Transcript Examining the Australian climate change regime

Examining the Australian
climate change regime: Carbon
pricing scheme and direct
action plan
Dr Evgeny Guglyuvatyy
8th International Scientific Conference
on Energy and Climate Change, Athens
Climate change policy in Australia
 Climate change issue was on agenda in Australia since
late 80th. In 1989, before the 1990 Australian federal
elections both leading political parties discussed
introduction of GHG reduction policy.
 The Labor Party in particular considered GHG
emissions reduction target of 20 percent by 2005. The
Liberal Party was developing similar policies.
 However, the interest to climate change issues has
dissipated during 90th. Environmental issues were
gradually dropped and did not appear in the 1993
election campaign.
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Climate change policy in Australia
 Despite deteriorated attention to environmental issues in
early 90th, a range of measures aimed to reduce Australia’s
greenhouse gas emissions have been on agenda at the
Federal and State level for last decades.
 Successive Australian governments have been committed to
the introduction of carbon tax or emissions trading scheme
(ETS) designed to mitigate climate change.
 There has been some experience with the deployment of
ETSs in Australia. At a sub-national level, for instance, the
NSW Greenhouse Gas Abatement Scheme (GGAS)
commenced in 1997 and became mandatory in 2003.
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Carbon Pricing Scheme
 The Gillard government in 2010 announced its intention to
propose a temporary carbon pricing scheme.
 The Multi-Party Climate Change Committee consisting of
members of the federal government and senators was set
up.
 The Committee’s intention was to establish a climate change
framework outlining the broad architecture for a carbon
price.
 The Committee issued eleven policy principles designed to
provide a consistent basis for the deliberations on a carbon
price
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Carbon Pricing Scheme
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Environmental effectiveness
Economic efficiency
Budget neutrality
Competitiveness of Australian industries
Energy security
Investment certainty
Fairness
Flexibility
Administrative simplicity
Clear accountabilities
To supports Australia’s international objectives and
obligations
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Carbon Pricing Scheme
 The carbon price scheme (the scheme) operates from 1 July 2012
as a temporary measure designed to reduce greenhouse gases
(GHG). The carbon price is $23 for the 2012–13 financial year and
increases by 2.5 per cent in each of the following two years.
 Under the scheme, liable entities buy and surrender carbon units
equal to their direct emissions (based on historic levels) of carbon
dioxide equivalents (CO2). Failure to surrender necessary carbon
units will result in a fine. After the transitional period, the carbon
price mechanism converts to a cap-and-trade ETS supplying a
flexible carbon price.
 From 1 July 2015, the carbon units will be auctioned. Hence, even
though the carbon pricing mechanism is sometimes labelled a
‘carbon tax’, the Gillard Government was committed to emissions
trading.
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Carbon Pricing Scheme
 The broad architecture of the implemented carbon price scheme
seems to resemble in some aspects the design of the emissions
trading scheme introduced by previous government.
 Compensation for affected industry is a temporary measure and
based on historic emissions levels, thus the incentive to reduce
emissions is not eroded. The assistance package for households
is designed to compensate low and medium income earners rather
than high income earners.
 The legislation does not seem to reflect some of these criteria
adequately
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Carbon Pricing Scheme
 The scheme covers around 500 entities which emit 25,000 tonnes
of CO2 per year or more and certain waste facilities emitting more
than 10,000 tonnes per year, constituting about 50 per cent of
Australia’s GHG.
 Agriculture and transport fuels are excluded from the scheme,
although transport fuels used by off-road heavy vehicles (except
for agriculture, fishing and forestry) are covered indirectly by a
reduction in existing fuel tax concessions.
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Carbon Pricing Scheme
 There was no cap on emissions during the fixed price period and
the number of carbon units is unlimited.
 Starting from 2015–16, the Climate Change Authority was
supposed to set a cap on emissions taking into consideration
international and Australian emissions reduction targets.
 Australia was committed to reducing emissions by 5 per cent of
2000 emissions levels by 2020, and by 80 per cent of 2000 levels
by 2050.
