Tasmanian Times

Alex Wadsley

The Carbon Credibility Gap

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.

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.

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7 Comments

7 Comments

  1. Alex Wadsley

    February 25, 2009 at 4:11 pm

    Dear All,
    Thanks for the responses,

    re: Frank – Who will organise the workshops and brainstorming sessions? If we had a clean green Premier with a vision for the future it would be the climate change group in Premier & Cabinet, that is if they can move the focus off cycle paths. While I think it is a good idea, the Premier’s continuous resort to cycling as a visions and one size fits all solution to global warming makes him sound like a one-hit wonder.

    For additional resources one would use the Premier’s efficiency razor gang, but instead of letting staff go, they are transferred to a Climate Change Corps that identifies and implements CO2 reduction and sequestration opportunities. If we want to minimise the recession the state government has to maintain spending in real terms, and if the resulting deficit is a problem for the financial markets, raise taxes. This is Macroeconomics 101.

    re: Mike – incentives to reduce emissions? There’s a number of incentives out there in terms of insulation, solar hot water and bike paths, but this is where the Fed Liberals are on the right idea with respect to reducing emissions in the non-covered sectors. I would suggest introducing a CO2 rebate for farms and forestry reducing their emissions below a ‘baseline’. This would allow forestry to move to selective harvesting as there would be more money in the CO2 rebate than exporting woodchips, particularly during a recession.

    re: Robert ‘Leakage’. I think Leakage could be a serious problem … just look at Pacific Brands. Businesses are looking for any excuse to shut down in management’s kneejerk desperation to look competent. I agree on coal exports, but this isn’t really covered by ETS anyway, what we need is an agreement with other bulk coal exporters such as Indonesia to introduce a coal export tax that steadily rises until the dirty trade is dead. We would probably need to agree to export uranium to stop our export partners panicing (and we don’t want to start a war). Tax funds support green industry transition, with the CFMEU helping to oversee the distribution of funds.

    re: John Lawrence
    “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”. The idea is that you buy permits off the market, but when you export there is a benchmark T CO2e per tonne for that type of export and a benchmark price (eg last years average carbon price). So you have a cost you can control by minimising your emissions, and a rebate than covers the cost for the average ‘good’ producer. While inefficient emitters may still shut down, wherever you set up again is likely to be using better technology, so with a rebate you are as likely to reinvest in Australia as move to Qatar or China.

    I think the concept is very similar to what is proposed by Geoff Carmody, though I’m not looking at the details. Clearly countries that export to us will complain about having an impost on their goods, but this is the only real bargaining power we have to get them to sign on to Kyoto mark II.

    Once Australia or any other country leads in this direction then America and Europe are likely to follow. Sarkozy has already flagged it as an option and US democrats are itching to give something to their protectionist bases. We should agree to waive carbon import tariffs and carbon export rebates on a reciprocal basis for any countries that have signed onto fixed caps under Kyoto and allow trading of their quotas.

    Best regards,

    Alex Wadsley

  2. John Lawrence

    February 24, 2009 at 9:12 pm

    Thanks Alex, but could you explain the following
    “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”.
    Does your recommendation for a carbon tax on consumption end up being the same as Geoff Carmody’s? Any differences? Any likely repercussions from the countries we import from?
    Thanks

  3. patrick synge

    February 24, 2009 at 6:46 pm

    Thanks, Alex, for a clear and concise article on a subject that many of us find more than a little confusing.

  4. Pat Donnelly

    February 24, 2009 at 6:15 pm

    One way to prevent change is to fracture opposition by setting up diversions….climate change is occurring but we may now be cooling rather than as hitherto, warming. And with the collapse for a decade at least, of the inflate and sell economy, carbon credits are dropping in value…. Coal is as you may know, the worst nuclear polluter, setting free much uranium and thorium into the atmosphere.
    Charcoal is valuable. Small amounts are valuable in the soil also.

  5. Mike Bolan

    February 24, 2009 at 4:23 pm

    Excellent points Alex.

