What price carbon?

A price on carbon? Over my dead body, declares Tony Abbott. Certainly not unless the rest of the world does it first. On the other hand, Julia Gillard admits a need for pricing carbon but has resisted the urgings of the Greens to “do it now”.

If carbon is not priced, there will be penalties, namely the very serious effects of CO2-e emissions on global warming and ocean acidification - costs we shall all have to pay. During the present century these will include:

• on-going and accelerating rise in global surface temperatures;
• continued, faster melting of the polar ice caps and sea-ice;
• dangerous sea level rise and coastal flooding;
• melting of land based snow and ice; contributing to
• shortage of water in densely populated areas;
• loss of capacity to produce food for rapidly growing populations;
• extinction of flora and fauna dependent on cooler climates;
• increased risk of fire and flood destroying valuable assets;
• spread of potentially fatal diseases into areas now free of them;
• ocean acidification endangering marine life forms;
• increased incidence and severity of climate events;
• increased water vapour in the stratosphere causing further warming; and
• melting permafrost releasing methane, making global warming faster.

To varying degrees these effects have already become evident but they do not pose an obvious danger - yet. This is because their development is prolonged and slow but it is inexorable. As the years of this century pass, the dangers posed by them will increase. Sooner or later a price must, and will, be put on carbon in a bid to limit these dangers by reducing CO2-e emissions.

Australia, the world’s largest per capita emitter, has proposed reducing its emissions by partly compensating major emitters to dissuade them moving overseas, causing “carbon leakage”. This is deemed “economically responsible” since it supposedly protects our comparative advantage. However, government has had its proposals, embodied in Carbon Pollution Reduction Scheme (CPRS) legislation, rejected by the Senate for two basic reasons.

First, the Opposition includes a majority who rejects the science, disputes that global warming is occurring, or at best are sceptical. They have called on government to compensate emitters for the cost of licenses to continue emitting CO2-e, largely negating the effectiveness of the CPRS. Then, they propose a scheme of voluntary emissions reduction encouraged by financial rewards, a proposal deemed to be costly and ineffective.

Second, the Greens rejected the CPRS legislation on several grounds, primarily because it proposed compensating emitters to a level perceived as negating effective reduction. It set a price for carbon deemed too low and an inadequate emissions reduction target of only 5 per cent by 2020. It also failed to apply proceeds of license fees to stimulate development of clean energy technologies or promote their adoption.

ClimateWorks report on a Low Carbon Growth Plan for Australia (PDF 2.05MB) shows that a 25 per cent reduction in CO2-e emissions by 2020 is possible at a cost of less than $5 a week per household. Those findings, combined with shortcomings mentioned above may have been as instrumental as Senate opposition in the government decision to abandon reintroducing the more costly proposals in its CPRS legislation.

That legislation was also criticised for the perception that it unreasonably aimed to protect the economy from carbon leakage and loss of comparative advantage.

Industry has asserted that if charged an emissions license fee of more than $20 per tonne of CO2-e, many businesses would move overseas where such charges were not levied. Others would become unprofitable and close. Both outcomes would result in significant unemployment, contraction of GDP, loss of public revenue and increased public expenditure to assist the unemployed.

Government responded by offering increasing the number of free emission licenses and the ability for companies to claim offsets, including some of very dubious repute.

CPRS legislation is perceived as protecting the production and use of fossil fuels, notably coal, oil and gas, to provide comparatively low cost energy. Low cost energy is perceived by some as vital to Australia’s comparative advantage, particularly in the area of exports and domestic manufacturing.