Government to Scrap Carbon Floor Price

After weeks of secretive talks between the Gillard government and the Greens, Climate Change Minister Greg Combet has announced Labor will scrap the planned $15 floor price on carbon permits in a major overhaul of the carbon pricing scheme.

Following intense lobbying from business and threats by the independent MP Rob Oakeshott to block the floor price, the government will ditch the mechanism and instead restrict the purchase of cheap overseas permits from developing countries.

A limit on the amount of United Nations-backed permits that Australian companies can buy will effectively prop up the price at home.

Climate Change Minister Greg Combet plans to scrap the $15 carbon floor price. Photo: Alex Ellinghausen

Mr Combet also announced plans to link Australia's scheme to Europe's emissions trading scheme from 2015, which is likely to have the effect of matching the two prices.

 

The link with Europe means that Australian companies can start buying European permits - which are now trading at $9.80 - right away to meet their future liabilities.

This could make the carbon price cheaper overall for Australian businesses, though the European price is likely to rise by the end of the decade as the European Union moves to make restrictions of its own.

Australian companies will only be able to meet 12.5 per cent of their liability under the Australian carbon scheme with the UN-backed permits.

And from 2018 - or possibly sooner - Australian companies will be able to sell credits in Europe. This could be a boon for farmers, who can generate credits through changes to their land practices, such as tree planting, though Mr Combet said that aspect was still to be negotiated.

The carbon price, which came in on July 1, will initially be fixed at $23 and will rise slightly over the next two years, when it becomes a floating-price emissions trading scheme.

Europe has the largest emissions trading scheme in the world. A linkage means that carbon permits can be traded back and forth between Australia and Europe. The idea is that the free market then finds the cheapest possible way to reduce carbon. From an environmental viewpoint, it does not matter where the carbon cuts are made.

The floor price was intended to create certainty for potential investors in clean energy. But businesses complained it would be an administrative headache.

Without a restriction of the UN-backed international permits, the Australian price could crash to as low as $3 or $4. The Greens have been concerned that a very low carbon price would not be enough to drive investment in cleaner energy such as wind, solar and wave power.

Today's announcement is also likely to have an effect on negotiations between Energy Minister Martin Ferguson and electricity generators who could be paid billions of dollars to phase out their dirtiest power plants.

The likely price of carbon over the next decade is one factor in deciding the value of these power plants. They may argue that scrapping the floor price raises the value of their assets.
The Greens have already backed the changes.

Independent MP Rob Oakeshott said this afternoon he would also support the legislation.
He said the announcement would protect Australia's emissions trading scheme from some ''very difficult decisions into the future''.

Opposition Leader Tony Abbott said the changes showed the government was all at sea on the carbon tax.

''You can't fix it. You've just got to scrap it,'' Mr Abbott told reporters in Rockhampton.

''We haven't had the carbon tax for two months yet and they've admitted there is a fundamental flaw at the heart of the carbon tax.''

Mr Abbott said there would be a ''huge hole'' in the budget as a result of the decision.

''If you can't take the price for granted, you can't take the revenue for granted, and if you can't take the revenue for granted, you can't rely on the compensation,'' he said.

However Mr Combet said the government would not reduce household assistance payments and tax cuts set up to compensate for the price impacts of the carbon tax.

Asked if he was contemplating any further changes Mr Combet said: ‘‘no’’.

''We will not be cutting any household assistance,'' he said.

''We committed to it and you might recall that there are further tax cuts that have been legislated from 2015 as well.''


View Source

Our ETS Future 'Will Not Come Cheaply

AUSTRALIA will be unable to produce affordable baseload power supplies while meeting its emissions targets under present policy, new research has found.

A study by Melbourne's Grattan Institute, to be published today, warns that while carbon pricing will help make low-emissions technologies competitive, it will not be enough without big structural and policy changes.

