The carbon laws one year on Media Brief

Jun 28, 2013 - 3:04pm

A year ago Australia introduced a suite of laws to limit and price carbon emissions. From 2015, emissions covered by the scheme’s regulated carbon limit will fall by at least 12 million tonnes per year. The laws also included additional policies to support investment in renewable energy and energy efficiency and help low income households through the transition to a low-carbon economy.

One year on: electricity sector emissions have dropped, the economy is growing and the cost of living has not skyrocketed.

Emissions from electricity are falling

Annual carbon emissions from the National Electricity Market fell by over 12 million tonnes (CO2-e) between June 2012 and May 2013. They fell by only around 1.5 million tonnes over the previous twelve-month period. Carbon pollution per megawatt-hour has also fallen: from 0.86 to 0.81 tonnes per unit of output, or a little over 5 per cent.

According to the National Energy Market (NEM) data released in June this year, Australia’s electricity supply is becoming cleaner: electricity from renewable sources has risen by nearly 23 per cent and natural gas power by more than 5 per cent since the previous twelve months to May 2012. At the same time, the use of brown coal has fallen by about 12 per cent and black coal by more than 4 per cent. Generation by Australia’s seven biggest coal-fired power stations has fallen by over 13 per cent.

Structural changes driven by the high Australian dollar, rising electricity prices, introduction of energy efficiency measures, increased home installations of solar photovoltaic (PV), and the Renewable Energy Target are key drivers of this change. However, early indications are that the carbon price is playing a supporting role by make renewable energy even more competitive compared to fossil-fuel generation. As the price becomes more embedded in longer-term investment decisions the role of the carbon price will increase.

Electricity price-rises—perception and reality


For businesses and consumers alike, electricity prices have been rising sharply for several years—more than 40 per cent in the last few years.  On average, more than half of this rise is the result of network upgrades, including the replacement of aging infrastructure. Despite the recent increases, however, when adjusted for inflation, electricity prices are about the same as they were a generation ago.

Yet, according to the Australian Industry Group, there is still a false perception amongst many in business that the carbon price is the biggest contributor to rising prices.

The biggest of [the] …pressures [on prices] is the rising cost of electricity networks, the poles and wires that deliver power. The high profile of the carbon tax appears to have led to some over-estimation by businesses of the specific impact of the carbon tax on energy prices…

For residential retail customers, the carbon price accounted for around 9 per cent of power bills in 2012–13, or between about $2 and $4 extra per week, depending upon the state or territory. It should be noted that the carbon price is unlikely to materially increase bills any further in the next few years, although prices will continue to rise for reasons that have nothing to do with the price on pollution.

An upshot of recent price rises—and scare-campaigning by some in politics and industry—may be the spread of a more energy-efficient ethos: in 2012, approximately 90 per cent of Australians did something to minimize their power bills, according to the Australian Bureau of Statistics. Such changes in consumer and business behaviour are likely to help cushion the impact of any future price-rises.

Australia’s economy continued to grow

In their May 2013 statement, the Reserve Bank suggests that the degree and speed of Australia’s economic growth has changed very little from the previous year. Real GDP has grown by an annualised rate of 2.5 per cent since the start of the financial year.

The carbon price has had an undetectable impact on the nation’s overall economic performance.  It has certainty not has resulted in the ‘catastrophic’ impacts predicted by opponents of carbon pricing.

The cost of living has not skyrocketed

Before 1 July, 2013, the Australian Treasury predicted that the carbon laws would add 0.7 per cent to the Consumer Price Index, while CSIRO and global consulting firm AECOM conservatively predicted inflation at 0.6 per cent, given 100 per cent cost pass-through. This was part of a study for The Climate Institute, Choice, and the Australian Council of Social Service (ACOSS).

The impact of the carbon price on particular prices is barely discernible. Indeed, the ABS has said it is unable to discern any impact against normal variability in consumer prices. One estimate, by Westpac Economics, suggests the reality is that the carbon price has added just 0.4 per cent to the Consumer Price Index.

For the vast majority of Australian households, the increase their cost of living has been very small and this will be covered by the assistance package associated with the scheme.  According to independent analysis, for a low-income family of four, for instance, assistance is, on average, around $31 per week; for a single pensioner, it’s a little over $19, and for a middle-income family of four, it’s about $13. Federal assistance was projected to leave the large majority of households better off.

Looking forward

The hyperbole that characterised the twelve months to 1 July 2013 has largely given way to reality. The carbon laws have not undermined Australia’s economic performance nor have they raised the cost of living substantially.

What is more, the package of carbon laws is contributing to emissions from electricity falling, the energy mix shifting in favour of renewables and cleaner fuels, and energy use is becoming more efficient.
 

Low-carbon investment is flowing—the carbon price at work

Using money raised by the price on pollution, over six years, $946 million is committed to maintain stocks of carbon in bushland, and to enhance the resilience of natural systems to climate change. In the first round of the Biodiversity Fund, around $270 million has been allocated to more than 300 landscape rehabilitation and restoration projects around the country.        
       
Hundreds of firms are investing in energy efficiency, cleaner manufacturing, and innovative renewable energy projects, such as geothermal and solar-thermal. Many have received grants drawn from monies raised by the carbon price. Federal clean technology funding programs total $1,200 million over the next few years. Already, companies with household names like Arnott’s, Bundaberg Sugar, Bega Cheese, CSR, and Coca-Cola, together with many others, have received public grants leveraging considerably more private investment.        
       

Meanwhile, the Carbon Farming Initiative is seeing the big end of town investing new money in regional and rural communities. Between them, BP Australia, CS Energy, CSR, and Energy Australia have purchased more than 322,000 Australian carbon Credit Units, representing more than $7 million in low-carbon projects, such as sustainable forestry, cleaner livestock production, better landfill operations, and savannah management. Overall, Australian Carbon Units and ACCUs purchased by fossil-fuel power stations were worth $39 million in June 2013.     

 

Both parties still support a 2020 emissions reduction target range of 5 to 25 per cent below 2000 levels. Yet, ongoing policy uncertainty is hampering continued progress towards a clean energy economy. It would not be unreasonable to expect that the carbon laws would have had a greater impact if bipartisan support for long, loud and legal investment signals existed.

This also puts Australia in a difficult position internationally, as the major powers—in particular, China—move inexorably towards cleaner economic growth. The constant threat of repeal and possible changes to the Renewable Energy Target erodes investment in the future of Australia’s energy and raises the risks associated with investment more broadly.


Ultimately, the efficacy of the carbon laws will be judged, firstly, by how well Australia pitches in to the global effort to avoid dangerous climate change, and, secondly, by how they help Australian businesses prosper in a low-carbon world.

The signs are clear that a loud and long-term price on pollution is essential: rising frequency and ferocity of extreme weather conditions worldwide, record-high carbon dioxide levels, and the unprecedented low extent of Arctic sea ice in 2012. All of these are signs that we are changing the chemistry of the atmosphere. There is still time to avoid dangerous warming, but only if we start now and stay the course.

For a full list of references, please download the media brief below.

For more information
Kristina Stefanova | Communications Director, The Climate Institute | 02 8239 6299
John Connor | CEO, The Climate Institute | 02 8239 6299
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