    I suspect that the ETS is also dysfunctional because it removes money from investing in research to achieve emissions reductions and instead circulates it through government – a discredited enterprise if ever there was one.

    The lack of any real climate science in the whole schemozzle is a real concern. Plus it’s been reported that the ETS only reduces permits – not actually emissions which will increase by 5% over previous levels.

    What about incentives to reduce emissions? Can’t the government go past penalties and trading? What about real positive incentives for all groups or individuals that actually prove they can/will reduce emissions?

    As it stands, I can’t get past the ETS outcomes of bigger government, higher taxes, more subsidies and no incentive for non-permit holders to reduce emissions.

    I suspect the word ‘scheme’ gives it all away.

  6. Frank Strie

    February 24, 2009 at 3:43 pm

    Good timing!

    Green collar workforce the key to a triple bottom line

    What will Australia’s workforce look like
    in a low-carbon future? Modelling by
    CSIRO is revealing how policy choices
    will shape our economy, workforce and
    environment over the next 50 years.
    Human resources are central to achieving
    sustainability and human capital is the
    most valuable component of economic
    wealth, accounting for more than 75 per
    cent of the total asset base of high-income
    nations.
    The recent CSIRO report, ‘Growing the
    green collar economy’, commissioned by
    the Dusseldorp Skills Forum, shows that
    transitioning to a low-carbon economy will
    require not only emissions-mitigation and
    adaptation strategies by business and the
    community, but a ‘green skills’ revolution
    in the Australian workforce.
    According to CSIRO’s Dr Heinz
    Schandl, the research concluded that
    making deep cuts in Australia’s greenhouse
    emissions would have little impact on
    national employment. The economic
    modelling indicated strong employment
    growth for Australia over coming
    decades. Under low-carbon scenarios,
    while economic growth and employment
    continued at rates approximating those
    of the ‘business as usual’ approach to
    greenhouse emissions, key environmental
    pressures were reduced.
    ‘This means that we can decouple
    economic growth from environmental
    impact if we put the right policies in place,’
    said Dr Schandl.
    ‘Achieving the transition to a lowcarbon
    economy will require a massive
    mobilisation of skills and training for our
    green collar workers, those who work in
    key sectors influencing our environmental
    footprint. This will involve concerted
    action by government, business, labour,
    and educational and training institutions
    to develop and implement new approaches
    to green education, training and jobs.
    ‘There is a triple dividend of greater
    wellbeing, cost-saving and reduced
    environmental impact to be earned if
    Australia takes measures to support the
    skills revolution required for a low-carbon,
    environmentally sustainable society.’
    ‘Growing the green collar economy’
    projected an increase of 2.5–3.3 million
    jobs over the next two decades if Australia
    adopts a ‘sustainable future’ policy
    framework. … go to the link for the full story
    http://www.ecosmagazine.com/?act=view_file&file_id=EC146p17.pdf

  7. Frank Strie

    February 24, 2009 at 12:57 pm

    Alex Wadsley – in short- congratulations!
    Let’s have the debate we had to have begin.

    Who will organise the workshops and brainstom sessions.
    Should we all get together in Ross and/or Oatlands?
    Let’s have a link up and exchange the present situation.
    This topic deserves to be explored and developed by a “whole community” – above party political debate.
    You mentioned the potential for job creation-
    may I say here – there are jobs in this concept in all sorts of areas – hands on and education and facilitation, coordination, generation, local – decentralised job opportunity.
    Will Tasmania have this as one of the industries supported by a true to claim clean, green & clever Tasmania Brand?
    This complex topic is an opportunity for this island to get it right, a place and community initiative to feel that happy to call Tasmania Home!
    Time will tell…
    Here a few science based links:
    Science based Biochar information provided here:

    Australia and New Zealand Biochar Researchers Network
    http://www.anzbiochar.org/links.html

    and look for
    The International Biochar Initiative (IBI)

    and
    Climate Briefing Note on Bio-Char
    Institute for Governance & Sustainable Development
    http://www.igsd.org/docs/Biochar%20Note%2015%20Dec%202008.pdf

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