Why We'll Have To Pay Polluters To Stop Polluting, As Soon As Possible

Fairfax - Peter Martin

We need incentives that will get all our brown coal power stations closed by the early 2020s, and all our black ones by the early 2030s.

What was the weather like in 2015? From rain, hail and soaring temperatures to a tornado - this year's weather had it all.

Get set for a scorcher. None of what you've been noticing is wrong, it really is much hotter than in your childhood. And it's getting hotter. The US National Aeronautics and Space Administration says this year will almost certainly be the hottest on record, following on from last year which was the hottest year recorded.
So far, nine out of the world's hottest 10 years on record have begun with the number 2. That means they took place after the year 2000 rather than in the 1900s, when most of us grew up.

That’s what Julie Bishop has signed us up to: zero net emissions, by the second half of the century.

The good news is that the Paris talks showed our leaders are on to it. Ministers including Julie Bishop committed first to holding the increase in the global average temperature to "well below" two degrees (where most of the Arctic melts) and then to "pursuing efforts" to limit it to 1.5 degrees.

The Hazelwood Power Station in the Latrobe Valley, Victoria, perhaps the dirtiest power station in the world, is an obvious candidate to be the first station to shut down. Photo: Arsineh Houspian

It's already one degree hotter than it was before industrialisation. The emissions pledges taken to Paris would have kept the increase to only about 2.7 degrees. That's why the ministers pledged to come back every five years with new and tougher targets and to explain how they are going to meet themThe implications are jaw-dropping. The agreement says that to just hold the line at two degrees, emissions will have to peak as soon as possible and then slide so rapidly that by the second half of the century there will be "a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases". That means zero net emissions. That's what Bishop has signed us up to: zero net emissions, by the second half of the century.
It is trite to say that the Turnbull government's $2.5 billion Direct Action program won't achieve it. A legally required update released quietly by Environment Minister Greg Hunt late on Christmas Eve shows emissions actually climbing. But it is probably also true that the Gillard government's $9 billion a year carbon tax wouldn't have achieved it either, not unless the carbon price soared to extremely high levels.
What's needed is to quickly shift most of our cars, trucks, factories and heating away from fossil fuels towards electricity and to make electricity close to emissions-free.
The Australian National University's Frank Jotzo has done the numbers in a report prepared with ClimateWorks, a privately funded think tank. It says that to meet just the two degree target we will have to close all of our brown coal power stations by the early 2020s, and all of our black ones by the early 2030s.
It isn't the sort of task Gillard's carbon tax was set up to achieve, which is why Gillard herself also set up a "Contracts for Closure" scheme under which existing highly polluting plants would be paid to close, after putting in bids. She walked away from it after she realised all of the bids would be too high.
Hazelwood, in Victoria's Latrobe Valley, is the obvious candidate. Perhaps the dirtiest power station in the world, it spews out 60 per cent more pollution a unit of electricity than the NSW black coal stations north of the border. It spews out three times as much as gas-fired power stations.
But why would its owners close it? The coal is relatively cheap because it is next to useless for anything else. Much of it isn't even dried, adding further to emissions. As things stand the NSW black coal stations are far more likely to close than Victoria's more polluting brown coal stations.
And it would cost big money to rehabilitate the site. The inquiry into the 2014 fire at the Hazelwood mine put the cost of decontamination alone at $100 million. Besides, if Hazlewood closed first, the stations that remained would grab its market share. There's a pay-off for not being first.
Paying the stations to close (as Gillard proposed) would result in politically unacceptable and unreasonably high payments to the biggest polluters (as Gillard discovered). Knowing there will be another auction down the track, and then another, they will hold out for very high prices.
So Jotzo has come up with an ingenious solution. It's a Gillard-style auction, where polluting generators put in bids for how much they are prepared to accept to close. But there's a twist. The payment comes not from the government, but from the remaining generators, in proportion to their market share and the amount they pollute. If a big polluter such as Hazelwood loses the auction by asking for too much, it'll be on the hook for big payments to whoever wins.
There would be an incentive to bid low rather than high, and none of the remaining generators would be made too much worse or better off. They would grab market share, but they would pay for it in accordance with the amount they polluted.
The winning bidders would have to use their winnings to rehabilitate their sites and pay government-specified assistance to their displaced workers.
It's by no means a complete solution. Future auctions might operate differently. The point is we are going to have to do everything we can to turn Australia electric and to squeeze most of the remaining emissions out of electricity. The old debate about a carbon price versus direct action is losing its sting. What matters now is finding something that works, and finding it quickly.