The Trans-Tasman carbon test

Hot Topic reader and regular commenter Simon Johnson (aka Mr February) was spurred by the discussion here about Australia’s new carbon pricing policies to dig into the details. In this guest post he looks at how the new Aussie scheme compares with NZ’s Emissions Trading Scheme…

I have to admit I did rush to conclude that the Australian carbon pricing scheme would be a “leapfrog” ahead of the NZ Emissions Trading Scheme. I also admit that I generally think the NZ ETS is worse than nothing as a policy to reduce GHG emissions. So of course the Australian scheme must be more effective!

Now that I have actually read Julia Gillard’s carbon pricing proposal I can offer a slightly more considered opinion. The carbon price scheme has a name which we should be using; Securing a Clean Energy Future. The full document is Securing a Clean Energy Future, The Australian Government’s Climate Change Plan, Commonwealth of Australia 2011, ISBN 978-0-642-74723-5.

First of all, the ‘Clean Energy Future’ is not a carbon tax. It is a cap and trade emissions trading scheme with a safety valve. Page 25 says:

“Large polluters will report on their emissions and buy and surrender to the Government a carbon permit for every tonne of carbon pollution they produce.”

That’s very much an emissions trading approach, but with a fixed carbon price for three years. The price is $AU23 per tonne from 1 July 2012, then $AU24.15 in 2013-14 and $AU25.40 2014-15 (p 26). From 1 July 2015, the carbon price will float within and upper and lower ceiling with the Government setting an overall ‘Cap’ or limit on GHGs (p 27).

The GHGs covered are; carbon dioxide, methane, nitrous oxide and perfluorocarbon emissions from the aluminium sector (p 28).

There will be 500 sources of emissions, which will be companies or sites with direct greenhouse gas emissions of 25,000 tonnes of CO2-e a year or more. Sectors covered will be; stationary energy, waste, rail, domestic aviation and shipping, industrial processes and fugitive emissions (p 27). But not farming or land transport fuels.

So how comprehensive is ‘Clean Energy Future’? To me, the comprehensiveness of a carbon tax or an emissions trading scheme is a good metric of likely effectiveness. And it’s a metric to use to make comparisons between policies.

Lets say the comprehensiveness is the proportion of total GHGs emitted that is either taxed or included in an emissions trading scheme. ‘Clean Energy Future’ claims half to two-thirds. The report states that more than half of Australia’s GHG emissions will be directly covered by the scheme, and almost two-thirds of GHGs will be included when other measures are included.

‘Clean Energy Future’ includes an appendix of forecast revenues. In the
year to 30 June 2013, the ‘Clean Energy Future’ scheme will earn $AU 7.74
billion (Appendix C, p 131). At the fixed price of $AU 23 per tonne, that
gives 337 million tonnes of GHG (by CO2-e) that is taxed or priced. That’s
60% of Australia’s 2009 GHG emissions (565 million tonnes) priced in 2013.
That seems not a bad start, given that Geoff Bertram and Simon Terry have
calculated that the NZ ETS, after free allocation of units and delayed
start dates, only prices 3%, (12 million tonnes out of 378 million tonnes)
of New Zealand’s GHG emissions between 2008 and 2012 (Bertram and Terry
2010, The Carbon Challenge, p 111).

But is there any free allocation of carbon permits to emitters in the
‘Clean Energy Future’ scheme? Yes, if you look carefully there is.

The revenue forecast in Appendix C lists costs of $AU 2.85 billion for
“Jobs and competitiveness program” and $AU 1 billion for “Energy
security” in 2013. Table 15 on page 114 notes that “Jobs and competitiveness”
involves the free “allocation of permits …to new and existing entities
undertaking an eligible emissions-intensive trade-exposed (EITE)
activity”. Table 16 Energy Security on page 116 indicates that “Energy
security” involves “allocation of permits and cash estimated at $5.5
billion over six years to assist highly emissions-intensive coal-fired
generators” and “payments for the closure of around 2,000 megawatts of
very highly emissions-intensive coal-fired generation capacity by 2020”.

