MAKING big polluters pay to pollute. That’s what it all boils down to. Has there ever been a public debate so mired in weasel words, management speak and general mumbo-jumbo than the so-called “carbon pricing” debate?
Mechanisms, schemes, carbon taxes, carbon prices – obfuscation, confusion and lazy language. A deliberate ploy by a lily-livered government? Or the unintended outcome of an incompetent sales job? It’s hard to know.
What we do know for sure is that the 18 pieces of legislation now sitting in the lower house of Parliament, waiting for a vote on October 12, mean one thing and one thing only: Australia is about to become a big boy and learn how to clean up after itself.
Economists call it “pricing an externality”. An externality is something you do that imposes a cost on everyone else. You don’t pay, but others do. Because you don’t pay, you tend to do more of it than would be optimal for society.
When it comes to pollution, we all pay the price of pollution through changes to the natural environment, such as hotter weather, increasing droughts, rising sea levels.
From July 1, the nation’s 500 biggest polluters will be forced to pay for permits for every tonne of pollution they pump into the atmosphere each year. The initial price of these permits will be $23 a tonne, rising in each of the two subsequent years by 2.5 per cent plus inflation.
During the second phase, beginning on July 1, 2015, the government will no longer fix the price of pollution permits, but the quantity of permits available. Like a game of musical chairs, the government will begin slowly removing pollution permits to ensure targets for reducing carbon pollution are met.
Companies will have to bid against each other to secure access to the remaining pollution permits. The price of permits will be determined by supply and demand.
Companies that have reduced their emissions, and therefore require fewer permits to pollute, will be able to sell their permits to other, less energy-efficient companies. There will be incentives for all companies to reduce emissions to avoid paying a higher price and also to potentially make a profit from the sale of permits which are not needed.
All the revenue from the sale of permits will go to government and half will be given to households to compensate them for higher prices on energy-intense goods and services.
During the second phase, companies will also be able to buy pollution abatement credits from overseas. It’s not cheating, but a way to enable Australian companies to take advantage of the relatively low-hanging fruit of reducing emissions in other countries. It will make the cost of doing our bit to reduce emissions all the cheaper.
Will it all make any difference to emissions? You betcha. Australia’s total annual domestic emissions were 578 megatonnes in 2009-10. Left unchecked, Treasury projects this would grow to 679 megatonnes in 2020 and 1008 megatonnes in 2050.
With the scheme, and subtracting for international abatement credits bought, Australia’s net emissions – our total contribution to pollution in the atmosphere each year – will fall to 527 megatonnes in 2020 and just 111 megatonnes in 2050.
So by 2050 we’ll be responsible for one-tenth of the emissions we would otherwise have been responsible for.
It’s big. And it’s about time.
THE IRVINE INDEX
Carbon pollution Australia pumped into the atmosphere in 2009-10.
Left unchecked, the amount of carbon pollution Australia is projected to emit in 2020.
Left unchecked, the amount of carbon pollution Australia is projected to emit in 2050.
Under the government’s Clean Energy scheme, the amount of carbon pollution Australia is projected to emit in 2020—58Mt less than with no action.
Under the Clean Energy scheme, the amount of carbon pollution Australia is projected to emit in 2050 — almost half what it would have been emitted if no action were taken.
After the inclusion of purchased international abatement credits, what Australia’s net contribution to carbon emissions will be in 2020 — 152 Mt less than with no action.
After the inclusion of purchased international abatement credits, what Australia’s net contribution to carbon emissions will be in 2050 — 897 Mt less than with no action.
What Australia’s net carbon emissions will be in 2050 under the Clean Energy scheme as a proportion of what they would have been with no action.
Pollution that would have hit the atmosphere by 2050, that will not because of the Clean Energy scheme.
*1 megatonne = 1 million tonnes
Sources: Treasury’s carbon price modelling available at treasury.gov.au