Tony Wood, the institute's energy program director, says governments face "an acute intellectual and policy challenge" steering a course between inadequate support for low-emissions technologies or unduly favouring one technology over another. He cautions "Australia's move to a low-carbon future will be too expensive unless they do."

The Grattan research stresses markets as the primary mechanism by which Australia can reduce its emissions, but it says markets cannot work properly unless governments optimise regulatory and policy frameworks.

The study also warns against letting ideology limit the scope for manoeuvre by preventing serious evaluation of carbon capture and storage and nuclear energy. "A range of technologies available today can generate electricity at or below 0.2 tonnes of carbon dioxide per megawatt-hour and have significant scale-up projection," the Grattan research finds.

"Yet none currently represents more than 2 per cent of Australia's electricity supply and

their future technical and economic potential is shrouded in uncertainty."

The report finds further refinement of the underlying technologies of low-emission energy options will be the most important tool for their future development and commercialisation.

It reminds governments of their roles overseeing the development of new transmission networks and pipelines, resource maps, market frameworks, regulations and engineering skills.

The Grattan researchers urge the commonwealth to ensure the carbon pricing scheme works properly by setting long-term emission caps and call on all governments to act to ensure there is a level playing field for all power-generating technologies.

The report's authors urge the removal of obstacles that impede technologies such as wind and geothermal from connecting at large-scale to electricity grids built around the needs of very large fossil-fuel plants.

Suffocating the Economy One Tax at a Time

If implemented, Julia Gillard's proposed carbon price starting at $23 per tonne will push us closer to economic stagnation.

If the Government wanted to make the 159 million tonnes saving in 2020 it seeks, it would not attempt to do this with a domestic tax. According to the Government's Securing a Clean Future report, half of the saved emissions are domestically derived.

If the price is $30 per tonne this will involve an annual cost of $2.385 billion incurred in overseas buying. The cost of achieving the emission reduction locally if the price is $30 per tonne is incurred on all the remaining emissions (336 million tonnes). That comes to $10.08 billion. This begs the question that since carbon dioxide is the same the world over why not buy all our emissions overseas? At $30 per tonne, 159 megatonnes of emissions costs $4.77 billion, which is far less costly than striving to do it with the mix of local ($10.08 billion) plus overseas ($2.385 billion) giving a total of $12.465 billion.

Even without a carbon tax, Australia's energy price regulator has reported an expected increase of 30 per cent in electricity prices over the next three years, largely due to higher 'poles and wires' costs. For New South Wales, the state's pricing tribunal has announced a 17 per cent electricity increase for next year, a third of which is for "green schemes".

Against this backdrop last month's Productivity Commission (PC) report, Carbon Emission Policies in Key Economies examined over 1,000 abatement reduction schemes across eight countries. These are overwhelmingly focused on electricity, and the PC converted them into carbon tax equivalents.

The PC's analysis illustrates that taxes are high and substantial abatement is taking place in the European Union (EU). In Germany and the UK carbon dioxide emission programs bring increases of 12-17 per cent in electricity prices (though the recent slump in the EU carbon price will reduce this considerably).

For Australia and New Zealand the emission control programs currently bring electricity price increases of 1-2 per cent, while in China, US, Japan and South Korea the effect is negligible. And Australia's main scheme, the 20 per cent Renewable Energy Target, is only just gearing up to cost levels that by 2020 will be perhaps tenfold those of today.

Australia's trading rivals are among the 170-odd other countries which the PC did not examine. In fact, exporters of fuel and raw materials in Canada, South Africa, Brazil, Indonesia, India and the Middle East face negligible carbon abatement costs and already have tax advantages over Australia's exporters. Carbon taxes figured prominently in the Canadian Liberal Party's platform in that country's recent election and the party suffered its worst defeat in a century.

Although no country has a carbon tax, the PC's material demonstrates that cap-and-trade market mechanisms offer cheaper means of bringing about abatement than specified regulatory measures like renewable programs. Thus Germany's costs under the European Union's cap-and-trade carbon tax were about $20 per tonne of CO2 (for shifting from coal to gas) but costs under specific measures requiring wind and solar use on average $137 per tonne.

