Block’s Indicator of Sustainable Growth

By Ray Block

 Now that the carbon pollution reduction scheme (CPRS) has been defeated for a second time in the Australian Senate, despite it  being severely weakened to accommodate the Opposition liberal and national parties, the time has come to re-work the legislation. The CPRS is Australia’s equivalent of an emissions trade scheme.

 The new Opposition Leader, Tony Abbott has been led up a blind alley to achieve the impossible. Many of his followers are climate deniers. Tony Abbott says that if the coalition is elected to office in 2010, there will be no carbon tax, or an emissions trading scheme.

 Without putting a price on carbon, which can only be done by a carbon tax or an emissions trading scheme, a voluntary scheme won’t work, but that’s what he preaches.

 The Abbott remedies are more along the lines of energy efficient buildings; better land and forest management practices, by improving photosynthesis and storage in no-till farming, leaving carbon in the soil, and storage of char carbon. And you need to add greater emphasis on renewable energy, and a possible lean towards nuclear energy.

 All these remedies are positive, but they won’t deliver enough reductions in greenhouse gases.  And all this has to be done in a spirit of volunteering.  If there is no carrot or stick, not many companies are going to respond in a meaningful way.

 Australia has a mandatory renewable energy target of 20 per cent by 2020, and currently has a small hydro, wind, solar PV and biomass portfolio in installations. All these need to be greatly expanded.

 When the US and other advanced manufacturing economies have made greater progress in improved  batteries for electric and hydrogen fuel cell vehicles, and algae and other biofuels become more cost effective in comparison with hydrocarbons, these technologies can be utilised. Australian energy R&D is too far behind to expect much more than me too development, and we can only import what is available offshore.

 The problem with the carbon pollution reduction scheme is that it is based too closely on the Eurozone emissions trading system, which has too many flaws.  

It is a complex process and difficult for electors to understand it. The opposition to carbon taxes and emissions trading systems sees them only as an additional impost to the goods and services tax. They are an exra cost, and you can’t hide that.

 The cap and trade seemed good in theory, but the European system isn’t working well in practice. Too many free allowances for energy-intensive industries has led to sharp volatility in the price of CO2 over recent months to between less than 10 euros a tonne to a ceiling of near 25 euros a tonne. But even at the higher level, the carbon price is  still too low an inducement for manufacturers  to purchase more efficient equipment, with substantially lower carbon emissions.

 This is borne out in the comments by Shell’s chief executive, Peter Voser, who says the European cap and trade is failing to deliver sufficient incentives to industry to kickstart expensive technologies, such as carbon capture and storage.

 So although the European emissions trading scheme is meant to deliver a greenhouse emissions reduction of 20 per cent by 2020, a renewable energy target of 20 per cent by 2020, and a biofuels target of 10 per cent by 2020, the European Community is contemplating imposing an additional carbon tax as well to curb global warming.

 The Carbon Tax Center in New York, which advocates a carbon tax instead of an emissions trading scheme makes some powerful reasons for support. Let me quote these reasons, which I fully support.:

 Carbon taxes lead to predictability in energy prices, as against the often sharp price volatility of CO2 on carbon exchanges.

Carbon taxes can be implemented much sooner than the cumbersome cap and trade.

Carbon taxes are transparent and easier to understand than cap and trade.

The simplicity of a carbon tax “inoculates it against the perverse incentives and potential for profiteering that will accompany the cap and trade.” There is a fear that the carbon exchanges  could easily create the sort of complex financial instruments that led to the global financial crisis.

Carbon taxes can produce a far more equitable result than a cap and trade.

 To come back to Opposition Leader Tony Abbott, to reduce the high level of carbon emissions per head of the Australian population is going to require compulsion of some sort or other.

No carbon tax, or emissions trading scheme will achieve a near zero result. Or does Mr Abbott rely on the political solution of a magic pudding, where you make it up as you go along.