Carbon Price Package

The Carbon Price Package
Mike Clark TTKD August 2011
The warming world

Temperature trend 1970-2010
Source: NASA GISS
Fingerprints of human-caused climate change
Source: skepticalscience.com
Why act on climate change?
Picture: Skeptical Science.com Source: Doran 2009, Anderegg 2010
*What are you sinking about?
Cartoon adapted from Jip Lenstra by Bart Verheggen (http://ourchangingclimate.wordpress.com/) and then again by me.
Tackling climate change is in Australias best interest

Australia risks being hit hard by climate change impacts. It is in our interest to play our part in global action to keep warming to under 2 degrees. Being a laggard doesnt encourage action from other countries, it encourages others to be laggards (Garnaut). Oz is responsible for 1.5% of the world carbon pollution and is one of the worlds top 20 emitters. Countries with similar and smaller levels of pollution to Oz are responsible for ~40% of the worlds pollution, without action from these countries we cant stop temperature rises.
Analysing climate action

Effective (Will it work?) Affordable (Will it be cost effective?) Sensible (Can we manage it?) Innovative (Will it spur innovation and transformation to a low carbon economy?)
Guts of the scheme

1. Carbon price 2. Household and business compensation 3. Renewable electricity 4. Supplementary measures (brown coal buy out, carbon farming etc) 5. Independent governance
The carbon price

Carbon pricing means polluters pay to pollute Polluters now have a financial incentive to reduce pollution (no pollute = no cost= profit) Carbon pricing is the cheapest way to reduce emissions (Source: Productivity commission, (2011); Garnaut (2011))
Reduce pollution Dont pay = Higher profit or Goods cost less No action Pay price = Lower profit or Goods cost more
How the carbon price will work

Paid by ~500 biggest polluters Starts at $23 ton in 2012 Fixed price, by rises 5% yearly for 3 years
the carbon tax
Moves to floating price in 2015, where total emissions are capped and decrease yearly
the ETS
Transport and fuels

Household cars and business light vehicles do not pay a carbon price Farm, fishing and forestry vehicles also dont pay for off-road use Domestic aviation, shipping etc and nontransport use of fuels do pay Charged through an increase in fuel excise or a decrease in fuel subsidies equivalent to carbon price (I think ~6c/l)
Sources of carbon pollution in Oz and those under carbon price

Deforestation; 5% Industrial processes; 5% Fugitive emissions; 7% Electricity generation; 36% Transport; 14% Waste; 3%
Agriculture; Direct fuel 15% combustion; 15%
Excluded: - Agriculture - Land use emissions - Household and business light vehicle use - International transport
Source: Australian Govt, DEECC analysis of National Greenhouse Gas Inventory, 2009
Who pays the carbon price?
Source: APH.gov
Effect on jobs and the economy

GDP
The Australian economy will continue to prosper while cutting carbon emissions Employment is projected to grow strongly with a carbon price
Source: The Treasury, Australian Government
Electricity generation to 2050
A carbon price makes polluting electricity more expensive Renewables become a better long term investment i.e. Conventional coal is almost completely gone by 2050 i.e. Over 40% of electricity comes from renewables
Effect on prices
Prices will rise a total of 0.9% between now and 2016 due to the carbon price Average household bills will increase $9.90/wk before any compensation and assuming you do not take action to avoid this
Household compensation
Over 50% of money from carbon price Tax cuts, pension and benefit increases Tax free threshold tripled to over $18 000 Average household compensation $10.10/ wk compared to average cost of $9.90/wk
https://www.cleanenergyfuture.gov.au/ Household-assistance-estimator
Household compensation
Household adjusted taxable income Single Couple without children Couple with children Single parent % households % Receiving some assistance % receiving >100% of expected cost of living impact 100 66 18
Low (less than) Middle (between) High (above)
$30,000 $30,000$80,000 $80,000
$45,000 $45,000$120,000 $120,000
$60,000 $60,000$150,000 $150,000
$60,000 $60,000$150,000 $150,000
34 40 26
100 97 74
Source: Australian Govt
Take home message:

- Oz has ~9 million households - 6 million will be fully compensated - 8 million will receive some compensation, many only face costs of $1 or $2 /wk
Business compensation
Includes both free permits and grants for emission reduction investments Trade exposed emissions intensive industries get very generous support
- Receive ~95% or 66% of emission permits for free - % of free permits decreases at 1.3% a year - Compensation based on industry average which creates an incentive to reduce emissions - Assistance worth $9.2 billion over 4 years - Level of assistance to be reviewed by the PC
Business Compensation
$1.2 billion Clean technology program for manufacturers
- help for less emissions intensive manufacturers - grants to improve energy efficiency and decrease their energy use - grants for business R&D into emissions reductions - government and industry share the costs of investments
Clean energy skills program Small business assistance (asset write-off) Assistance for any regions heavily affected by the carbon price
Renewable energy
$10 billion dollar Green bank
- Clean energy finance corporation - Support renewable energy, energy efficiency and low pollution technology - Invest in commercialization and deployment of plants plus in businesses that manufacture components
Australian renewable energy agency

