Australia needs carbon trading to fight climate change: study

Yahoo News 4 Jul 08;

A major climate change report for Australia's government on Friday recommended the rapid introduction of an emissions trading scheme to curb greenhouse gases and warned that delay could be disastrous.

"Without early and strong action, some time before 2020 we will realise we've indelibly surrendered to forces that have moved beyond our control," said the report's author, economics professor Ross Garnaut.

The former diplomat and long-time advisor to governments said in his report that climate change was a "diabolical" problem which could cause immense damage to Australia.

An emissions trading scheme covering as many sectors as possible, including transport, was the best way of reducing the production of the greenhouse gases blamed for global warming, he said.

"The more sectors included in the emissions trading scheme, the more efficiently costs will be shared across the economy," Garnaut said.

However, energy prices would rise under the scheme and low-income households would need to be compensated through funds collected from the sale of emissions permits.

Garnaut said his specific recommendations on emissions targets and carbon pricing would be contained in a supplementary report at the end of August and in the final report to be released at the end of September.

Emissions trading schemes place a limit on the amount of greenhouse gases companies can produce, forcing heavy polluters to buy credits from companies that pollute less -- thereby creating financial incentives to fight global warming.

Garnaut was commissioned to undertake the study last year by the incoming centre-left government of Prime Minister Kevin Rudd, which accused the former conservative government of failing to take action over climate change.

Rudd, who signed Australia up to the UN's Kyoto Protocol on climate change as his first official act in government, wants to create such a trading system by 2010.

Minister for Climate Change Penny Wong has said it would "constitute the most significant economic and structural reform undertaken in Australia since the trade liberalisation of the 1980s."

Business groups have expressed concern that such a trading scheme would push up costs and make it more difficult for companies to compete against foreign firms not faced with similar restrictions.

Australian adviser unveils carbon trading scheme
Rob Taylor and Mark Bendeich, Reuters 4 Jul 08;

CANBERRA (Reuters) - Australia's leading climate guru on Friday laid out a draft carbon trading scheme to rein in rising emissions in the world's top per-capita greenhouse gas polluter.

Economist Ross Garnaut, appointed by the government to design what will be the world's most extensive emissions regime from 2010, said Australia was critically at risk from climate change and urged deep cuts in emissions from the world's top coal exporter.

But Prime Minister Kevin Rudd, who won a huge election victory last November on a green agenda, is under pressure to soften the impact of inevitable energy and fuel price rises from an emissions cap-and-trade scheme.

"We cannot drop the ball," Garnaut said in a speech. "Our location makes us already a hot and dry country. Increases in temperature and lower rainfall have a much bigger impact here than on other wealthy countries."

Garnaut, dubbed "Australia's Nicholas Stern", referring to the British author of a widely read report on fighting climate change, urged Rudd to go further than his current goal to cut greenhouse gas emissions by 60 percent by 2050.

Garnaut urged the inclusion of energy and transport in the scheme, but said big corporates whose foreign rivals are free to pollute should be mollified with compensation.

Voters, though, are already fretting over higher petrol prices, along with rising food and mortgage costs, piling pressure on Rudd to get the scheme right and limit the impact on ordinary Australians.

Polls show rising living costs are already eating into government popularity.

Some rival green and conservative analysts have even begun thinking what on election night last year seemed impossible; that emissions and climate policy could bring so much economic upheaval that Rudd's dominant Labor lasts only one three-year term. Garnaut gave no hard numbers on what his preferred regime could cost, promising those by August. But a "middle-of-the-road" climate policy could gouge 4.8 percent from gross domestic product, or US$384 billion, by end of the century, he said.

POLLUTER PAYS

"An effective market-based system will be as broadly based as possible, with any exclusions driven by practical necessity and not by short-term political considerations," the report said. Power generators say they will have to raise prices, while farmers and coal-miners warn of lost overseas competitiveness.

Under Garnaut's proposals, businesses that pump out less greenhouse gas than their allowable limit would receive credits and be able to sell permits bought at competitive auction to pollute to firms exceeding their carbon emissions quota.

The government is already working on a number of options for the 2010 trading scheme.

"Professor Garnaut's views will be taken into account," Climate Change Minister Penny Wong said.

"The Australian government believes that every nation must do its fair share to tackle climate change and we are working to help shape a long-term global solution," she said.

Garnaut's scheme would cover more sectors of the economy compared with the European Union's emissions trading system, currently the largest of its type and worth $50 billion last year.

