The Federal Government’s plans for Emissions Trading System appear to be in disarray, with both the Greens and Opposition supporting better plans to reduce emissions.

The fundamental problem with the Wong plan is its lack of ambition. A 5% target sends the wrong signals about taking climate change seriously, while the combination of bail-outs for business, availability of permit transfers from non-Kyoto countries and lack of floor price make any target meaningless. Australia could achieve nothing, a carbon price too low to drive technology innovation while imported permits mean Australia’s actual emissions increase. And some businesses may still feel like relocating offshore.

In politics it is hard to be all things to all people, except on election night. But Labor’s climate change policy is rapidly losing friends and Bob Brown is right to say a bad ETS is worse than no ETS at all.

To put it in nutshell, an ETS is designed to create a price signal that encourages reductions in emissions, by for example, making cleaner gas fired electricity cheaper than coal fired electricity. The reason for choosing an ETS is that we don’t know what the right price is, so we let the market decide. The problem with the government model is that the price signal will almost certainly be wrong.

If the most important thing is the price signal, then why not cut to the chase with a carbon tax and save all the bureaucratic hoopla. A tax or a price floor gives businesses and inventors the signal to invest.

The Liberal policy, saying anything you can do, we can do better, is basically correct, because they are proposing to target the non-covered sectors, particularly agriculture and managed forests as well as sectors covered by emissions trading.

These sectors, along with shutting down the coal power stations, are the only way to achieve rapid reductions in atmospheric carbon dioxide concentrations, but it is not about planting trees over an area the size of Tasmania every 2 years as hypothesised by Wong’s not-so-boffins. To get the idea we only have to look at Victoria’s tragic bushfires. Basically a lot of undergrowth, soil carbon and trees went up in smoke, adding massively to carbon emissions. Now instead of burning that biomass in the air, it could have been burnt in a low oxygen environment and reduced to charcoal, or more politically correctly, bio-char. This is effectively the same thing as coal, so that rather than burning coal from the biomass of millions of years ago, we lock carbon away.

Charcoal locks carbon away for centuries, but the biomass is being generated by forests and farms every day. And if we don’t do something about the forests it will either burn uncontrollably as a wildfire, be reduced by fire reduction burning, or rotting into methane, all heat trapping gases in the atmosphere. Note that this applies to disturbed forests that have high fire rates. For mature mixed wet forests which have low fire rates the best carbon policy is most likely ‘do not disturb’. For farms there is the added benefit that biochar adds to soil fertility.

Gathering up biomass is likely to be labour intensive, but the technology is simple. It is a potential solution to rising unemployment, though one of low productivity. But the wake-up call of Black Saturday on the danger that fire-loving eucalypts present for a warming Australia we need to consider radical solutions. Labor’s proposed ETS is neither radical nor likely to be effective.

However, there are a few changes that would enable positive outcomes to be achieved without damaging the economy in these uncertain times.

The risk of carbon leakage, Australian businesses moving to countries outside Kyoto is real. But rather than handing out free credits to polluters, or having timid targets, we need to recognise that until there is a global agreement; exporters will need to effectively sit outside the system. This can be achieved by rebating the effective carbon permit cost to exporters based on best practice benchmarks. Polluters still have an incentive to reduce emissions, but there’s little incentive to move offshore.

Payments made for export rebates should then be offset by a carbon levy on importers that reflect the emissions associated with the goods we import. This stops the ‘carbon leakage’ from import competitive industries, such as car manufacturing. Combine a rebate for exporters and levy on importers and you move from imposing a cost of carbon on production to a carbon cost on Australian consumption. Given a global trade system, a slowing global economy and a lack of international agreement this is the only rational way forward.

A major flaw in the government’s strategy is allowing Clean Development Mechanism (CDM) permits to be used as part of the Australian system. Given that we are have the low reduction target of 5% based on the failure of these countries to agree to a cap, allowing non-Kyoto countries to then sell us permits that raise our emissions is totally flawed. If we are going to make the target conditional on international agreement, then there should be no trading with countries that have not accepted a cap.

The problem for Kevin Rudd is that he has squandered his mandate. The plan to get emissions trading legislation through the Senate relied on a credible threat to take it back to the people if it was refused. This doesn’t work if the Emperor’s new trading system has no clothes.

A few simple changes will make the Emissions Trading System credible. Have a 10% target rather than poultry 5%, include a price floor so that incentives are not lost, exclude permits ‘generated’ in uncapped developing countries, give exporters a rebate rather than free permits and have a credible plan to reduce emissions in agriculture and forestry.

If the ETS was credible then Labor would have the credibility to push it through the Senate or give the people their say.

There is also another credible threat that should send fear through the union and business lobby that has watered down the ETS to irrelevance. If Climate Change Minister Penny Wong can’t get a credible emissions trading system through the Senate, then Environment Minister Peter Garrett should regulate carbon emissions as a threatening process using the EPBC Act.

 

Alex Wadsley
Charcoal locks carbon away for centuries, but the biomass is being generated by forests and farms every day. And if we don’t do something about the forests it will either burn uncontrollably as a wildfire, be reduced by fire reduction burning, or rotting into methane, all heat trapping gases in the atmosphere. Note that this applies to disturbed forests that have high fire rates. For mature mixed wet forests which have low fire rates the best carbon policy is most likely ‘do not disturb’. For farms there is the added benefit that biochar adds to soil fertility.  Gathering up biomass is likely to be labour intensive, but the technology is simple. It is a potential solution to rising unemployment, though one of low productivity. But the wake-up call of Black Saturday on the danger that fire-loving eucalypts present for a warming Australia we need to consider radical solutions. Labor’s proposed ETS is neither radical nor likely to be effective.