Will Rudd's ETS save the environment? It depends Opinion Article

Jul 17, 2013 - 3:00pm

This article was originally published in the ABC's The Drum on 17 July. 

Erwin Jackson
Deputy CEO, The Climate Institute

The Prime Minister's decision yesterday to "terminate" the carbon tax and bring on an emission trading scheme may not have helped the evolving attitudes of Australians towards climate issues and carbon policy.

'It depends' is the short, unsatisfying, answer to the question of whether the change will be better for the climate.

Rudd's announcement coincided with The Climate Institute's latest report  on community attitudes to climate change. The report shows that while confusion over what to believe about climate change remains pervasive, it is declining and while 60 per cent of Australians think that "there are too many conflicting opinions to be sure about climate change", 66 per cent believe that climate change is occurring.

Asked if climate change was having an impact on our nation today, 87 per cent agreed.While support for carbon pricing remains soft, outright opposition has dropped and support for renewable energy and the economic opportunities of climate action is strong across the political spectrum and across regional and metropolitan areas.

Many will therefore be asking what Rudd's change from a carbon tax to emissions trading means for the climate as well as what it means for investment in low carbon solutions.

At its heart the emission trading scheme is a regulated limit of carbon emissions from around 60 per cent of national emissions. It is not just a carbon price. Every year a declining limit, or 'cap', is set on the amount of pollution Australia's major emitting companies can put into the air.

Lack of appreciation of the role of the carbon limit has resulted in a debate focused on the carbon 'tax'.The fact that yesterday's announcement may deliver a lower carbon price in 2014 has raised eyebrows. But this concern ignores the fact that carbon prices are designed to drive long-term structural change and investment behaviour in the board room.

This largely determines how much Australia contributes to ongoing international efforts to reduce emissions.

The changes announced yesterday will not affect the setting of the emission limit emission-trading scheme. An independent process is already underway on our national targets, through the Climate Change Authority (CCA).

The level of the emission cap that the government sets after this review will largely determine Australia's contribution to global efforts.

By moving early to place a limit on pollution the government has created an opportunity to align Australia's domestic policy settings with our national climate interest and international events, like the UN Secretary General world leaders' summit on climate ambition next year.

As The Climate Institute argued in  its submission to the CCA , this limit should be set to avoid a two degree increase in global temperature – a benchmark which is globally agreed and has bipartisan support in Australia.

Achieving this figure would mean reducing emissions by about 25 per cent by 2020 and will be central to building the credibility of the domestic carbon scheme and facilitating global ambition by demonstrating to other nations we are doing our fair share. The key point here is Australia's contribution to global efforts which should not be just about reducing domestic emissions as some environment groups and the Coalition currently contend.
Within certain limits, companies under the cap can reduce emissions in Australia, or if it is cheaper, in another country covered by international accounting rules.
Lack of appreciation of the role of the carbon limit has resulted in a debate focused on the carbon 'tax'.The fact that yesterday's announcement may deliver a lower carbon price in 2014 has raised eyebrows. But this concern ignores the fact that carbon prices are designed to drive long-term structural change and investment behaviour in the board room.
You would not last long in a board chair if, when making investment decisions about a 30-year asset, you only considered a carbon price of $6-$10/tonne in 2014 when it is likely, on current forecasts, to be $20-$40/tonne in 2020.That is not to say that the budget changes announced by the Government have no impact over where emissions activities occur across Australia. (I would note that polluting industries assistance and support was cut by about twice as much as that to low emission technologies.)

Reductions for land holders wanting to access innovative financing for low carbon farming practices will mean fewer participate in these kinds of future emission reduction activities.

Reductions in industry assistance to coal generators will likely cut both ways: it will reduce the competitiveness of the most polluting brown coal power stations to an extent, but it will also reduce the investment some of these generators will have to make in clean energy.

Reductions in tax concessions for those that drive their car a lot will also remove a perverse incentive that encourages higher transport emissions.

Again, these don’t materially change how much Australia contributes to climate change, because only a defined amount of pollution can emitted every year under the regulated emission cap. If emissions are higher in one sector, they will have to be lower in another. Domestic investment in low pollution technology is prudent economic risk management strategy.

Other major economies and emitters are implementing emissions trading schemes, carbon taxes and regulations to build new clean energy industries and to remain competitive in a world seeking to reduce its economic dependence on polluting industries.This underscores the importance for Australia of policies such as the Renewable Energy Target and stronger policies for energy efficiency and productivity.
Chinese officials for example, have cited numerous reasons for their climate action including emission trading, including an effort to building energy security, reducing air pollution, fostering new industries and contributing to global emission reductions. China's significant investment in clean energy has helped it leapt ahead of countries like the United States in its ranking among the G20 nations in its ability to compete in a global low carbon economy.
In the end, the climate is unlikely to be worse off under the changes announced yesterday. It could in fact be better off if whoever is in Government next year ensures the our regulated limit on pollution is set in a way that meets Australia's climate interest.  

Erwin Jackson

Erwin is Deputy CEO of The Climate Institute. With nearly 20 years practical experience in climate change policy and research, Erwin has developed and led many national and international programs aimed at reducing greenhouse pollution. This work has been undertaken in Australia, Europe, North and South America, the Pacific and Antarctica. He has represented non-governmental groups and advised government and business in national, regional and international fora, including being a non-governmental expert reviewer of the reports of the UN’s Intergovernmental Panel on Climate Change. Erwin has written, researched and produced many publications on climate change and energy policy including a number of review papers in scientific journals such as the Medical Journal of Australia.
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