Australia’s refugee problem has attracted global attention. This from the New York Times.
The ETS: our very own pig with lipstick
|
The fundamental question about the Government’s ETS is whether it will work. If the scheme will not provide the right signals and incentives for a shift to a low-carbon economy, then doing nothing or doing something else is the better option, because an ETS will inflict costs on businesses and households. New work commissioned by the Australian Conservation Foundation suggests the Government’s ETS will provide virtually no price signals for Australia’s largest polluters. Last year the ACF asked Innovest to assess how much large polluters were receiving from the Government’s proposed ETS via free permits. Innovest (now part of RiskMetrics) has updated its calculations each time the Government has amended its scheme in favour of polluters. The latest figures receive plenty of coverage in the press today. This time, however, RiskMetrics has also looked at exactly how much the biggest polluting industries would have to pay for emissions permits — in short, what sort of price signal they would face. During what was to be the first year of the scheme, of course, they now face no signal at all as it has been delayed. In the first year of the revised scheme, the aluminium smelting industry will face a total net permit obligation of $23m. In 2012-13, when we move to an actual emissions trading scheme, it will face an obligation of $82m. Alumina refining will face an initial permit obligation of $57m, rising to $171m in 2012-13. In 2007, the aluminium and alumina industry produced over $11b in export revenue. It is responsible for 9% of Australia’s greenhouse emissions by itself. The cement industry does even better. It faces a bill of $4m in 2011-12 and $14m the following year. In 2008, the industry generated turnover of just under $2b, and 1.4% of the nation’s emissions. Steel: $6m, then $23m, for an industry with $21b turnover and just under 4% of emissions. Woodside’s Don Voelte called the recent amendments “lipstick on a pig”. Some pig. The whole LNG industry faces a bill of $41m in the scheme’s first year — more than $200m less than it would have paid under the previous iteration of the scheme. Woodside itself, courtesy of Voelte’s incessant whingeing and the lobbying efforts of the APPEA, has gone from getting nothing under the Government’s Green Paper to getting $64m worth of handouts in 2012-13. Note, by the way, that the biggest polluting industry of all, the cattle industry, which accounts for 11% of emissions, won’t be in the scheme until 2015 at the earliest either. Get the feeling we’re running out of candidates to actually do something substantial about climate change? It provides a fascinating contrast with the Government’s treatment of the coal industry, which it has steadfastly refused to include as an emissions-intensive, trade-exposed industry. The Government claims that coal is below the lower threshold for inclusion as an EITE (1000 tCO2/$m revenue. Industry figures show an average emissions intensity of more than 1300 t/$m, comfortably in the range that would qualify it for 60% (initially 66%) assistance. An industry-commissioned reported by ACIL Tasman says the coal industry faces total cost increases from the ETS of over $1b a year. Even assuming the normal bias inherent in industry-commissioned studies, it is clear that the Government’s decision to single out coal for political, rather than economic, reasons will be extraordinarily costly for that industry when other big polluters — who generate perhaps 15% of the country’s emissions — will face a negligible price signal, one smaller than a foreign exchange fluctuation or a major industrial dispute. Given the Greens’ success in Perth on the weekend, it is a decision unlikely to be reversed by the Government. Coal, however deserving or undeserving, gets to be the scapegoat for a Government with one eye on its left flank. |
|
|
12 Comments
I’d be interested to see how those prices wash-out into costs on actual goods. There’s bugger all price signal to the actual industries, except in higher prices for electricity, which they’ll pass on to their consumers anyway.
My understanding of the price signal mechanism is that goods with relatively higher CO2 content will be relatively more expensive, so consumers will choose the cheaper item (or so the theory goes). The numbers here look pretty small to me, something like an increase in costs over revenue of 1.55%. So their goods will go up 1.55%, then there’s essentially no price signal for consumers. I very much doubt it will ‘work’.
