian. One has to think of the time and money being spent for this exercise. Rather than implementing policies based on exisiting knowledge now, the wheel is being reinvented. The final report of the Update is not due until the end of May 2011, which certainly will be followed by much discussion and debate (again) about the validity, assumptions, projections, if not the science per se. Then there is the Multi-Party Climate Change Commission, which will meet monthly until the end of 2011. Action is not to be expected before next year. And by then, a new update is probably required.

Once again, I would like to cite Yvo de Boer, Executive Secretary of the United Nations Framework Convention on Climate Change from 4 September 2006 to 1 July 2010:

The perfect is the enemy of the good.

Australia has to commit to something, get action started. The EU ETS was not perfect, it still is not, but at least it is a start, and it seems to be working rather well.

Cyclone Yasi

Cyclone Yasi, bigger than Tracy or Larry, made landfall in Queensland last night. The communities of Cardwell, Mission Beach, Tully, and Innisfail are the worst hit, a total of 178,000 homes and businesses are without power, and banana and sugar crops are destroyed. It is too early for a comprehensive assessment of the overall damage and destruction, but it is significant.

 The scale of Cyclone Yasi was huge, and satellite images of the cyclone show that it would cover large parts of the U.S. (see below).

The irony is, that while Yasi hit queensland, the U.S. is being battered by a massive blizzard, stretching across almost a third of the country, and leaves many people shivering, shoveling and awaiting more.

First Round of Formal UN Climate Change Negotiations in 2011 to Take Place in March/April in Bangkok, Thailand

The UNFCCC COP 16 Bureau decided on Tuesday, 25 January that the next round of AWG-KP and AWG-LCA meetings, as well as workshops pursuant to the Cancun Agreements, should take place in Bangkok from Sunday, 3 April through Friday, 8 April 2011. These meetings and workshops are to be preceded by preparatory regional group meetings from 30 March to 2 April.

The meeting adds to the June session in Bonn, Germany and the next COP/CMP (17) in Durban, South Africa. More sessions are likely to be added.

In Mexico last month, the Cancun Agreements set governments more firmly on the path towards a low-emissions future and support enhanced action on climate change in the developing world. Pledges made by parties in Copenhagen and Cancun so far are inadequate to achieve the goal of limiting global warming to 1.5-2°C.

UNFCCC meetings this year will aim to fill in the details of many of those plans, including greenhouse gas cuts necessary to prevent a dangerous runaway climate change effect.

The biggest unsolved issue is finding a successor to the U.N.’s Kyoto Protocol, which obliges almost 40 developed nations to cut greenhouse emissions by at least 5.2 percent below 1990 levels by 2020 during the period 2008-12. Japan, Russia and Canada have announced they will not extend cuts beyond December 31, 2012 unless all major emitters, including China and the United States sign up for a binding deal. Last week, Japan announced plans to propose an alternative to the Kyoto Protocol in coming months. The move underlined Japan’s intent to regain the trust of developing countries, many of which blame Japan’s opposition to extending the Kyoto Protocol for causing a major delay in UNFCCC negotiations.