Taxing issue: time to legislate on emissions

Newcastle Herald
Saturday 17/3/2007 Page: 19

THE Australian Government says it will mandate the replacement of incandescent light bulbs with compact fluorescents. This is just a small beginning. To reduce man-made carbon dioxide emissions there will need to be much more where this comes from.

Most political discussion about carbon dioxide emission reduction has been about carbon trading. The main argument for carbon trading is that it is economically efficient and it underpins the Kyoto Protocol. Trading is part of Kyoto because of a successful scheme in North America that reduces sulphur dioxide emissions that cause acid rain.

In carbon trading, a total carbon dioxide emission target is set for a power generator and over time this target is reduced. To meet emission targets a generator introduces lower emitting technologies (for example gas, wind, solar). If it subsequently emits less carbon dioxide than it is allowed it can sell this excess emission capacity to other generators.

But trading is not perfect. Every "exhaust pipe" has to be monitored to stop cheating so only the stacks of large emitters can be monitored. Trading also controls the total amount of emissions, but not the price of the emissions. Trading's explicit targets (for example, 10 per cent reduction) are superficially appealing. However, the price then depends on the scarcity of "excess emissions" from other emitters. And it's not just about emitters. The government regulator of the trading scheme sets the total emissions.

A carbon trading scheme in Europe has virtually collapsed this year after just three years because Eastern European members of the European Union increased their country's allowable emissions to attract industry. Europe now has more emission capacity than there are industry emissions. A carbon trading scheme in Australia run by the states - and under the constitution the states have the power, not the Australian Government - could easily suffer the same fate.

Even a federal scheme would be subject to industry lobbying for relief. Australia already runs a simple trading scheme called Renewable Energy Certificates. Electricity retailers are required to buy certificates generated by low emission household technologies.

Certificates work well for solar hot water systems. However, the recent compact fluorescent light give-away (when paying your electricity bill) collapsed because most people were not installing them, so there was no carbon dioxide saving to be traded.

Trading doesn't guarantee use of renewable energy sources. Until carbon reductions of more than 30 per cent are mandated, gas turbines are the most cost-effective alternative to coal. Only deeper cuts will force the use of more efficient but more expensive technologies.

A carbon tax might be better.

Emitters are charged a set rate for the carbon (that is, coal, oil, gas) they use. There is no guarantee how much emissions will be reduced but industry has certainty about their costs. There is also no need to monitor emissions so all emitters can be included, such as cars. We need only decide a price.

The recent nuclear energy review suggested a tax of about $40 per tonne of coal would make all electricity options (coal, gas, nuclear, wind and geosequestration) comparable. This would double electricity generation costs from three cents per kilowatt hour to six cents. Household consumers would pay about 30 per cent more. Power generators would contribute about $1 billion per year in NSW alone.

Some may see this as a tax grab by the states, but carbon income could offset tax reductions in other areas. Or it could subsidise installation of renewable energy, solar hot water, and home insulation. However, if consumers decide to pay the increased price, there may be no emission reductions at all.

The Greens suggest we should ban coal exports. This is silly. Carbon dioxide emissions from burning exported coal fall under the importer's Kyoto emissions targets, not ours. The proposed export ban also presumes that the coal will be burnt so that the carbon dioxide is released to the atmosphere. While largely true today, this may not always be the case, with geosequestration likely in the future.

How coal exports are used is not our decision. A decision on carbon abatement needs to be made soon or we might end up like Texas. Texas is facing an electricity shortage. Its power industry expects some form of emission controls but won't commit to new power stations until it knows what the controls will be. To avoid this fate it's time for either the Australian or state governments to take the initiative.