Emissions trading

Clean is cheap
Contrary to all the scare-mongering about carbon pricing from political & industrial vested interests, in the electricity sector at least (responsible for about a third of Australia's greenhouse emissions), there's a simple, pragmatic way to encourage emission reductions without incurring large electricity price increases and economic disruption - you simply apply price signals at the margin, for those emissions you actually want to stop, and avoid applying a tax to the majority of emissions that you're willing to tolerate (“permit”) continuing for the time being.  And these marginal price signals can be provided as subsidies, funded by very small price rises on remaining emissions (plus any revenue raised from penalties for non-compliance with permit levels).

Furthermore, economic incentives like this can be efficiently applied through competitive energy retailers, so those that help their customers reduce emissions at least-cost will offer the lowest priced electricity (especially if they use solar + batteries, which is now cheaper than current tariffs in Australia anywayas it is in most other countries!).  Australia pioneered this policy approach for carbon emissions back in 2003, with the NSW Greenhouse Gas Abatement Scheme (GGAS, which I helped develop in 1996 with Chris Dunstan at the NSW Sustainable Energy Development Authority), but then abandoned it for the politically disastrous Carbon Tax!  And the UK adopted a similar approach, until the EU forced them to make the same stupid change!

See the pdfs attached below, including my first policy paper from 1997, soon followed by this paper distributed at Federal Parliament (which rattled & drew pressure from ABARE but impressed a close adviser to John Howard) and my subsequent refined paper in 1998 explaining the "real advantage of permits" (which I included in my 1998 submisssion to a Federal Inquiry), and then the sorry political history covering the little understood period prior to the disastrous Tony Abbott (which created the policy uncertainty that discouraged new generation investment of any kind, thus, along with "gold-plating" of the grid networks, pushing up power prices).

GGAS, and variants of it, represent pragmatic and broadly-supported bipartisan policy that could provide some regulatory confidence for industry, the community & the planet.  
And finally - after 20 years - it seemed we were about to secretly come back full circle to some form of similar Emissions Intensity Scheme (EIS) applied to energy retailers, well, after yet another review.  
As Churchill said about the Americans (& perhaps democracies in general), "government will always do the right thing, after exhausting all other options"!
But wait, no - mass confusion again as the government denies any confusion after commissioning yet another complex model and study to prove and then ignore the bleedin' obvious!
It really is pathetic.
So round we go again, first with the "Low Emissions Target" (LET) or "Clean Energy Target" (CET), and then - after the Coalition's climate-change deniers wouldn't let the LET go ahead - the similar, technology-neutral "Emissions Guarantee" (as a critical half of the National Energy Guarantee), which the next idiotic coal-loving PM also killed (as he ignorantly ridiculed the renewables-charged battery technology that is actually solving his grid reliability concerns), despite Australia then suffering one of the most severe heatwaves ever, even before the catastrophic bushfires of 2020 that were most-likely worsened by climate change (& already raging in November 2019 before the habitually-dishonest PM flew off to a holiday in Hawaii, which his office lied about and he excused because he doesn't "hold a hose", after having failed to prepare the nation for fire-fighting despite repeated warnings of the risks).  Yet still the Australian Government blatantly stacks "advisory committees" to support their vested interests in fossil-fuel industries, and continues its shameful approach to wrecking global action on climate change that it has followed for three decades.

Note that achieving long-term emission reduction targets will require generation technologies with very low to zero emissions (like renewable energy), which in my 2007 paper, "A New Combined Cap & Credit Emissions Trading Scheme", I argued means we need either separate targets for these technologies (as in the LET/CET) in addition to an emissions trading scheme, or a non-linear permit price/subsidy/credit that is higher for zero emission technologies.  But this level of complication may no longer be necessary because the costs of renewables - especially solar PV & batteries - have now fallen so low (see chart), and continue to fall, that in 2019, wind & solar energy are now the cheapest forms of power in two-thirds of the world, even beating just the marginal operating costs of existing coal-fired and nuclear power stations (with new renewable energy capacity including battery storage expected to be cheaper than operating 60% of the world’s existing coal-fired capacity in 2022).

With the right parameters/reduction targets and a reasonable method of allocating permits (which for energy-hungry businesses could be based on their "value-add" or GST liability and should ideally encourage energy efficiency measures - like more efficient air conditioning - as well as renewable energy generation), I think the "CET" or "Emissions Guarantee" should do what's required (if it gets enough support to be implemented & retained!), although a "feebate" version could be better than a fixed emission reduction target - with a fixed +/- marginal price of emissions providing greater confidence for business investment decisions, where that price is applied as fees for retailers with above-average emissions, which then fund rebates for below-average (thus giving fees + rebates = feebates, with no net "tax" revenue). It thus has a certain price incentive giving an uncertain emission reduction, which I think may be politically easier than embracing an uncertain price impact of a fixed emission reduction target (which is why we end up with a pathetically weak target). As for what the price should be, in principle it could be calculated from the avoided cost of future global warming damage, adjusted for the probability of various future scenarios (see my letter in the newspaper on climate change risk), although in practice I think it would just be set politically based on what the community is currently willing to pay.

So if we can finally settle this, maybe then we can turn to transport - to encourage the adoption of low-emission & electric vehicles, as the likes of BMW urge, which needs a similarly pragmatic approach such as a new-car "feebate" that varies with fuel efficiency to replace existing taxes & "stamp duties" (as discussed at the end of this paper), accompanied by a more rational and imaginative approach to pricing the use of transport systems.

Note also that a well-designed retailer-based emissions trading scheme could transform the industry from one selling a commodity product & competing primarily on price (a mug's game that results in very low margins), to a higher value-add customer-service model - which the industry competition reforms of the last few decades were supposed to deliver, but haven't done so very well because despite all the political hype, most customers can't be bothered changing retailer to save only a few dollars!  The ramifications therefore go well beyond just emissions reductions as they could address the sort of unethical practices I've experienced from AGL, who charged me $1,200 for gas caused by a leak, then fobbed me off for a year to 3rd parties (like Jemena, who they contracted to fix the leak but then claimed they couldn't contact to resolve my problem!).
Ideally regulation should hold the retailer accountable for all aspects of the service, but I suspect it doesn't because politicians are captured by the votes of the many small-business plumbers who want customers to be allowed to contract with them for repairs, and not just the big retailers. But if AGL had any ethics and commercial sense, it would step up to customers and say, "Hey, we guarantee to be accountable for all aspects of service delivery, as long as you only use us or our licensed partners for all gas systems connected to our service." - then they could transform their business into a genuinely customer-focussed, comprehensive, value-adding energy service!

http://carbonmarketwatch.org/short-fix-to-the-ailing-ets-what-next-for-the-worlds-largest-carbon-market/   http://www.fern.org/book/trading-carbon    http://nicholsoncartoons.com.au/wp-content/uploads/2011/02/2008-10-30-Modelling-on-ETS-assumptions-growth-226-193x200.jpg

It's not that hard!.....


David Thorp,
20 May 2020, 04:54
David Thorp,
8 Mar 2016, 19:48
David Thorp,
13 Nov 2018, 04:19
David Thorp,
8 Mar 2016, 19:51