Saw Andris Piebalg, the EU Energy Commissioner speak last night, and I was shamed at how much more the EU are doing. They got an agreement from 27 countries! Also, their 20% (below 1990, as opposed to our 2000) target is bold and incisive. With some luck though, they might blackmail some of our industries into reducing their carbon footprint anyway, in an opposite mechanism to our EITE protectionism. IE, they’ll be taxed on import to the EU, because the goods were sold in a country with a weak scheme. They did a similar thing over GM crops, so maybe it’s not so far fetched?
EB
A carbon tax, on the other hand has very few loopholes. If all carbon pays tax at the time it leaves the ground, the cost is spread throughout the economy. Perpetrators pay for their emissions at the time they buy. The tax could be made sufficient for nonfossil energy to be preferable on grounds of price alone.
What excuses are left? Exports? A carbon audit system could calculate how much carbon tax should be rebated on exported goods or levied on imports.
And speaking of costs rises, the electricity retailers in NSW are raising prices by 20%. Without an ETS.
Good call Oz. It’s to guarantee supply though, so that counts. Saving the environment is not worth anything, apparently.
Why doesn’t the average voter realize that it is THEIR money which is paying all the bills to support the big polluters. Why are we so apathetic about the misuse of OUR money. Hasn’t anyone hear of civil rebellion?
Look at what is happening in Tasmania. Gunn’s are going ahead with their pulp/paper mill. Who will pay for the restoration of the forests, the medical bills from breathing suddenly polluted air, the sheer and utter destruction of once beautiful native forests, for what? Well the latest answer is the boys need the work, it’s a depression, etc. Perhaps if the boys had studied harder at school they wouldn’t be in the position they are currently in.
As long as people regard education being less important than footy, so long will Oz be the land of the little Ozzie Battler. I can feel my stomach churning.
Bernard obviously needs to do some penitential crawling at the foot of James Hansen’s cathedra craving dispensation for belittling the overwhelming evil significance of the coal-fired “factories of death” else Bernard may be threatened with something more than mere “civil disobedience”…… as is these people’s wont.
On the other hand Aldous Huxley famously wrote: “At least two thirds of our miseries spring from human stupidity, human malice and those great motivators and justifiers of malice and stupidity, idealism, dogmatism and proselytizing zeal on behalf of religious or political idols.”
Has Keane seen the Light? [Portion of comment edited] No…. Not really….
With an ETS, whether an organisation is given permits for free or pays for them, the organisation should still be able to sell their unused permits to other parties, and so they still have motivation to reduce their green-house gas production. If industries that were set up in the past without any foreknowledge of carbon pollution taxes are now forced to pay for permits, their economic viability will suffer. Many of these industries can relocate to other countries, leaving Australia with a problem of unemployment, and not altering the carbon pollution being generated. In essential industries like power generation, there is no practical alternative to base-load power generation, at least in the short term, so by forcing these to pay for permits will just result in a round-robin where consumers pay more for electricity, and get subsidised by governments re-paying them with the permit fees collected. It only makes sense to change industries for permits that have alternatives available that produce less carbon gas pollution.
Also remember that Australia produces so small a proportion of green-house gasses (and which is rapidly a rapidly decreasing proportion due to the massive industrialisation and development going on in China, India, Brazil etc), that the small boost that an ETS makes in this country will be too small to be measurable in the atmosphere. This does not mean we should not take part in a global ETS system, but we are really too minor a part to make any noticable real world effect, and so we have the luxury of taking our time, and minimising our own problems.
Maybe I am missing something, but doesn’t the Riskmetrics analysis confuse the possible price signals from the proposed ETS scheme and the wealth transfer to emitters from gifting free permits. Assuming that the emissions cap under the scheme is set at a level which will cause traded permit prices to be more than trivial, then gifting free permits to emitters will not reduce the price signals recipients face. If I am an emitter who gets free permits that cover my current emission, I still have an incentive to look for ways to reduce my emissions, because if I can do that I can sell the permits this frees up. So I face the same price signal and incentives that I would even if I received no free permits…. it’s just that I am motivated by making extra money (through selling now unneeded permits) rather than by avoiding extra costs (from having to buy the permits). I think the Garnaut report makes this point. The gifting of permits is a compensation question that is largely separate from the incentives provided by the ETS scheme. Of course, we might not liek the idea that large emitters receive compensation, but the compensation does not necessarily ‘wash out’ the incentives/price signals. And, also of course, this all depends on the carbon cap in the scheme being set at a level that will effect a reduction in emissions. Otherwise the price is going to be close to zero.