Australia's schemes involving feed-in tariffs for small scale renewable systems come at a CO2 price of up to $425 per tonne. Wind farms cost $37-69 per tonne.

The PC estimates that a carbon tax set at $9 per tonne could replace all existing Australian measures and notes that a tax is less inefficient than 'direct action' approaches favoured by the Opposition.

However, the current abatement measures requiring renewables are also direct action approaches and the Government wants these to be retained alongside a carbon tax. Moreover, it is negotiating for another direct action proposal, involving closure of Victoria's Hazelwood power station. That closure could reduce emissions by 3 per cent but only in the unlikely event that the station's output is not replaced by output from other fossil fuel sources.

The Productivity Commission estimated the cost of Australian emission reduction programs at $473-694 million in terms of total subsidy equivalent. But this excludes direct government subsidies. The Department of Climate Change and Energy Efficiency (DCCEE) provides an "A to Z" of (Commonwealth) Government initiatives. Ranging from Advanced Electricity Storage Technologies to the World Bank Clean Technology Fund, these comprise 93 separate programs. DCCEE put Australia's budget expenditures on abatement measures totalled $1.069 billion in 2009/10. The Government's package budgets for $4.2 billion in 2014/15 in the Clean Energy Finance Corporation and other supports for green energy and conservation.

In addition to excluding direct budgetary spending in estimating Australia's carbon tax rate, the PC also does not count the effects of a range of standards. A previous commission report had put the annual costs of greenhouse abatement measures embodied in the national five/six-star building standards at $3 billion a year.

Clearly Australia outlays much more than the $473-694 million the PC used to estimate Australia's greenhouse abatement costs. Our expenditures are much higher than those of our competitors and the carbon tax would further increase the baggage we have to carry.

The outcome would be a spiralling down of our living standards relative to those of other resource rich countries.

But the carbon tax is only the latest blow. To restore the nation's competitiveness, a future Coalition government must both revoke any carbon tax that is introduced and purge the economy-killing measures that have been gathering moss over the past few years.

To start this ball rolling, the O'Farrell Government is calling for the repeal of the Commonwealth's 20 per cent Renewable Energy Target. And the Nationals Senator Ron Boswell has made similar moves in the Coalition party room by seeking to have support for the target reviewed by a policy committee.

With his 'direct action' approach Tony Abbott expects to achieve the Government 5 per cent reduction in emissions but at a lower cost than a carbon tax involves. That is implausibly optimistic. But more significantly he has announced a review of policies for 2015, an action which foreshadows an unwinding of the green juggernaut.

Alan Moran is the Director, Deregulation at the Institute of Public Affairs.

Carbon tax: Heat rises as voters reject Julia Gillard's plan

ANGRY Australians have vowed to vote Julia Gillard from office at the next election after yesterday's controversial carbon tax announcement.

Scores of voters rejected the plan soon after details of the $24.5 billion package to tackle climate change were revealed, with more than 80 per cent who voted in a national News Limited online poll saying Australia shouldn't have a carbon tax.

Almost 100,000 people voted across four polls in the national plebiscite by 5pm yesterday, with 87.1 per cent saying they planned to change their vote at the next election in light of the tax.

More than 70 per cent of voters, or 15,866 people, said they now planned to vote for the Coalition at the next election while just 8.51 per cent said they would support a Labor government.

Just 13 per cent of voters said they wouldn't change their vote at the next election.

Despite government claims that 90 per cent of Australians would receive compensation, and that 40 per cent of households would be overcompensated, voters said Julia Gillard had signer her fate at the polls.

"They're calling it 'Carbon Sunday' but I like to refer to today as 'Suicide Sunday' for a PM and three independents,'' one reader wrote.

"I cannot wait until the next election. The Labor Party the Greens and the Independants will answer to the Australian people for what they are inflicting upon us. Revenge is a dish best served cold,'' wrote another.