So of the $AU 7.7 billion collected from the 500 emitters in 2012-2013,
possibly some $AU 3.85 billion will be rebated to the dirtiest and most
carbon-intense emitters, as long as they are trade-exposed. The definition
of emissions-intensive-trade-exposed isn’t exactly tied down and has a
number of parts. One is having imports or exports greater than 10% of
production. Also, rather like the NZ ETS, any assistance to emitters will
phase out at a very gradual 1.3% a year (Table 15, p 114).

Lets assume the worst case that 100% of these two categories is spent
on free allocation of permits or is just given as a subsidy to some of the
500 emitters. If we have 337 million tonnes of GHG emissions (CO2-e)
that is priced in 2013, and subtract 167 million tonnes for the gifting and
assistance ( $AU 3.85 billion divided by $23AU = 167 mt) we get 169
million net tonnes of GHG emissions priced in 2013 under the ‘Clean Energy
Future’ scheme. That is 30% of 2009 GHG emissions of 565 million tonnes.

It’s true that I am comparing 2013 for the ‘Clean Energy Future’ scheme with
2008-2012 for the NZ ETS, but 30% coverage of GHG emissions beats 3% of
GHG emissions hands down. The ‘Clean Energy Future’ scheme is more
comprehensive than the NZ ETS by a factor of 10! 30% of GHG emissions
priced vs 3% priced. That certainly is a big “leap frog” ahead by our
trans-tasman cousins, I would say.

11 thoughts on “The Trans-Tasman carbon test”

  1. the ‘Clean Energy Future’ scheme will earn $AU 7.74 million
    Typo? 7.74 billion?

    Thanks for this sterling summary. There are a variety of expert opinions on the plan here. The consensus seems to be that it might be an ok first step under very difficult political constraints, but it is still only a baby step.

    My own take can be found here. I have little to add about the NZ scheme as I am not familiar with its details.

  2. More analysis here from the people who were first to note that under the old proposed CPRS any carbon savings made via elective activities undertaken by households and/or communities (solar panels, community wind-farms etc.) would be passed straight back to polluting industries as permits! The story is this has been dealt with this time round, and I hope that proves true.

    Penny Wong, the previous minister, chose never to understand this point.

    The Greens got it, though, and this new deal takes into account – as much as is politically possible, I’d argue – all the criticisms of the CPRS and is much more convincing than the Rudd scheme that ‘locked-in failure’ until 2020.

    One thing I find interesting is all this coinciding with the long-overdue revolt against the Murdochracy and its minions. I’m sure Abbott and the evil empire had hoped to force a double-dissolution before the tax kicks in in a year’s time. But now Lord Mordorch is seriously distracted in the old-country and looking decidedly whiffy (the words ‘The Defendant’ even spring to mind!), and while it’s always naive to hope for justice I see signs that the debate might shift to why we let the body politic act as a host for these parasites and their elitist, false-populist and anti-scientific agenda…

  3. Fairly average attempt. Even a simple test negates your analysis. The NZ ETS includes all liquid fossil fuel emissions. They were about 18% of NZ’s 2009 CO2e emissions.

    A correct analysis would look at the estimated coverage and allocations for 2013 in NZ, then compare it to the Australian scheme.

    Comparing 2008 to 2012 coverage in NZ (which includes large allocations to forestry with delayed deforestation liabilities) to the Au coverage is simply wrong.

  4. By my reckoning, 54% of NZ’s emissions in 2013 will be priced by the ETS. Only the ag sector will be outside. Still going to base your assessment on numbers? I can’t see any leap-frog.

  5. Your methodology is seems biased to intentionally ensure Australia is seen to be better. What is your motivation for this? It is laugable to compare NZ coverage from 2008-2012 (when our ETS only has had obligations from July 2010) with Aussie obligations proposed for July 2012.

    Comprehensiveness should be measured by sectors/gases covered. Only way NZ can compete under your methodology (percentage of emissions covered) is to include ag gases, which would make us the first to in the world to do so. So the situation becomes, “If you’re not first, you’re last!” haha (Rickey Bobby).

    Lets look at the schemes on the simple basis of gases covered and allocations given.

    The phase in dates vary but in both nations there will be a full ETSs by July 2015.

    Although NZ has legislated Ag gases you could argue that we may well postpone this if the Nats are in Govt – so lets be conservative and not assume they are in.

    Aussies are not going to include ag gases, transport fuels or deforestation emissions.