The EU scheme, which covers about half of EU emissions, was criticized for overallocating emission permits, which experts said should have been auctioned.

To overcome what Brussels sees as that design flaw, the Commission earlier this year said it will set EU-wide emissions limits for all sectors covered by the trading scheme, and most permits will be auctioned off instead of handed out for free.

The report conceded a competitive emissions-trade system could cause big price gyrations in the early stages and accepted there was a good argument for relying initially on some fixed-price permits and a two-year trial period.

Compensation directed to disadvantaged exporters, to keep them in Australia, should be limited to as much as 30 percent of the cost of purchasing emission permits, the report said, prompting a testy response from Green groups.

"There is a danger that if we move to a corporate welfare scheme, it's just going to prolong the use of coal. Coal is not the solution, coal is the problem," Greenpeace CEO Steve Shallhorn told Reuters.

Australia relies on coal to generate about 77 percent of the country's electricity.

Garnaut stressed the emission scheme should not become a government revenue-raiser, suggesting 50 percent of the likely A$15-20 billion ($14-19 billion) raised from permit auctions should be returned to households and 30 percent to hard-hit businesses. The other 20 percent would go to renewable energy.

(Reporting Rob Taylor and Mark Bendeich; Editing by David Fogarty)

($1 = A$1.04)

FACTBOX: Australia report outlines carbon trading system
Reuters 4 Jul 08;

SYDNEY (Reuters) - Australia's climate-change adviser, Ross Garnaut, sketched out a blueprint for a national carbon-trading system on Friday in a report to the government. In his 600-page draft report, Garnaut called for tough limits on greenhouse gas emissions and a competitive auction for setting the price of emission permits, which would give the right to pollute, but he stopped short of giving hard numbers. Instead, he outlined the following key principles for governing an emissions-trading system:

SETTING EMISSIONS CAPS

* The nation's overall emissions cap should be set as an annual limit and lowered over time. The first cap, from 2010 to 2012, should be based on Australia's commitments to the Kyoto climate-change protocol, which aims to limit its emissions to 108 percent of 1990 levels by 2008-12. The caps decided for the post-2012 period "should reflect increasing levels of ambition".

CHANGING EMISSIONS CAPS

* Changes should be based on international policy developments and agreements. The government should give five years' notice of movement to another "trajectory", meaning a different level of emissions caps.

SCHEME COVERAGE

* Emissions caps and emissions-permit trading should apply to six greenhouse gases as defined by the Kyoto Protocol: Stationary energy (such as power plants), industrial processes, "fugitives" (which includes coal-mining and oil and gas production), transport, waste and forestry. The first four would be included from the outset in 2010 and the other two as soon as practicable. The inclusion of agriculture (Australia's second-biggest emitter) to be subject to progress on measurement and administration.

DOMESTIC CARBON CREDITS

* Domestic carbon credits will have a small role. Unlimited credits should be accepted from forestry, before and during running of the scheme. Credits for agriculture should be analysed further in the context of coverage of agricultural emissions, pending advice given in further reports.

ISSUING OR RELEASING PERMITS

* All permits should be auctioned at regular intervals. Some additional permits may be awarded, in lieu of cash assistance, to firms that are in trade-exposed, emissions-heavy industries that face competition from less-regulated rivals overseas.

INTERNATIONAL LINKS

* Opportunities for international linking of the Australian scheme should be sought in a judicious and calibrated manner.

PRICE CONTROLS

* Not supported, except during transition period to end 2012.

FLEXIBILITY IN USE OF PERMITS

* Unlimited hoarding of permits should be allowed. Official lending of permits by an independent carbon bank to the private sector should be allowed within five-year periods.

TREATMENTS OF TRADE-EXPOSED INDUSTRIES

* International sector-specific agreements on emissions caps should be pursued as a priority. If they have not been reached by end-2012, assistance should be given to account for "material distortions" arising from major trading competitors not adopting similar constraints on emissions. The level of assistance should not amount to more than 30 percent of the cost of permits.

GOVERNANCE

* Scheme should be administered by an independent "carbon bank".

COMPLIANCE AND PENALTY

* Penalty will be enforced to ensure compliance but will not release the offender from the obligation to purchase permits.

USE OF PERMIT REVENUE

* Auctioning of permits likely to raise A$15-20 billion ($14-19 billion), with some cash kept aside to cover the costs of the system and to purchase international permits or carbon credits. The rest would be returned to households and businesses or invested in renewable energy.