Eighty per cent of voters described the tax as "disgraceful'' while others said it was "inadequate''.

Just eight per cent of voters said they were confident it wouldn't affect their hip pocket.

An anti-carbon tax group said its website crashed after being overwhelmed with people trying to sign up to a campaign rejecting the tax.

The organisers of the site, no-carbon-tax.org, said the site crashed because of the "sheer numbers of people signing up.''

Jobs at Risk From Carbon Tax: CSR Chief

The chief executive of CSR, one of the country’s largest building materials companies, has hit out at the federal government’s proposed carbon tax, saying it will not reduce world carbon emissions and would ultimately drive Australian manufacturing jobs offshore.

With the government set to announce details of the tax this weekend, Rob Sindel used his address to shareholders at CSR’s annual meeting in Melbourne to add to the chorus of business leaders in heavy industries critical of the tax.

He said trade-exposed industries must be given adequate assistance or a mass exodus of manufacturing jobs would result.

‘‘Our message to government is clear,’’ Mr Sindel said.

‘‘All trade-exposed industries must receive full transitional assistance until the rest of the world imposes a similar carbon cost.’’

Shares in carbon-intensive steel producers like BlueScope and OneSteel have rallied sharply in the past week over growing speculation they and other heavy polluters will be almost fully shielded from the carbon tax in the first few years through transitional assistance.

Mr Sindel said CSR’s glass and aluminium businesses was also likely to receive the highest level of transitional assistance but said the rate at which the assistance would be phased out was a critical factor.

‘‘The decay rate is the real sleeper in this,’’ he said.

If the assistance was phased out too quickly, Mr Sindel said 1 million manufacturing jobs, including 4000 from CSR, would be at risk.

‘‘We will fight to protect Australian industry and these jobs,’’ he said.

The country’s largest brickmaker, Brickworks has also made its stance clear against the tax, saying it will increase the cost of housing and spark an exodus of manufacturing jobs and foreign investment.

Mr Sindel said if the government was serious about carbon reduction, it would do more to increase energy efficiency in the building environment. Mr Sindel said buildings accounted for 30 per cent of the country’s energy consumption, of which 40 per cent was wasted.

The Gillard government's carbon tax is expected to start at $23 a tonne and be paid by 500 companies rather than almost 1000 liable under earlier estimates after it decided to remove fuel from the pricing scheme.

pwen@fairfaxmedia.com.au

Andrew Wilkie Says Julia Gillard Must Improve Carbon Tax Sales Job to Regain Public Confidence

TASMANIAN independent Andrew Wilkie has told Julia Gillard to improve her carbon tax sales job amid plummeting public support for the measure.

As fellow crossbencher Rob Oakeshott played down the latest Newspoll - showing only 30 per cent support for the tax - Mr Wilkie said the government had to do something to restore public confidence in the measure.

“Clearly the government does need to do a better job at selling a price on carbon if it is to regain the broad-based support it enjoyed last year,” he told The Australian Online.

Today's Newspoll survey reveals 78 per cent of Australians believe in climate change but 60 per cent oppose Labor's proposed carbon tax.

Mr Oakeshott urged voters to recognise the “economic opportunity and economic importance” of the carbon tax.

“No-one in this business is trying to do anyone any harm,” he said.

“We are trying to do public good in the long term and sometimes that requires some difficult decisions along the way. Everyone is trying to do a public good here.”

Mr Wilkie also offered conditional support for the tax.

“I continue to support a price on carbon so long as the settings are right,” he told The Australian Online.

“Most relevant to me is that Tasmania's overwhelming reliance on renewable energy, and capacity to lock up carbon through forestry, be properly factored into the settings being developed.”

The government will need the support of both MPs, plus independent Tony Windor and Green Adam Bandt, if its carbon tax is to get through the House of Representatives.

