Low Emissions Target: On Carbon Schemes, No One Says The Same Thing For Long

Fairfax - Peter Martin

If you don't know the difference between a carbon tax and an emissions trading scheme, or a low emissions target and an emissions intensity scheme, it's time to wise up.
On Friday Malcolm Turnbull gets the report of the Finkel review of the electricity market and later this year the report of the official review of his government's climate change policies.

Know your product
Anyone would think we had all the time in the world to decide which carbon pricing model will work best for us. Artist: Matt Davidson.

What he does next will affect how much we pay, how much we use, the types of electricity we use, how quickly we cut emissions and how often the system breaks down.
But if we don't even know what the words mean, we'll be in the dark.
So here's a quick (opinionated) guide. And a warning: no one seems to say the same thing for long.

Carbon tax
It had the advantage of being simple, so simple that Tony Abbott actually backed it in his early days as opposition leader before reversing course and opposing it, and being swept to power.
"If you want to put a price on carbon, why not just do it with a simple tax?" he asked back then. "It would be burdensome, all taxes are burdensome, but it could certainly raise the price of carbon, without in any way increasing the overall tax burden."
It's what Julia Gillard did, and was martyred for. Exemptions from the tax and overcompensation in the form of income tax cuts and direct payments meant every cent it raised was handed back. And it cut emissions. Each year for more than a century through two world wars and the great depression Australia had used more electricity than the year before, until the lead-up to the carbon tax when both electricity use and electricity emissions began to fall and then fell sharply until mid-2014 when the tax was abolished by Abbott himself.

Illustration: Matt Davidson 

Turnbull gets the argument for the tax. "If you want people to do less of something, you tax it," was how he described another measure during the 2016 election campaign.

Emissions trading scheme
It's like a carbon tax (in fact, the carbon tax was designed to transition into one) except that it uses carrots as well as sticks. The government issues a limited number of pollution permits, but then leaves the polluters free to buy and sell them from each other. If one manages to cut emissions easily and no longer needs its permits it can sell them to another who needs them more, perhaps for a profit. It means the market sets the price of the permits, and the price is no higher than it needs to be.

Chief Scientist Dr Alan Finkel will deliver his electricity market report on Friday. Photo: Alex Ellinghausen

US President George H. W. Bush issued tradeable sulphur dioxide pollution permits to cheaply halve the incidence of acid rain. In his last days in office John Howard promised to use tradeable permits to cheaply meet Australia's carbon emission reduction obligations. Kevin Rudd got to work on the details with the then opposition leader Malcolm Turnbull, then Turnbull was rolled, the Greens said no, and Rudd baulked at taking the plan to an election. It would be painted as a big new tax. Voters would remember the electricity price hike but not the compensating tax cut, as Gillard later discovered.

Emissions intensity scheme
Long championed by Turnbull and independent Nick Xenophon and Greg Hunt as environment minister, an intensity trading scheme would have the advantage of raising no money whatsoever, and not pushing up prices much. Each industry would be given a "baseline" for its emissions intensity. For the electricity industry it would be a certain number of tonnes emitted per megawatt-hour produced. Plants that were above the baseline would have to buy permits from plants that were below it. As a result coal-fired plants would become more expensive to run and get less business, and gas and wind-powered plants would become cheaper and get more. All without anything that looked like a tax.

What Malcolm Turnbull does next will affect how quickly we cut emissions and how often the system breaks down. Photo: Jonathan Carroll

Critics say it would give gas a leg-up when what's needed is to move straight to renewables. This year Turnbull ruled it out partly because it could be presented as the emissions trading scheme he promised not to introduce. The real downside is that it wouldn't be an emissions trading scheme. By not moving prices much, it would do little to reduce electricity demand, working only on the sources of supply.

Low emissions target
Described by the Climate Change Authority as a second-best alternative to its preferred option of an intensity scheme, a low emissions target would operate pretty much in the same way as the current renewable energy target. Electricity suppliers would be required to source a certain proportion of their power from renewables or other very low emission sources such as highly-efficient gas or even coal plants, should they ever be built.
Its biggest drawback is that if it's all there is, there's no guarantee it won't change. The government might be lobbied to weaken it (making lobbying a very cost-effective proposition) or another government might impose a grander scheme on top of it. Potential investors in new plants might be forgiven for holding back. Given the dizzying array of changes since Howard first proposed an emissions trading scheme 10 years ago, it would be hard to blame them.

Links

• Independent Review into the Future Security of the National Electricity Market
• Review of Australia’s climate change policies
• Emissions intensity scheme – another act in tragic comedy of errors
• Towards the next generation: delivering affordable, secure and lower emissions power
• 'Somewhat surprising' survey on Australian attitudes to renewables
• Frydenberg hits phones to keep colleagues in line over climate
• Fact Sheet: 10 Basic Electricity Facts To Help You Navigate the Finkel Review 
• At least Trump is true to himself about climate change