The PM has been handed his much-awaited report into an Australian emissions trading scheme. Before any such scheme begins, carbon targets need to be established and a carbon price needs to be calculated.

According to this morning’s Australian, the report proposes a figure of $20 per tonne, but getting the targets and the carbon price wrong has potentially disastrous consequences for all involved: the economy, the environment, and the integrity of trading system itself. So what is the right cost per tonne of carbon for Australia, and what are the side effects of getting the targets and the pricing wrong?

Ric Brazzale, Executive Director, Business Council for Sustainable Energy

  • Emissions trading is all about the target. Whatever target you set, the market then determines the price. Some of the wording we have seen that talks about “measured”, “soft”, “modest” targets concerns us because the science is getting more dire and calling for tougher action. The problem you have with a soft or moderate target is, is it going to drive the right sort of investment?
  • $20 might be a good place to start, but bear in mind that’s considerably below the current international price of carbon which is around $AU35. If you have a soft target you are going to have a soft price, and if it’s a low target you are not going to get the abatement or the investment.
  • Below the $30 mark, you’ll get quite a bit of switching from coal to gas, and that will do you for a while, but that’s not enough to support new zero emissions technologies. You could introduce an emissions trading scheme that might not be so onerous at the start, but you also need renewable energy targets and energy efficiency targets. Nobody should see emissions trading as the silver bullet. It’s probably the most critical piece of the policy puzzle, but you still need development in renewable energy technology and energy efficiency measures to curtail energy consumption.
  • The longer you delay or the weaker the target up front, the higher you build the emissions later on. This is the test of the emissions targets: is it going to drive investment in new technologies that reduce gas emissions? If it’s not going to get you there, you are going to have to do something else.

Steve Hatfield Dodds, Senior Policy Economist, CSIRO Division of Land and Water.

  • A modest carbon price of $10-$15 is enough to make the switch between coal and gas, and may be considered enough to encourage a lot of energy efficiency. It depends on detail of how it is framed, but $20 is high enough to be credible as an early signal.
  • In the international literature, it’s not until you get to around $AU60 per tonne that you really see the large scale transformation of the energy sector. The Australian Business Roundtable and modeling released recently by the Climate Institute indicates that if you are driving a binding emissions scheme alone you need to see a price in the order of $60 to achieve deep cuts in emissions.
  • A long term low price risks offering too much comfort to business, which locks in higher emissions technologies in the energy sector which later will make it more disruptive and costly to achieve low emissions targets should Australia find that important in the future.

The Climate Institute, from Making The Switch, released earlier this week.

  • A wait and see scenario with a soft start to carbon pricing does not significantly reduce emissions in the short-term, leads to higher carbon prices and electricity prices over the medium to long-term, and does not promote the deployment of clean energy over the next decade.
  • Establishing a clear economic signal would allow the market to find the most cost-effective technologies, provide incentives for innovation and create a level-playing field for business and consumers. However, setting a low price or starting slowly will only delay the inevitable restructuring of the electricity sector and lead to higher costs at a later date.
  • Unless carbon prices are high, clean energy sources will not see early deployment in Australia. The introduction of a market-based mechanism to ensure all new electricity load is met by near zero emission technology will reduce both short-term and long-term costs of reducing emissions.