The Clean Energy Council is advocating the creation of an independent carbon bank that will help provide funds to kick-start the technologies that will lead to a low-carbon economy.

In a position paper to be released today at CEC’s annual conference in Melbourne, the council suggests that an independent carbon bank could borrow against future revenue earned through a tax or an emissions trading scheme and thus avoid a deadlock that is expected over levels of compensation to industry and households.

The idea of an independent carbon bank is not new — it has been proposed by Ross Garnaut and RBA board member and economist Warwick McKibbin. The CEC, however, has decided to try and flesh out the idea, work out what functions it could perform, and whether a single institution or more could do the job. “It’s not a discussion that this country has been having,” says CEC CEO Matthew Warren.

The CEC suggests various functions are needed to be extracted from the day-to-day political cycle that is making decision-making such a precarious act. These include the ability to set and modify emissions targets or stabilise emissions prices, administer the scheme, allocate and distribute revenues raised by selling permits, and issue debt to fund clean investment.

The key benefits of such an institution would, of course, be political independence. In the same way that interest rate decisions are taken out of the day-to-day political cycle by vesting their administration with the RBA, the day-to-day administration of carbon targets and revenue allocations could also be taken out of the political cycle.

However, the CEC is also keen to find mechanisms and institutions that allow for increased and early spending on new technologies, and is keen to counter the arguments that so called “complementary measures” be ditched once a carbon price is introduced.

“There is an opportunity for governments or agencies to increase transitional spending in the early years of the scheme when this type of investment is most effective, by borrowing against future receipts when compensation and other investments are less effective,” the CEC argues.

This echoes the findings of Garnaut’s original Climate Change Review, and its recent updates, as well as the conclusions of the International Energy Agency. Both found that a start-up price for carbon would likely be too low to encourage investment in new technologies without complementary measures.

The IEA, in March, said a carbon price alone was insufficient to drive the investments that would deliver the sort of abatement required to meet targets suggested by scientists. But it said the initial short-term costs of complementary measures would be more than made up by the lower cost of abatement delivered in the future.

“The true cost of the deployment policy for ratepayers is not the simple sum of the incentives,” the IEA research paper said. (This is something that appears lost in the current debate around solar incentives. Notwithstanding the absurdly generous nature of the NSW feed-in tariff, it has brought around such a decrease in technology costs that abatement costs from the future deployment of the technology will be minimal — a situation that few would have predicted just a few years ago. It’s a similar story in the global market.)

The IEA went on: “Even if the early deployment of some renewables now has higher costs of immediate emission reductions than other options, this deployment must be undertaken if the cost reductions it drives are key to future large-scale deployment. The early deployment of renewable technologies is a cost-effective measure for long-term climate change mitigation, even if it looks too costly when only short-term reductions are considered.”

Garnaut came to a similar conclusion in his update, saying the cost of effective global and Australian mitigation would be materially lower if opportunities for innovation in low emissions technologies were utilised early. He said the impact of the various green stimulus packages in US, Europe and Asia had clearly delivered a “big bang for our buck”.

Garnaut argues that the government should spend between $2 billion and $3 billion each year from the revenues it will collect from a carbon price. Given the claims from industry and unions, and the government commitment to allocate at least half the revenues to assist households, and stay budget neutral, this could be tricky, in political terms at least. Hence the calls for an independent institution.

The CEC proposal offers a solution that could satisfy all parties. Given that transitional assistance is, as it’s name suggest, transitional, and will wind down after a certain period, the unaccounted carbon revenues from the future could be brought forward to when they are likely to be most effective.

The CEC, in its position paper, says “it is attractive” to have a single agency assessing the value of spending on different emerging technologies compared to compensation for low income households, emission intense trade exposed sectors and stranded assets.

“An independent institution would be well placed to co-ordinate the range of complementary measures required. It would encourage competition between companies, technologies and programs, reward success and optimise scarce resources. It could also play a crucial role in bridging financing gaps outside of the scope of private capital.

“There is an opportunity for governments or agencies to increase transitional spending in the early years of the scheme when this type of investment is most effective, by borrowing against future receipts when compensation and other investments are less effective.

“The decarbonisation of the domestic and global economies will require a major transformation of the world economy. It will invariably require both technical and policy innovation. New effective and transparent systems, laws and procedures will be as important as smart grids, clean technologies and energy saving devices.”

*This first appeared on Climate Spectator.