States falling through carbon pricing loophole

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The federal government’s flawed carbon pricing scheme is letting state governments off the hook on climate action.

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The Conversation

In the past few days we have seen two states, Victoria and Queensland, announce cut-backs on action to reduce greenhouse gas emissions. They have been able to justify this by pointing out, correctly, that their actions would not cut Australia’s overall greenhouse gas emissions beyond the national target.

The Commonwealth Government’s Clean Energy Future scheme design is flawed. I, along with Richard Denniss from the Australia Institute, the Voluntary Carbon Markets Association and others have been pointing out this flaw and showing how it could be fixed, for over three years.

The problem is that if a state government, council, business or household voluntarily cuts its emissions beyond what it is legally required to do (for example, under building energy regulations), this simply frees up more permits for other emitters to use, so their efforts don’t cut the total amount of carbon emissions. But Canberra econocrats and politicians have simply turned deaf ears.

The frustrating thing is that this flaw is easily fixed. In fact, the Commonwealth Government has actually addressed this issue for forestry and agricultural activity through its Carbon Farming Initiative. Extra permits are issued for the carbon stored: these permits can be sold or retired, and count as “real” abatement. But the government has been determined in its resistance to applying a similar approach to energy efficiency, renewable energy, low emission energy and most waste management.

The solution is simply to put in place a mechanism so that when anyone – state governments, local councils, businesses and households – cut emissions voluntarily beyond what they’re required to do by laws, the appropriate number of carbon permits is cancelled.

State governments, councils, households and most businesses won’t normally be involved in the carbon trading scheme, but their extra effort does cut Australia’s overall greenhouse gas emissions. This should be reflected in the market: the total number of permits available should be reduced by an amount corresponding to the abatement they have voluntarily achieved. This reduces the number of permits available to other emitters, effectively tightening the national cap in proportion to the amount of voluntary abatement.

Why isn’t it possible for emissions reduction to operate this way? The rationale for this policy failure has never been made clear. One possibility is that policy makers felt that an extra mechanism would contaminate and complicate the theoretical “elegance” of their carbon trading scheme.

Another is that the government knows there is a lot of low-cost abatement available from sustainable energy and waste, and it wants to include the contribution of this abatement as part of achieving its target. If there is no mechanism to account for and recognise state government abatement, the Commonwealth government can claim those reductions as its own.

Yet another possible reason is that econocrats and politicians just don’t understand how to design a policy to mobilise community action on cutting emissions. Whatever the reason, the folly of this approach is now being seen: it has provided a convenient excuse for state governments to back away from action on climate.

The failure doesn’t just affect state government action. Already many businesses and local councils that are cutting emissions have been forced to turn away from supporting local emission abatement, to buy overseas carbon permits. They can’t use Australian abatement (from energy or most waste) projects to offset their emissions because they do not meet carbon accounting standards. So they would risk prosecution by the ACCC if they did try to take credit for supporting local abatement action. How perverse.

In turn, this means investment in local abatement industries and projects has been diverted overseas, just when we need to build this capacity. It also means we’re missing out on jobs growth and economic development. How bizarre.

It’s not too late to fix this problem. The mechanisms created for the Carbon Farming Initiative, Renewable Energy Target and proposed National Energy Saving Initiative can be adapted to track voluntary action that cuts emissions from energy and waste. Then well-intentioned local councils, businesses, and households could get due credit for their abatement efforts, and state governments would no longer have an excuse to avoid their responsibility to cut emissions. And a powerful new mechanism that empowers the community to cut emissions harder and faster would be unleashed.

All that’s needed is the political will and a bit of common sense.

Alan Pears is a senior lecturer in Global Studies, Social Science & Planning at RMIT University

This article was originally published on The Conversation – theconversation.edu.au. Reproduced with permission.

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2 Comments
  1. Harley Wright 7 years ago

    Oh dear – just when I thought the voluntary reductions furphy had died the natural death it deserved, it is resurrected again.
    1. Can anyone explain in simple, logical terms what a voluntary reduction is? And how it is different to anything others do, whether they are ‘liable parties’ or not?
    Alan Pears implies a voluntary emission is when people, “cut emissions voluntarily beyond what they’re required to do by laws”. Please explain.

    2. The above description of ‘cutting emissions beyond the law’ strongly suggests using ‘additionality’. Most wish to avoid this unnecessary process which is inherently inaccurate and uncertain; eg, what is the baseline? OK, JI and CDM use this process but they are far from perfect. When you can have good measurement of, and payment for, ‘covered’ emissions, it is a weird [illogical] mechanism which then hypothesises about what any person or corporate body would have done ‘normally’.

    3. The likely quantity of such ‘voluntary reductions’ – undefinable as they are – would surely be small and would require lots of effort to quantify them [which will be imputed from a guess about future behaviour]. Ie, a high cost for small gain [if it is a gain].

    If we are responding well to pricing signals, then the government, through the Climate Change Authority, can reduce the amount of permits issued. Note that the CEF program allows people to buy and cancel permits if they wish to lower Australia’s available permits.

    There are serious and difficult climate issues to tackle like trying to gain strong international agreement on abatement, much faster than the apparent Durban timeframe. I see this resurrection of a complex, costly unnecessary and dubious domestic mechanism as a distraction to the main game.

    Further, such inexact and dubious mechanisms can give the genuine CEF program a bad name, by simply providing confusing, complex and distracting arguments to the relentless critics of the efficient scheme we will have operating in July. Let’s put our energies into critiquing the climate denying nutters who still don’t get it.

  2. David Hamilton 7 years ago

    Good article, thanks, Alan. I have two questions:

    1. The Greens claim that due to their negotiations the Government has fixed this problem (compared with the original CPRS), but you obviously disagree with them. Why?

    2. The “cap” will be to the emissions of the 500 or so “responsible entities” caught by the ETS. There will be no cap on the emissions of the rest of us, and so while in theory the rest of us could reduce our emissions greatly and not impinge on their caps, the reality is that a lot of the emitting is done by the 500 on our behalf. For people living in Victoria, for example, my understanding is that a person’s reductions in electricity and gas usage would directly reduce the emissions of responsible entities in the gas and electricity supply chains; however, reductions in our liquid fuel use might make only small differences to the emissions of a responsible entity and thus not suffer the problem you are rightly concerned about. Is my understanding correct?

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