(Reporting by Mark Bendeich; Editing by David Fogarty)

FACTBOX: Australia's plan for "diabolical" climate change
Reuters 3 Jul 08;

(Reuters) - Australia, one of the world's top carbon emitters per person, will unveil an emissions trading scheme later this year, which it hopes will help cut the country's carbon footprint.

The scheme is a major initiative of Kevin Rudd's Labor government, and is due to start operating in 2010.

Climate Change Minister Penny Wong will outline the government's options for carbon trading later in July, with the system to be finalized and laws sent to parliament by the end of the year.

The government's key climate adviser, economist Ross Garnaut, released his draft report on climate change and carbon trading on Friday, July 4.

Here are some details on how a cap and trade scheme can work.

HOW DO EMISSIONS TRADING SCHEMES' WORK?

* A national upper limit, or 'cap' for carbon emissions is set according to the country's target.

* Companies audit emissions, and reduce them to hit the target by buying permits that allow them to emit above-target levels of carbon. Companies with under-limit emissions sell permits to those unable to keep within their ceiling.

* Limits can tighten over time. Polluting businesses then migrate to cleaner technologies to cut costs, speeding the transition to a low-carbon economy. Start-ups are also dissuaded from going into carbon-heavy technologies.

WHAT SECTORS WILL BE AFFECTED IN AUSTRALIA?

* Details have not been released, but the scheme will likely include as many energy sources as possible. Government climate adviser Ross Garnaut, who calls climate change a "diabolical problem", has suggested fuel should be included, as excluding it would put a bigger burden on other polluters.

* Likely suspects, farmers, coal miners and power generators, could be asked to bid for carbon permits at auction, rather than be given free permits. The previous conservative government wanted initial exemptions for farmers and free carbon permits for the coal industry to soften the economic blow.

* Some economists say the Australian permit auction could net A$20 billion ($19.2 billion) -- money which could go towards subsidizing higher electricity and petrol prices.

WHY ARE AUSSIE EMISSIONS SO HIGH?

* In a word, coal. Australia relies on it to generate about 80 percent of its electricity. Greenhouse gases are emitted both in coal mining and when the fossil fuel is burnt.

* Cutting coal emissions is not easy -- Australia is also the world's largest coal exporter, sending more than A$26 billion of coal overseas in 2007/8, mostly to Asian neighbors.

* Despite having 0.32 per cent of the global population, it is responsible for about 1.5 percent of all carbon emissions. Each Australian's emissions were 4.5 times the global average in 2004 -- pushed up by coal and other fossil fuels.

WHAT ARE THE NATIONAL GOALS?

* To reduce 2000 emissions by 60 percent by 2050. Under the Kyoto Protocol, ratified by Labor last year, it must limit growth in greenhouse emissions to 108 percent of 1990 levels by 2012.

* Hard-hit by the worst drought in century, Australia last year introduced stringent water restrictions, and concerns about global warming rose. But with inflation soaring and high fuel prices already angering voters, making tough moves to meet national goals may not be popular. * Moving to 'clean coal' is being presented as a means to cut emissions without abandoning the profitable industry. But with this technology still fledgling, some expect carbon-lite energy sources such as natural gas and nuclear will benefit.

DO CAP-AND-TRADE SCHEMES WORK?

* There are success stories. An early 1990s cap-and-trade system to combat acid rain by limiting sulfur dioxide emissions saw United States power plants cut back successfully, and at lower than expected costs.

* Greenhouse gas schemes are modeled on the acid rain program, but experts say carbon schemes are wider-ranging, (covering many greenhouse pollutants instead of just one) and their international nature makes them more complicated and costly. Technology to capture and store carbon from coal-fired power plants is also not as developed as acid rain systems.

* Europe introduced the world's largest cap-and-trade scheme for greenhouse gases in 2005. In 2007, it set the goal to reduce greenhouse gases by 20 percent by 2020. But the Australia scheme is expected to be broader in reach.

* Some say carbon taxes are more appropriate than trading schemes, others say they are just one approach among many needed.

Sources: Reuters, Garnaut Climate Change Review (http://www.garnautreview.org.au/CA25734E0016A131/pages/home), CSIRO (http://www.csiro.au/news/GlobalCarbonProject-PNAS.html) European Union Emissions Trading Scheme (http://ec.europa.eu/environment/climat/emission.htm)

(Writing by Gillian Murdoch, Beijing Editorial Reference Unit)

FACTBOX: Australia's carbon footprint
Reuters 3 Jul 08;

(Reuters) - Australia in 1997 signed the Kyoto Protocol, which set targets for developed countries to limit Greenhouse gas emissions, blamed for global warming, but did not ratify the agreement until December 2007.