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Carbon Pricing Scheme
 It was projected that the carbon price scheme will raise $24.5
billion over its first four years. However, it will not be revenue
neutral; the budget deficit is expected to be around $4 billion.
 The reason for that is an extensive spending plan to compensate
industries and households and to invest in renewable energy.
 There are significant tax cuts and increases in allowances,
payments and benefits. In particular, the tax free threshold has
almost tripled from the previous $6,000 to $18,200 from 1 July
2012, and then increase to $19,400 from 1 July 1 2015.
 Thus, all taxpayers with an income below $80,000 have effectively
received tax cuts from 1 July 1 2012.
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Carbon Pricing Scheme
 An assistance package of $9.2 billion to be allocated over the first
three years to Australian industries to eliminate competitiveness
issues associated with the carbon price scheme.
 Most affected industries such as steel, aluminium, zinc, pulp and
paper makers will acquire free permits covering about 94.5 per
cent of industry’s average carbon costs.
 In addition, $300 million to be assigned to the steel industry’s shift
to clean energy. A coal sector jobs package at $1.3 billion is
dedicated for mines that are most affected by the carbon price.
 A range of supporting measures designed to encourage energy
efficiency and green innovation was also introduced.
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Carbon Pricing Scheme
 The Australian Government decided to propose
emissions trading and prioritise economic objectives.
 The legislation ‘is the most cost-effective and
economically responsible way of reducing Australia's
carbon pollution’.
 The Australian Government followed a general
tendency to concentrate on some criteria such as
costs-effectiveness of GHG emissions reduction and
ignore other important criteria.
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Carbon Pricing Scheme
 Moreover, the whole process of decision-making by the
Committee is unclear.
 There was no information disclosed concerning major
aspects of law-making such as what approaches have
been employed to prioritise criteria and how policy
options were evaluated if at all.
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Principles (criteria)
Environmental effectiveness
Comments
Under present settings it is unlikely that the proposed
carbon policy would address this criterion.
Provisional Assessment
Fundamentally flawed
Economic efficiency
The design defects of the considered policy may
significantly reduce its economic efficiency.
Flawed
Budget neutrality
In its present status, the introduced policy is unlikely to
Flawed
be budget neutral.
Competitiveness of Australian The carbon policy renders an extensive assistance
Supported
industries
package to affected industries and, in three years, will
provide generous international linkage, thus considerably
reducing competitiveness concerns.
Energy security
Supplementary measures included in the carbon policy Supported
package are likely to increase Australian energy security.
Investment certainty
The price uncertainty associated with the ETS as well as Flawed
general legislative volatility significantly reduces
investment certainty of the carbon policy.
Fairness
Since a significant part of carbon policy revenue is
Supported
dedicated to low-income households and energy
efficiency as well as R&D measures, this principle is
addressed.
The proposed policy provides certain degree of flexibility Flawed
but the legislative adjustment of the policy may prove to
be difficult.
Flexibility
Administrative simplicity
The policy package has a number of measures which
imply complicated rules and require the creation of new
institutions thus eroding the administrative simplicity
principle.
Flawed
Clear accountabilities
The considered policy is implicitly complex and nonFlawed
transparent; hence it is unlikely to address this principle.
Supports Australia’s
international objectives and
obligations
The policy design is well suited to reflect this criterion.
Supported
Carbon Pricing Scheme
 The policy designed by the Gillard government fails to address a
number of the critical principles outlined by the Multi-Party Climate
Change Committee, particularly; environmental effectiveness,
economic efficiency, investment certainty, administrative simplicity
and clear accountabilities.
 The criteria that the carbon policy sustains well are
competitiveness of Australian industries, fairness and Australia’s
international objectives and obligations, which seems to be
prioritised by politicians.
 As a result, the introduced carbon policy contradicts some of the
critical principles which were meant to be addressed in the first
place.
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Abbott Government
 In September 2013, the Coalition won the federal
elections leaded by Tony Abbot who’s attitude to
climate change is quite different from previous two
prime ministers.