As the government seeks business support for the plan, Nationals Leader Warren Truss today accused it of leaving families and small businesses out in the cold.

Mr Truss said the Prime Minister's dinner invitation to big polluters at Kirribilli House tonight showed she was increasingly out of touch with the needs of everyday Australians.

“While Julia Gillard cosies up to the big end of town tonight, wining and dining big business to woo carbon tax support, small business and families are on the outside looking in,” he said.

“Ordinary Australians are already struggling with rising household costs and now they face the prospect of a double whammy from the carbon tax and looming interest rate rises.”

Responding to a Newspoll survey in The Australian yesterday, which showed Labor's primary vote at 33 per cent and her own satisfaction rating at a new low of 38 per cent, Ms Gillard conceded she had “a lot of hard work to do as Prime Minister”.

Opposition Leader Tony Abbott, whose satisfaction rose six percentage points to 42 per cent in the past month, said the poll was “field evidence” of people's carbon tax concerns.

“I think it's the good sense, the common sense, of the worker which is coming to the fore here,” Mr Abbott said.

The Prime Minister seized on Newspoll's finding that 78 per cent of respondents believed climate change was real.

“What today's poll shows - and I don't normally comment on polls - but I'll say this if you look at today's poll it shows clearly that Australians believe climate change is real,” Ms Gillard said in Sydney.

“That's a pretty big contrast with Mr Abbott, who has said in the past it is absolute crap.”

She said she understood major reform made people anxious, but the public would soon have better information upon which to judge the plan.

“In the middle of this year we will be able to give everyone full details of how the carbon pricing system will work,” she said.

“They will be able to sit at their kitchen table and work out all of the dollars and cents for them.”

Treasury spokesman Joe Hockey said plummeting support for the carbon tax was “Labor's own handiwork”.

“The Australian people are smart,” he said.

“They look at a carbon tax and they say, yes, that means higher costs for me and everyday life. And the Australian people can see through the Labor Party. This is all of the Labor Party's making.”

theAustralian.com.au

Australia Releases Rules for CO2 Credits from Culling Camels

Killing camels to earn carbon credits might seem an extreme way to fight climate change, but the Australian government on Thursday issued detailed rules that will help investors do just that.

Adelaide-based Northwest Carbon, a carbon project developer, has developed the rules, or methodology, governing a strict camel culling programme that would also cut greenhouse gas emissions.

Like cows and sheep, camel digestive tracts produce large amounts of methane, a much more powerful greenhouse gas than carbon dioxide, with adults producing about a tonne of methane a year.

With no natural predators, camels now number more than one million in Australia's desert centre and the population is growing quickly.

The methodology is one of many being developed under the government's Carbon Farming Initiative (CFI), the country's first nationally regulated carbon offset programme that aims to reward farmers and investors for steps that cut greenhouse gas emissions on the land.

The government, which supports Northwest Carbon's 63-page methodology, released the rules for public consultation on Thursday.

Legislation for the Carbon Farming Initiative is being debated before parliament, and it is likely to be approved. The scheme is far less controversial than a separate carbon pricing programme the government is struggling to win support for.

Camels, introduced in the 19th century, have become a major pest in Australia. They trample large areas of vegetation, damage water holes and compete with native species for food.

Camel culling under the methodology could generate up to 18 million carbon credits, with more than 650,000 created per year during the initial three to five years, Northwest Carbon said in a statement on Thursday.

Cutting methane from landfills, better management of grassland burning and tree plantations are also approved methods under the CFI, in addition to feral animal management.

Once the CFI is running, polluters will be able to buy offsets from approved projects or they can be sold overseas. But the scheme is expected to start off slowly until parliament also passes the separate laws that put a national price on carbon emissions.
Agriculture can comprise a large portion of a country's greenhouse gas emissions. In Australia, it is about 15 percent, while in New Zealand dairy farming, sheep grazing and other activities generate about half the country's total, mostly methane from livestock. One cow can emit 1.5 tonnes of methane a year.