In the inevitable political “argy bargy” that has again followed changes to the Government’s Carbon Pollution Reduction Scheme — critical elements within the package have been overlooked.

Headlines scream of the impact of delay in the CPRS by one year but out of all the changes this is probably the least significant. Why?

The spot price of emission permits in the trading system is not as important as the long-term signals the scheme sends. Most of the abatement in the early years of the CPRS was never going to be delivered by the CPRS (it would have come from complementary measures like the Renewable Energy Target). The biggest initial impact of the CPRS will be driven by the longer-term investment decisions it sends and this underscores the need to get effective legislation through this year. With the prospect of a 25% reduction on 2000/1990 levels by 2020 on the table, business will now, without delay, have to factor this into medium and long-term investment decisions.

In light of this low-carbon investment horizon, high-emitting assets, such as coal-fired powered power stations, become less attractive and uncertain investments compared to clean energy and low carbon alternatives. This, for example, effectively kills the prospect of any traditional coal fired power station every being built in Australia ever again.

The next point missing from the debate is the irrelevancy of Australia’s 5% unconditional target. Unless Copenhagen falls over completely Australia is not going to get a 5% target. Copenhagen failing completely is an unlikely prospect and anyone who understands how the international negotiations works knows this. The 5% target assumes other major developed and developing countries don’t act to reduce emissions. Given they already are this is clearly not a sustainable position.

In any event, concentrating on our unilateral target is a hopeless endeavour for those wanting to stabilize greenhouse gases at 450 ppm-e or lower. Unless we turn around global emissions before 2020 we virtually lose any chance of achieving those goals – we must focus on achieving an effective global climate agreement.

Others have said that Australia’s 25% target will not be implemented as the conditions for Australia to meet this will never be met. A few points:

1. Overall, if they are not met we are cooked. The conditions put forward are what the world needs to do to avoid dangerous climate change. We do need strong, but equitable, commitments from developed and developing countries. We do need to halt the destruction of global forests. We do need early peaking of global emissions. This is the challenging physical reality of what we need to do to get an effective global agreement.

2. Based on preliminary analysis by the Climate Institute based on various models for determine a fair distribution of emission rights a 25% cut for Australia would imply developed countries as a group should be cutting emissions by between 30 per cent and 40 per cent on 1990 levels by 2020 (and probably closer to 40 per cent than 30) i.e. at the top end of the 25 to 40 percent change indicated by the Intergovernmental Panel on Climate Change and being discussed internationally.

3. The main issue is whether it allows Australia to actively participate in the international talks to get a good outcome in Copenhagen and beyond. Putting 25% on the table has untied our hands and opened the door for Australia to be a strong positive force in the global talks.

This matters because Australia is influential in the global negotiations. We chair what’s known as the Umbrella Group including USA, Canada, Japan and NZ. Under Bush and Howard Government’s the Umbrella Group was extremely effective in wrecking progress. Until yesterday our negotiators were bound to use their influence constrained by the tragically inadequate 15% reduction target. This was poisoning the ambitions of negotiators from Australia and other countries.

The other point to make here is that the low carbon economy train is leaving the station. The speed in which it heads off is up for grabs but it is moving none the less. Countries who currently to do not have obligations to reduce emissions under Kyoto are moving forward with emission trading systems and/or considering similar policies. Notably this includes the USA and advanced developing countries such as Mexico, South Korea and South Africa (the current USA Waxman emission trading bill has emission targets comparable to Australia’s 25 percent reduction target). Over 50 countries now have implemented policies to drive the deployment of renewable energy – this includes China and India and many other developing countries. As a result in 2007 – one third of new installed electricity capacity globally was renewable energy capacity. The (conservative) International Energy Agency as described this as the beginning of the clean energy revolution.

This is why, for example, the Climate Institute is pleased the Government has agreed to instigate an independent review of assistance to trade exposed industries as soon as an international agreement is reached and that independent reviews of real and proxy carbon prices in competitor countries will be implemented. This, we believe, will give both the community and business the confidence they need to ensure that on one hand we are not handing over billions of dollars in assistance unnecessarily and on the other that the government will not remove assistance arbitrarily.

So on balance, the Climate Institute believes the yesterday’s announcements along with the Renewable Energy Target and the foundations of a national energy efficiency strategy outlined by COAG last week form a solid base to position Australia as a country prepared to reap the benefits of a low emission recovery.

We will of course continue to argue more needs to be done in other areas but the time for endless debate is over and the time for action has come.

Peter Fray

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