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Jul 12, 2011

When international permits are OK or not OK

The new carbon package deals with the issue of international permits far better than the CPRS did. Funny the Coalition is complaining about it.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

The Coalition’s retreat from economic reality has taken a peculiar turn on the issue of international carbon permits.

Under the carbon price package announced on Sunday, businesses will be able to use international permits to meet up to 50% of their carbon emissions obligations once the fixed initial period ends in 2015.

On Sunday, Tony Abbott appeared to rule out any use of international permits to enable the Coalition to meet the same emissions target as the government, a 5% reduction in emissions by 2020. No one outside the Coalition believes their “direct action” plan will enable Australia to meet the target, and Malcolm Turnbull has suggested it will have to massively increase in cost in order to do so.

At the same media conference, Greg Hunt gave a different answer to his leader on international permits, ruling out only the purchase by government of international permits, a disingenuous answer given under neither the CPRS nor the current package will the government directly buy international permits.

But that leads us to Hunt’s problem, because international trading is critical to Hunt’s “soil magic” proposal under which most of the burden of meeting the 5% reduction in emissions by 2020 would be met by somehow sequestering and retaining millions of tonnes of carbon in famland, and verifying it. Under the Kyoto Protocol, such abatement isn’t accepted, reflecting the undeveloped science of actually verifying that sequestered carbon stays put. Hunt supports the government’s effort to have forms of biosequestration form part of the new international agreement to replace Kyoto.

So, there are international permits that the Coalition likes because it suits its own purposes, and those that they don’t like. Indeed, there’s an interesting mix of jingoism and sanctimony to Hunt’s complaints on Monday that international permits would form part of Australia’s emissions abatement task.

When did the Coalition suddenly become so holier-than-thou about international permits?

Well, quite recently. Under the CPRS, there was no limit on the level of international permits that firms could use to fulfill their obligations. If firms could find a cheap source of international permits, they could stick to business-as-usual and meet all their obligations under the scheme through no domestic abatement whatsoever.

Strangely given its sudden outrage at the use of international permits, the Coalition didn’t have a problem with this. Indeed, under the CPRS-Intensity model developed by Frontier Economics for the Coalition and Nick Xenophon, they would have relied even more heavily on foreign-sourcing of permits than would have happened under the CPRS. That was one of the reasons why they could claim “CPRS Intensity” would have had less economic impact domestically than the CPRS — because less domestic abatement happened under it.

The point of international permits is that they enable lowest-cost abatement. Countries where abatement can be achieved at a lower cost than Australia can provide us with abatement that is as effective as our own. In Hunt’s own words from last year “a tonne of carbon is a tonne of carbon”. This is particularly beneficial for Australia, which is so heavily dependent on cheap coal that abatement costs will be higher than for many other countries.

So in railing against international permits, the Coalition is going even further down its bizarre path of opposition to market mechanisms and minimising costs — except, of course, where it suits it.

The problem with international permits, of course, is verification. The Greens sought, and secured, tighter requirements for international permits under the current package than under the CPRS. Under the package, Kyoto-compliant permits from nuclear power and large-scale hydro-electric outside EU guidelines won’t be permitted and the government can add or remove the types of permits allowed to maintain the environmental integrity of the scheme. The Climate Change Authority will also have a role in determining the types of international permits allowed.

The other problem with international permits, as suggested above, is that they can be a substitute for any domestic abatement activity at all. By limiting international permits to 50%, the scheme establishes a baseline for domestic abatement that didn’t exist under the CPRS. For an economy such as Australia’s, that is significantly more emissions-intensive than almost any other economy in the world, the task of decarbonisation requires some spur. We can’t entirely rely on the rainforests of developing countries to fund our carbon reliance.

That the Coalition had no problem with relying on foreign permits under the CPRS and wants international agreements for its own preferred type of abatement, but now attacks them to the extent it suits their agenda, is a particularly impressive combination of economic irrationalism and hypocrisy. Far better than the CPRS, this package strikes a balance between sourcing lowest-cost abatement and driving domestic decarbonisation.