    Likely then that both nations will have an ETS in 2015 that covers all gases except agricultural methane and nitrous oxide, and Aussies will also exempt two further sources.

    Both nations will apply allocations to emissions intensive trade exposed activities on the same basis (with the NZ ETS even having a clause 161B that entitles any activity receiving allocation in Aussie to also receive allocation here). The Aussies will also give allocation to coal mining and steel manufacture to protect jobs.

    I think that they are therefore fairly similar no? If anything Aussie slightly ahead from July 2012 – January 2013, NZ slightly ahead from then until Aussies introduce fuel emissions?

    …. Anyway, I don’t know why this really matters. I think the Aussie package is pretty good first step. Maybe look at that rather than whose best.

  6. Must say I’m pretty disappointed after seeing what the scheme involves. When will these people learn that band aids on a severed limb are not helpful?

    1. As it is there’s already a wide-spread hysterical reaction, and my local (Murdoch) paper is spruiking for a double dissolution election to eliminate both Labor and the Greens on the front page today! Believe me, this was a bold step in the context of a country where much of the population seems to be rapidly drifting into becoming a Tea Party outlier…

      I’m not sure Labor is up to toughing this out, either. Gillard is hardly an impressive political performer. This is a good, smart policy from a government that’s not renowned for being either!

      If Labor do crumble and get turfed-out that’s the end of any hope for any action from Australia in the foreseeable future. In fact, denial will become the entrenched national position as the electorate will doubtlessly refuse to acknowledge the possibility of its own abject stupidity. By the time it’s blatantly obvious what a Pyrrhic victory the deniers had won it will be waaaaaay too late. Particularly for Australia.

      However, I could certainly be wrong. A comment I saw today that resonates with me observed that at last the adults seem to have taken over the debate. I hope it’s true.

      1. Murdoch’s poisoning of the carbon debate is a major factor in the political lethargy and divisiveness over this issue (esp in US and Oz). One of our best hopes in the short term is that the Murdoch scandal continues to grow and that politicians in Oz and US start to become as bold as those in the UK have suddenly become over the last few days (at least in words – how well they follow through remains to be seen). The very act of speaking out together is liberating and I think at least some of their expressed relief at being able to say “me too! I’ve been scared of Murdoch but didn’t want to be first to say it” is genuine.

        It may well be important for Australians to get a sense of just how much outrage there is in the UK about this, and just how deep the rot is being revealed to have spread. It is no longer mainly about hacked phones, but about corruption, cover-up and deceit at the highest levels of media, police and government (though disgust at the hacking of a dead teenager’s phone in a way that lead police and family members to think she might still be alive sparked the deeper revelations). The top two officers at the Met police may well lose their jobs soon. MPs openly laughed at their testimony in committee yesterday. Cameron changes his position daily and is in a fraught situation that could see serious damage to coalition and his leadership (he hired and continued to defend a disgraced editor long after there was ample evidence that he was involved in serious criminality). The potential for this to snowball in unexpected directions continues to grow.

        Of course, the Greek default could trigger a different kind of snowball that quickly takes all the oxygen in the room (to mix my metaphors).

        1. I can only hope so; the dreadful old man has just given up on the BSkyB bid – his biggest career blow ever, and one that will not make the shareholders happy – and the scandal looks set to run and run.

          I thought this from Monbiot was well said and worth reading.

  7. At the time you wrote this we all believed we were safe in the assumption that Australia would have an ETS. Now it seems there is still a few twists left in this long and drama filled tale.

    “Crimes have been committed that can bring down the Gillard government, and they are dumb crimes.

    “In 2003, 2005 and 2006, [Labor MP Craig] Thomson’s corporate credit card was used to pay escort services in Melbourne and Sydney while he was national secretary of the HSU. He says his signature on receipts to escort agencies were forged.

    “Thomson tried to reverse three payments made to an escort agency on his corporate credit card by using his personal credit cards.

    “Mobile phone records show that Thomson’s phone was used to call escort agencies.

    “In Parliament yesterday, Thomson was asked to account for $39,454 in electoral expenses, incurred via his corporate credit card, that had not been declared to the Australian Electoral Commission.”

    If Thomson loses his seat to a liberal it will mean there is a 75-75 split in the lower house, meaning no Government can form and new federal election will be needed.

Leave a Reply