Garnaut sets off to sell the Emissions Trading Scheme

Ross Garnaut set off on his state capital tour of Australia this week to explain his report to the people in public forums. With the government promising to implement an Emissions Trading Scheme (ETS) by 2010, Garnaut has the difficult job of persuading a wary public that the scheme is in their best interests. While Labor was voted into office on the platform of addressing climate change, recent polls suggest that the public may not yet be ready to make the required lifestyle changes or understand what the impacts of the ETS are.

On ABC’s Insiders this Sunday, Kevin Rudd struggled to answer the question: what in “plain simple terms” is an Emissions Trading Scheme? Rudd prefaced his answer by reiterating the need to act. In a line that will be used as a mantra by all Government climate change spokespeople, he said the cost of inaction was greater than the cost of action. Rudd said the trading scheme would put a cap on emissions, with permit allocated across the economy to the total amount of carbon. A carbon market would be allowed to trade up to the cap. A government green paper will decide the difficult question of who gets the permits and for what.

Garnaut’s report acknowledges Australia’s trade-exposed, emissions-intensive industries have valid concerns. The key elements demanded by the report are that the scheme be introduced without delay; it must be broad based and should include transport and fuel. He recommended carbon sales be sold before trading begins to help guide the market on price. Half the revenue raised from the permits would go to low income households, 30 percent to trade exposed carbon intensive industries and the remaining 20 percent to R&D.

The Government has lain down five tests for an ETS. Firstly, it must be a ‘cap and trade’ approach; in other words, an effective scheme must be one where total emissions are capped with permits allocated up to the cap. Secondly, the ETS must effectively reduce emissions by 60 percent by 2050. Thirdly, it must be economically responsible, keeping costs low and Australian industry competitive. Fourthly, it must be fair with costs and benefits shared across the community. Finally, it needs to act now because economic modelling shows that delayed action increases the cost.

The clean Energy Council said emissions trading would provide a massive boost to the economy, unlocking $20 billion in clean energy investment. The Council’s policy general manager Rob Jackson said it was critical that the scheme began as promised in 2010 to provide business certainty. He said now was the time to make decisions for long-term energy infrastructure investment. “An early start and a secure trajectory will give business the sign it needs to invest in emissions reduction,” he said.

Importantly Jackson believes the ETS needs to be implemented along with complementary measures such as the 20 per cent renewable energy target. This target was a key plank (pdf) of Labor’s election policy. The policy read “A Rudd Labor Government will ensure that the equivalent of at least 20 per cent of Australia’s electricity supply is generated from renewable sources by 2020”. This amounts approximately 60,000 gigawatt hours (GWh) or the electricity used in 7.5 million homes and would deliver a reduction of almost 350 million tonnes of greenhouse gases in the next two decades. But with Labor ruling out nuclear power, that may prove an impossible ask. Hence the importance of the 20 percent R&D windfall from the ETS.

However Garnaut’s call for a bi-partisan approach looks completely dashed now that Opposition leader refused to commit to supporting an ETS by 2012. Nelson backed away from the coalition’s pre-election commitment on the 2012 date and went back to the tired old Howard line that it would be “economic suicide” for Australia to act alone. He urged Rudd to use the upcoming G8 conference in Japan to push for a global response. But party colleague and former federal environment minister Ian Campbell says Nelson should avoid playing populist politics and support a carbon trading scheme. Campbell attended a public gathering in support of Garnaut’s report. "I think what the opposition needs to realise is they can be quite proud of the role that we played in government to get a trading scheme on to the policy agenda,” he said.

The big question will be what will be the price of carbon? Current offset prices vary from 50 cents to $30 a tonne. The ‘cap and trade’ system where companies decide the most economical way to meet an overall cap, include widely varying details with unknown impact. The market will very much depend on how governments implement the system. That's why finding the right price of carbon is key. In Europe the price has varied wildly with fundamentals such as weather, policy, market psychology and a host of miscellaneous factors all influencing the price. But the benefits are there if the price signal is right. There will be a massive opportunity to generate income from activities that previously attracted no additional revenue, such as investment in emission reduction, renewable energy generation, greenhouse friendly fuels and carbon sequestration. The age of carbon ‘user pays’ is at hand.