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91 comments

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91 thoughts on “When international permits are OK or not OK

  1. Michael

    It seems that the Labor-Green Carbon Tax then Trading Scheme will be very reliant on imported carbon credits. Surely we can do better than simply outsource abatement to developing nations.
    Frank Jotzo had this to say in Climate Spectator today.
    “Which brings us to quantities of abatement and trading. Treasury has some rather sobering numbers. Under the core scenario, domestic emissions are up by 12 per cent from 2000 levels, with a $29 price at 2020 (in 2010 dollars, equating to $37 in nominal terms). Almost two thirds of the abatement task – the difference between business-as-usual and the 5 per cent target – would be fulfilled from internationally-sourced emissions units. According to Treasury’s model, it would take a $62 ($79 nominal) carbon price to get domestic emissions down by 4 per cent relative to 2000. The model results for 2050 show the same broad picture. In the core scenario, a carbon price of $131 (2010 dollars) results in a 2 per cent reduction in emissions relative to 2000 – while the national target is minus 80 per cent.”

  2. Suzanne Blake

    Thanks Bernard.

    Dont worry, its just another FAILED Labor policy like:

    1. Insulation – 4 deaths and Hundreds of millions waste for fix ups
    2. BER – huge waste $1.5 billion, regardless if its ‘only’ 6% of the total spend
    3. Grocery Watch
    4. Fuel Watch
    5. Cash for Clunkers
    6. Green Loans
    7 . Climate Change People Commitee
    8. Cash Spash 1 & 2 with the money going to overseas residents
    9 . Mining Tax and the go stop uncertainty and the extra penalty for small – medium miners
    10. East Timor solution con

    and the 30 others.

  3. Jimmy

    Michael – Did you even read the article?

  4. Jimmy

    Suzanne – “2. BER – huge waste $1.5 billion, regardless if its ‘only’ 6% of the total spend” 6% of the total $16b spend is $960m not $1.5b and you can’t call all of it(or really any of it) “waste” as it achieved an important goal “speed” which prevented a loss of govt revenue through decline in growth.
    As for the rest, the MRRT will be in legislation within a year, 3,4,5,& 7 are unimportant, 8 was remarkably successful (just ask struggling retailers), 6 was really to successful but should of been done better, 1 could of been done better and 10 is still a work in progress.

    As for the carbon price to be a failed policy, it will be with us for decades to come no matter what Tony says.

  5. davidk

    Coalition hypocritical? surely not. I doubt we’ll hear anything sensible from them until malcolm opens his mouth.

  6. bluegreen

    You have to remember that Malcolm Turnbull when environment minister started seeking regional agreement particularly with Indonesia over Forest Carbon. Seems total ingenuous to backflip on the program that you started and where quite proud of at the time.

  7. bluegreen

    Remember this from Sept 2007:

    [Mr Downer and Environment Minister Malcolm Turnbull presented Dr Yudhoyono with a rare Wollombi pine, a species which dates from the time of dinosaurs, to mark the initiative which will see the planting of millions of trees on carbon-rich peat land in Indonesia’s Kalimantan region.

    The 30-year project is expected to reduce greenhouse gas emissions by 700 million tonnes.

    The Australian and Indonesian governments, as well as mining giant BHP Billiton, are going into partnership on the project, which is being funded from the federal government’s Global Initiative on Forests and Climate.

    The project will preserve 70,000 hectares of peat land forests in the Kalimantan region, re-flood 200,000 hectares of dried peat and plant up to 100 million new trees on rehabilitated peat land – and, the government believes, could cut greenhouse gas emissions by more than Australia’s total annual output.

    Australia will contribute up to $30 million of the $100 million initiative. The two nations are expecting to raise the rest of the money from the private sector, other countries and non-government organisations.]

    http://www.climateark.org/shared/reader/welcome.aspx?linkid=83772

  8. Mark Duffett

    The Greens sought, and secured, tighter requirements for international permits under the current package than under the CPRS. Under the package, Kyoto-compliant permits from nuclear power and large-scale hydro-electric outside EU guidelines won’t be permitted…

    This is utterly ridiculous and disgraceful. That the fossil Greens have set themselves as part of the climate problem, not the solution, has never been made clearer than here.

  9. Suzanne Blake

    @ Jimmy

    I trusted your mathematics of last week.

    The BER wasted 11% then $1.5billion.

    The Washington Post in 1922 predicted that sea levels would inundate NYC by 2000.

    Whoops.

  10. Mark Duffett

    The Greens sought, and secured, tighter requirements for international permits under the current package than under the CPRS. Under the package, Kyoto-compliant permits from nuclear power and large-scale hydro-electric outside EU guidelines won’t be permitted…

    This is utterly ridiculous and disgraceful. That the fossil Greens have set themselves as part of the climate problem, not the solution, has never been made clearer than here.

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