Copping the cost of Kyoto
13 February 2009
Dennis Shanahan, Political editor
SOMEBODY has now put a price on the symbolic act of Kevin Rudd and Penny Wong flying to Bali within days of Labor's election in 2007 and ratifying the Kyoto Protocol. It's a potential extra $870 million from Australian taxpayers. There's no certainty this will be the actual cost, if there is any, in 2012, when the Kyoto Protocol period finishes and nations are called to account for failing to meet their international legal obligations.
Despite continuously rising greenhouse gas emissions and a new, tougher emissions target for Australia, the Government remains confident it will meet the targets and not face any penalty.
Wong told The Australian yesterday she was confident we were on track to meet our obligations. This confidence includes the calculations for the new target the UN Framework Convention on Climate Change committee has imposed on Australia.
Of course this confidence flies in the face of claims by Labor and the Greens before the last election that the Howard government would not meet the targets. It also seems to contradict the calculations of the leading global emissions trading analysts, Point Carbon, that the changed target "could force Australia to purchase over 30million assigned amount units more than expected, which could cost up to $870million, unless it can achieve further emission cuts domestically".
Point Carbon's estimate is based on forecasts for greenhouse gas emissions in Australia rising by nine million tonnes in 2007 combined with the lower permissible limit of 6.6 million tonnes a year. The estimated nine million tonnes rise in 2007 carbon emissions is part of a trend of rising emissions for Australia.
But putting aside the detailed forecasts, calculations and estimates, which will be disputed right through until the end of 2012, two indisputable facts emerge: there is a huge potential cost to business and taxpayers through the ratification of the Kyoto Protocol and the global financial crisis has created uncertainty, even chaos, for emissions trading schemes and carbon markets across the world.
The global recession is changing all the estimates for economic growth, and therefore greenhouse gas emissions, for the short and medium terms.
In the face of all this change the Rudd Government, through the Climate Change Minister, is framing an emissions trading scheme that requires big investment to establish a workable price that will offset carbon emissions and eventually force them down.
In the first four years of the emissions trading scheme, Australian industry is expected to buy $49.9 billion in carbon permits to encourage cleaner industry.
That's almost $8 billion more than the Government's proposed $42 billion economic stimulus package designed to kickstart the economy.
The world is dramatically different now - economically, environmentally and politically - than it was in December 2007, when the new Prime Minister went to Indonesia and ratified the Kyoto Protocol, committing Australia to binding targets for greenhouse gas emissions.
These latest estimates of costs to the taxpayer are directly linked to that decision and the UN review of Australian industry emissions that flowed from it last year. The UN has altered the base for Australia's emissions and therefore, three weeks ago, handed a finalised, tougher target to the Government. It is important to note that in the past month the European emissions trading scheme has seen the price of carbon - the central mechanism for offsetting and cutting industrial greenhouse gas emissions - plummet to a record low. In Europe, the oldest and most established carbon market, the price of carbon has fallen from E30 ($59.20) to just E10.
This is a direct result of the global crisis as heavy carbon polluters, such as the cement industry and power-generation firms, in Europe sell emissions permits they deem they will not need in the next two years because stalled economic growth means they won't be producing as many greenhouse gas emissions.
Point Carbon has estimated the global financial crisis will cut international greenhouse gas emissions by 500 million tonnes.
The sell-off of E1billion in emissions permits in the past month has also provided the polluters with quick access to cash they can't get elsewhere because of the credit squeeze.
This conversion of the European emissions trading scheme into a source of finance rather than environmental control has prompted some in Britain to describe it as abuse of emissions trading. The head of one of Britain's biggest electricity generators has also said the lack of transparency in the carbon trading scheme means it could be "the next sub-prime" failure.
The failure of a market in greenhouse gas permits has not been restricted to Europe. Australia's fledgling market in carbon dioxide, where Australian emissions units are sold, has stalled in recent months because of uncertainty about the economy and the emissions trading scheme.
The lack of investment in the carbon market means there is no real guide being set for the price of carbon in Australia: a vital figure in setting limits for industry that will encourage investment in clean technology.
In addition to all this uncertainty the Government is under renewed pressure from business and industry - particularly the heavy carbon polluters that are most affected - to further ease restrictions for them.
Having digested the Government's white paper on emissions trading and maintained a relatively low profile, there are now signs of a new phase of industry negotiations emerging, which only increases the pressure on the Rudd Government.
Wong may have thought the tortuous consultations before the white paper represented an end to the most difficult chapter of the emissions trading scheme but events are conspiring to make the next few months even more difficult. Being seen to be imposing costs on industry and encouraging job losses at the time of the greatest economic crisis in 75 years is a difficult proposition to sell, especially if greenhouse gases are going to fall in the medium term, just as they did after Margaret Thatcher closed British coalmines and antiquated Soviet-era industry shut after the fall of the Berlin Wall.
Nothing slows greenhouse gases like economic collapse, not even an emissions trading scheme.
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