 The Gillard’s Government carbon pricing legislation has
been repealed by the Abbott Government in July 2014.
Instead of the carbon pricing mechanism the Abbott
Government has introduced Direct Action Plan.
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Abbott Government
 The Direct Action Plan includes as a centerpiece the Emissions
Reduction Fund (ERF) which is supposed to provide incentives for
GHG reduction activities across the entire Australian economy.
 Under the ERF the Government will pay for projects that will
reduce CO2 emissions at minimal cost. Funding from the ERF is
allocated through auctions.
 A range of possible projects for CO2 reduction include: energy
efficiency, cleaning up power stations, reafforestation and
revegetation and/or improvement of soil carbon.
 Abbott government announces plan to cut emissions by 26 to 28
per cent by 2030.
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Abbott Government
 Under the Direct Action Plan there are no emissions
caps or instruments that would insure that the polluters
are limiting their GHG emissions.
 The Government issued a consultation paper on
Safeguard Mechanism that will apply to facilities with
direct emissions in excess of 100,000 tonnes of CO2-e
per year.
 According to the consultation Paper, the Safeguard
Mechanism would cover around 140 businesses which
emit around 57 percent GHG from the electricity sector
however, the Safeguard Mechanism will not be in place
until July 2016 at the earliest.
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Abbott Government
 The important feature of the Direct Action Plan is its
voluntary nature. A voluntary carbon mechanism does
not provide incentive for businesses to participate and
compete for participation in ERF.
 The Australia Senate inquiry on the Direct Action Plan
provides the following comment:
 ‘The committee is persuaded that the Government's
Direct Action Plan and the proposed Emissions
Reduction Fund are fundamentally flawed. They ignore
the well-established principle of 'polluter pays', and
instead propose that the Australian taxpayer should
effectively subsidise big polluters.’
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Abbott Government
 According to some commentators Tony Abbott ‘reinstates industry
influence over policy.’ (Priest 2013)
 The Abbott Government did not provide details concerning the
development of the Direct Action Plan. It is not clear what the basis
for the introduced policy was. Successive Australian governments
attempting to introduce climate change related policies were taking
into consideration policy developments and proposals of previous
Governments.
 However, the policy introduced by the Abbott Government is
strikingly different to carbon pricing and/or emissions trading
mechanisms favoured by former Australian Governments.
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Principles (criteria)
Environmental effectiveness
Comments
Provisional Assessment
It is unlikely that the introduced policy would address this Fundamentally flawed
criterion.
Economic efficiency
The policy does not address this criterion.
Fundamentally flawed
Budget neutrality
In its present status, the introduced policy is unlikely to
Fundamentally flawed
be budget neutral.
Competitiveness of Australian The participation in Direct Action Plan is voluntary and
Supported
industries
polluters are paid to reduce emissions thus there are no
competitiveness issues
Energy security
The policy does not address Australian energy security. Flawed
Investment certainty
The repeal of the carbon pricing scheme and
introduction of voluntary policy creates significant
uncertainty for renewable energy investors
Fundamentally flawed
Fairness
Australian taxpayers are paying to polluting industries to Fundamentally flawed
reduce emissions under the policy therefore, this
criterion is not addressed
Flexibility
The proposed policy provides certain degree of flexibility Flawed
but the legislative adjustment of the policy may prove to
be difficult.
Administrative simplicity
The policy package has a number of measures which
imply complicated rules and require the creation of new
institutions thus eroding the administrative simplicity
principle.
Flawed
Clear accountabilities
The considered policy and non-transparent; hence it is
unlikely to address this principle.
Flawed
Supports Australia’s
international objectives and
obligations
The policy design is not suited to reflect this criterion.
Flawed
Climate change law making in Australia
 In the same vein the Government neither disclosed what
criteria has been used to develop the Direct Action Plan, if
any, nor has it explained what criteria or principles were
prioritised to establish the proposed legislation.
 Overall, the Direct Action Plan has been significantly criticised and
it is labelled as a step backwards for Australian climate change
policy.
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