Former conservative Prime Minister John Howard, who lost power after almost 12 years in office last November, refused to ratify the agreement, saying it would unfairly hurt Australia's economy and reliance on coal for energy and export income.

Left-leaning Labor Prime Minister Kevin Rudd signed documents to ratify the Kyoto Protocol on December 3, 2007, as his first official act after being sworn into power, and has promised to introduce carbon trading in 2010.

Under the Kyoto Protocol, Australia must limit emissions growth to 108 percent of 1990 levels by 2012. The country says it is on track to meet its Kyoto target.

Here are some details about Australia's carbon emissions.

* Australia's net Greenhouse emissions totaled 576 million tons of carbon dioxide equivalent, or about 1.5 percent of world emissions.

* Emissions in 2006 were 4.2 percent higher than 1990 levels, despite a 47 percent increase from stationary energy.

* Australia emits 28.1 tons of carbon per person, the highest per capita level in the developed world and five times more per person than China, due to use of coal for electricity.

* Transport and Energy account for 69.6 percent of Australian emissions, or 400.9 million tons.

* Stationary energy, which includes electricity generation, petroleum refining and gas processing, accounts for 49.9 percent of emissions, or 287.4 million tons.

* Transport accounts for 14 percent of emissions, or 79.1 million tons. Road transport and passenger cars accounted for 12 percent of national emissions.

* Agriculture created 15.6 percent of emissions, or 90.1 million tons.

* 10.9 percent of Australian emissions, or 62.8 million tons, come from sheep and cattle, due to gases produced when they digest food.

* Land use and forestry account for 6.9 percent of emissions, or 40 million tons, down more than 70 percent from 96.5 million tons in 1990.

* Carbon dioxide represents 74 percent of Australian emissions (427.8 million tons), methane 20.5 percent (118 million tons), and nitrous oxide 4 percent (24.2 million tons).

* The energy sector is the main source of carbon dioxide (86 percent), while agriculture is the main source of methane (59 percent).

* Australia is the world's biggest coal exporter, with coal used to generate about 77 percent of Australia's electricity. Poland, China and South Africa also rely on coal for more than 75 percent of electricity generation.

* Australia has the world's largest reserves of uranium and is a major uranium exporter, but has no domestic nuclear power.

* Limited carbon trading already exists in Australia. The New South Wales state introduced a Greenhouse Gas Abatement Scheme in 2003, which forces electricity suppliers to meet Greenhouse targets by investing in projects to offset emissions. The Australian Capital Territory has a similar scheme.

Sources: Australian National Greenhouse Gas Inventory; Australian Bureau of Agriculture and Resource Economics)

(Reporting by James Grubel)

FACTBOX: Timeline for Australian carbon trading
Reuters 3 Jul 08;

(Reuters) - Australia's left-leaning Labor government has promised to introduce national carbon trading by 2010 in order to curb Greenhouse gas emissions.

Here is a timeline of the path to carbon trading in Australia.

2007

- Former conservative government of John Howard proposes carbon trading by 2012, and promises a 15 percent clean energy target by 2020, up from its old target of 2 percent. His government announces a phase-out of incandescent light bulbs. But he refuses to ratify the Kyoto Protocol.

- Labor's Kevin Rudd promises to ratify Kyoto, introduce carbon trading by 2010, and set a 20 percent renewable energy target by 2020. Labor also promises to cut emissions by 60 percent of 2000 levels by 2050, but does not set an interim emissions target for 2020.

November 24 - Rudd leads the left-leaning Labor Party to victory at national elections, ending nearly 12 years of conservative rule.

December 3 - Rudd is sworn into office, and immediately signs documents to ratify the Kyoto Protocol. Penny Wong is appointed Minister for Climate Change.

2008

March - Government-industry consultations start on emissions trading.

July 4 - Government adviser Ross Garnaut, an economics professor, releases his draft report on carbon trading after a 15-month inquiry.

July 16 - Climate Change Minister Penny Wong due to release green paper on policy options for carbon trading.

August - Treasury modeling on the economic impact of carbon trading to be sent to government and Garnaut.

September - Final Garnaut report due by September 30.

December - Public release of draft legislation. Government expected to announce emissions target for 2020.

2009

March to July - Carbon emissions laws considered by parliament.

- Ongoing consultation on carbon trading regulations

New laws to come into force in third quarter, 2009, and regulator to be established.

2010

- Carbon trading to start.