- Merge $3.2 billion of existing programs (i.e: solar flagships into one agency) - Includes R&D
Renewable energy target (20% by 2020) retained
Other measures
Coal buy out - money to close ~2000 Mw of the most polluting coal plants 5.5 billion over 6 years to coal generators (free permits and cash) Extra help for Steel and Gassy coal mines - government specific measure
Hazelwood power station
Source: Simpsons fan 66 at en.wikimedia
Other measures
Carbon farming
- Reducing pollution and capturing and storing carbon in soil and trees - Farmers who do this will earn credits they can sell to offset other business pollution
Billion dollar biodiversity fund
Biochar
Governance
An independent climate change authority
- recommend short and long term targets - review progress - aims to remove some of politics from CC action
Clean energy regulator

- will administer the carbon price scheme
Productivity commission
- review industry assistance, watch for windfall gains etc. - track international action
Governance gives scheme flexibility
Targets and Emissions

Minimum 5% decrease by 2020 (24% decrease on BAU) 80% decrease by 2050 During emissions trading up to half of emission reductions can come from international credits/offsets
Is it EASI?
Effective
- package will reduce emissions - current 2020 target is below our fair share but scheme has flexibility to change this - exemptions for some, makes cuts harder for others
Affordable
- carbon pricing is cheapest method to cut pollution, but giveaways to various companies increase the cost of the scheme
Sensible
- only modest effects on the economy, little overall effect on jobs, both will grow strongly
Innovative
- package moves Oz towards a low carbon economy, essential for affordable long-term emissions cuts
Main criticisms
2020 target too low Doesnt cover transport Too many polluter giveaways
But do these undermine the scheme? Answer: No
Dont throw out the good in preference for best.

Professor Ross Garnaut, July, 2011
Thermometer and satellite temperature datasets all agree
Source: skepticalscience.com
Why it is warming?
The principal warming and cooling influences on climate since 1750 Source: IPCC AR4
Why are electricity prices rising?
Garnaut update paper 8. (2011)
China
Source: Garnaut, final report (2011)
Pledged to reduce its emissions intensity by 40-45% by 2020. Chinas actions represent by far the largest contribution to reducing global emissions below what they would have been under business as usual Garnaut, final report (2011) Actions include: closing inefficient power plants and factories, raised taxes on some emissions intensive industries, massive support for low emissions power generation and transport, emissions trading schemes in pipeline.
Voluntary action
Voluntary action (VA) will be treated as additional to the cap. I.e.: with a 5% target to 2020, if VA reduced emission 1% the 5% target would mean a 6% total drop. VA include
1. A tax deductable pledge fund that will help individuals buy and cancel pollution permits 2. Greenpower purchases.
Remember to keep the effect of VA in perspective: the total cap will be ~500 million tons

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The Carbon Price Package

Mike Clark TTKD August 2011

The warming world

Source: NASA GISS

Fingerprints of human-caused climate change

Why act on climate change?

Picture: Skeptical Science.com Source: Doran 2009, Anderegg 2010

*What are you sinking about?

Tackling climate change is in Australias best interest

Analysing climate action

Guts of the scheme

The carbon price

How the carbon price will work

Transport and fuels

Sources of carbon pollution in Oz and those under carbon price

Agriculture; Direct fuel 15% combustion; 15%

Who pays the carbon price?

Effect on jobs and the economy

Electricity generation to 2050

Source: The Treasury, Australian Government

Source: The Treasury, Australian Government

Low (less than) Middle (between) High (above)

$30,000 $30,000$80,000 $80,000

$45,000 $45,000$120,000 $120,000

$60,000 $60,000$150,000 $150,000

$60,000 $60,000$150,000 $150,000

Source: Australian Govt

Take home message:

Australian renewable energy agency

Renewable energy target (20% by 2020) retained

Billion dollar biodiversity fund

Clean energy regulator

Governance gives scheme flexibility

Targets and Emissions

But do these undermine the scheme? Answer: No

Dont throw out the good in preference for best.

Thermometer and satellite temperature datasets all agree

Why are electricity prices rising?

Garnaut update paper 8. (2011)

Source: Garnaut, final report (2011)

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