If one considers that the objective is to reduce the use of fossil fuels, then the government’s ETS policy will have no effect at all if the substantial producers of carbon dioxide are to be sheltered from any pressure to reduce consumption. The inevitable effect of carbon taxes is that everybody, rich and poor, must ultimately reduce their consumption of fossil fuels, and without compensating technological advances, living standards for all will fall as a result. This is not the message that the Rudd government gave in its election campaign, and its obfuscation and double dealing is characteristic of disingenuous government. We have replaced one lying Prime Minister with another. I have no argument with Cavitation ie doing nothing because we are relatively small is probably a sensible policy option but this is not the one that the government trumpeted in its election campaign. Having got itself elected, it is backpedalling as hard as it can go so it doesn’t upset its union mates or its big business backers, nor upset the voters with the unpleasant truth that their standard of living must fall if environment is to be protected.
I think we need to remember the increase in the price signal over the longer term. EITE assistance is just a transitional measure. As the cap kicks in, permits will be harder to obtain (even free ones). As the price increases, polluters will find it harder to buy their way out of trouble.
And as for a carbon tax… there are no guarantees that a carbon tax will be more effective or efficient than the CPRS. Once transitional assistance, concessions, exemptions and other adjustment measures are added to the mix, a tax will be just as complex and just as ineffective as the CPRS.
The problem with this ETS v carbon tax debate is that it assumes that price signals and incentives to reduce emissions can solve the problem they have allegedly been designed to fix. While I suspect that a cleverly designed carbon tax (a progressive one that made big carbon polluters pay while ordinary consumers who have far less control over how energy is produced would pay less) would have a better outcome, I think that neither would have more than small effects on switching Australia to a low-carbon economy.
The problem for the environment movement is that it has been entirely suckered into this debate and that even more radical positions usually centre on emissions targets when the real question is how to get to those targets.
As US economists Ted Nordhaus and Michael Shellenberger have cogently argued (see http://www.pbs.org/now/shows/516/Emerging-Consensus.pdf for a collection of their papers), a market or simple regulatory approach may limit some carbon-emitting activities, but it does almost nothing the reshape the energy production methods of an entire economy. This requires massive direct state investment in carbon-neutral energy production on the scale of wartime state intervention. Such investment also has the greatest chance of producing cost-saving innovations in renewable energy production, making it competitive with existing (cheaper) fossil fuel energy sources.
I would argue that Nordhaus and Shellenberger don’t go far enough in their arguments because they accept that there will never be decreases in overall social energy consumption — I think similar arguments can be put about state direction of a massive switch to public transport provision, for example, that would reduce overall fossil fuel needs. But it is only a fanatical believer in the power of markets to solve all who can walk away from their view completely unconvinced.
Of course, a scenario of massive state investment and state direction of the economy is mortifying to the wealthy vested interests involved in making sure we keep feeding their fossil fuel based economy. Yet it could reallocate resources (and production) to ensure that ordinary people would have to pay little while keeping the economy ticking along at a time that markets are causing it to grind to a halt. Let’s not forget that the US only got itself out of the Great Depression with the stimulus package known as WWII.
The attachment of our government and opposition to market-based false solutions to climate change is understandable… after all, they have never presented a serious challenge to the wealth and power of the big polluters. A market mechanism makes it look like they’re “doing something” when in fact it is skewed towards the most powerful market actors (and that sure ain’t climate-conscious consumers).
But that the mainstream environment movement NGOs (and to some extent my party, The Greens) have fallen for this fake debate reflects, I think, the penetration of neoliberal ideology even on the Left. An ideology that is now in tatters.
State intervention is back in vogue these days. Why not bail out the planet rather than the bankers?
Greg Angelo:
We may have to have a “standard of living decrease” if we are to protect the environment … but surely our “standard of living’ is at risk of a much more major decrease if we do nothing about climate change because we want to protect our “standard of living.”