Rudd's Emissions Target: A Policy Analysis


Protests are kicking off all around the country today as ordinary Australians react to the Government’s White Paper on climate change. After a late night driving back from Canberra, I‘ve written a summary on what exactly is in the White Paper, since it’s 850 pages of complex jargon. Here’s how I’ve deciphered it: your quick and simple guide.

Target: 5 per cent
The Government has committed to cutting Australia’s carbon pollution to 5 per cent below 2000 levels by 2020. Beyond that base commitment, the obligatory reduction could be as high as 15 per cent "in the context of a global agreement under which all major economies commit to substantially restrain emissions and advanced economies take on reductions comparable to Australia".

The Government’s household support package, its industry support package and the carbon price it is using are all based on a 5 per cent target. Treasury estimates that revenue from the scheme will be $11.5 billion, at a carbon price of $25 per tonne. They estimate that a carbon target of 5 per cent will result in permits priced at around $23, but they’ve set the $25 estimate based on expectations of market fluctuation.

The Government did not leave the door open to a 25 per cent reduction by 2020, which had been a feature of the earlier Green Paper. The White Paper states that Australia’s target may be changed after 2020 if we get a global deal based on 450 parts per million carbon dioxide equivalent (CO2e) with sharp reductions from developed and developing countries. This seems to be code for increasing the Government’s 60 per cent reduction by 2050 target to move in line with Obama’s 80 per cent by 2050.

Compensating Australia’s biggest polluters
The Government has significantly increased the amount of compensation it will be giving our biggest polluters from the model proposed in the Green Paper. Thirty per cent of the permits from the scheme will be given away for free, and there will be direct cash handouts to some industries like coal-fired generators, who score a cool $3.9 billion — untied to any structural adjustment programs to transition out of this dirty fuel.

In the words of Tim Colebatch in The Age, "Come to Australia, polluters’ paradise!" 

The Government will give free permits to new and existing firms in "emissions exposed trade intensive industries" (EITEs) like aluminium producers, iron and steel makers, petrol refiners and LNG producers.

The Government has divided these industries into two categories depending on how much greenhouse gas they emit. The more polluting you are, the more free permits you get. The biggest polluters get 90 per cent of their pollution permits for free, and the second biggest polluters get 60 per cent of their permits for free.

The principle of growth has been used to set the compensation package to trade exposed emissions intensive industries. Put simply — the more that polluting companies expand and the more greenhouse gas emissions they emit, the more compensation they receive. If a firm doubles its output and doubles its pollution it will get double the amount of free permits.

This means the Government is not seeking any meaningful structural adjustment to a clean energy future. And keep in mind that the more assistance given to polluting industries, the greater the burden on other sectors of the economy.

It’s worth noting that LNG companies like Woodside and Santos are huge winners from the scheme, as they had been excluded from receiving assistance in the Government’s Green paper in July. Now, they’ll receive 60 per cent of their permits for free, despite being well positioned to make windfall gains from emissions trading since LNG is a less polluting fuel than coal and oil.

The Government will "review" its assistance to EITEs every five years but has committed to providing five years notice before any changes take effect. Five years is a long time when it comes to climate science; so again we’re locking Australia into a situation that will be rapidly outdated as the climate science gets worse.

Compensation for companies if the scheme tightens up
Even though so many pollution permits are being given away for free, if the Government needs to take them away from companies to reduce the cap on carbon, these companies will get monetary compensation from the Government.

That is because carbon pollution permits will be personal property, and companies have been guaranteed that these rights can’t be extinguished without compensation. This means that in future, when climate change impacts start really kicking in, and the climate movement becomes stronger and governments have no choice but to strengthen the cap, the Government will have to buy back the permits from polluting companies.

It’s like what happened with the Murray, where water rights were over-allocated, and now the Government has to buy back what they should never have given away for free in the first place.

Risky business: banking and borrowing
One thing that may be overlooked in the mass of other bad things in the White Paper is companies can "bank" and "borrow" permits from future years. Banking means that companies can purchase emission permits from future years in advance of that year, if they think the price will go up in the future. This means they can continue emitting high levels of pollution even if the carbon price goes up in future years.

Borrowing is even worse, because, say I run a company and am not doing very well financially, I can "borrow" permits from future years to make up for excess emissions that I’ve emitted over the cap this year with the "intention" of paying them back in future years. How convenient it would be if I go bankrupt and avoid having to pay my carbon liability…

And just to make sure the scheme can’t be too effective, here’s a price cap
Just in case the carbon price rises too high, the scheme will have a price cap of $40 for the period 2010-11 to 2014-15. This price cap will be in the form of "access to an unlimited store of additional permits, issued by the Government at a fixed price".

Let other countries do the work for us: overseas credits
There’s another reason why the scheme is not contributing to a structural change to a low-carbon economy in Australia. There is no limit on the amount of permits companies can import from other countries’ emissions trading schemes. This means that if it is cheaper to buy emission reduction units from overseas, companies could make no changes domestically in Australia.

Companies can profit from this scheme — but it will cost the government money
The White Paper suggests that the cost of compensating business will be fully met by the revenue received from the auctioning of permits.

However the scheme allows polluters to deduct the cost of the permits they need to buy from their taxable income. This means the Government will likely receive less tax from our major corporations, which will impact the bottom line, leaving less money for renewable energy, schools, hospitals and public transport.

So if I hate this scheme, should I put solar on my roof and "do my bit"?
Unfortunately, this is one of the worst aspects of the scheme. It negates the impact of individual household emission reductions, in that if I put a solar panel on my house, it doesn’t lower Australia’s overall emissions but just frees up permits for my generator that they can then sell to Alcoa to produce more aluminium. It also lowers the carbon price, meaning companies have an incentive to produce more greenhouse pollution.

This is because the scheme "locks in" net emissions, aside from reductions in total permits through people buying and retiring permits.

This means that if an individual decides to do their bit and reduce their energy usage or put up a solar panel, they are making no difference our total levels of carbon emissions.

Unavoidable conclusions
The scheme is supposed to start 1 July 2010. It will have to pass through the Senate first. I hope you’re all gearing up for a big year in 2009, because we’ll have to build this climate movement a lot stronger than it’s ever been before.

We’ve got a big task ahead of us in order to get the Government to realise it can’t take the Australian public for granted anymore on climate change. The people who voted Kevin Rudd in can also vote him out.

Time now for the biggest movement in our history — the movement where we unite across our differences to build a movement to solve climate change.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.