Needed and inevitable - a price on carbon

Leadership

Successive Prime Ministers have described the need to reduce CO2 emissions as one of the most important and pressing issues of our time. Why then has the Australian government so trenchantly resisted calls for it to take a global leadership role in efforts to curb emissions? Is it because this leadership role is regarded as properly belonging to the United Nations? Perhaps the role is seen as unattainable without a record of action and credibility?

Australia has unwisely pursued policies which have increased its dependency on public funding derived from the production and use of coal. This may explain why it continues to approve expansion of the coal mining industry and why it has persisted in subsidising coal - the major source of CO2 emissions - and failed to meet its very modest Kyoto Protocol reduction targets.

When setting a 2020 reduction target Australia ignored the advice of scientists and economists alike, offering no more than a tokenistic cut of 5 per cent below 2000 rather than 1990 emissions levels. It gave a whole new meaning to the Roman dictum festino lente (hasten slowly), by moving with such lethargy that it was perceived to be doing nothing to curb emissions, while working with alacrity and vigour to increase the production and sale of coal - and CO2.

Why pay subsidies to an industry which is highly profitable? Why promote expansion of the largest source of CO2 emissions while declaring determination to reduce those emissions? Why increase dependency on production and use of coal knowing that, sooner rather than later, the opposite action must be taken?

The states, New South Wales and Queensland in particular, stripped their publicly owned companies, rather than allowing them to prudently make adequate provision for reticulation expansion and upgrade. That work must now be paid for from increased electricity charges: more than a 40 per cent increase in Qld. If nothing else, these increases demonstrate that the business sector is able to handle them without ill effect, even when accompanied by an appreciating $A.

Even more surprising is that these policies have been supported and implemented knowing that sooner rather than later, it would be necessary to:

• put a price on carbon at an early date;
• increase that price rapidly to make new technology affordable;
• send an effective price signal which would reduce emissions;
• generate 20 per cent of electricity from renewable sources by 2020;
• meet a realistic 25 per cent CO2 reduction target by 2020;
• contribute effective action preventing a 2C increase by 2100; and so
• avoid international penalties on countries failing to reduce CO2.

Such is the “leadership” displayed by the Australian and state governments, an abysmal display of policies supporting increased CO2 emission, short term gain for longer term loss and increased risk of economic damage.

Why price carbon?

In the hope of perpetuating use of coal while avoiding CO2 emissions, Australia is investing billions in developing carbon capture and sequestration (CCS) technology. Electricity generators are developing cleaner, lower emission technologies, such as use of gas or coal burned in oxygen. All of these alternatives reduce emissions but add to the cost of generating electricity, making it impossible for them to compete with burning coal and pumping CO2 into the atmosphere.

Investment in cleaner technology will only be made if electricity generated from its use can compete with that generated by simply burning coal. This can be achieved by placing a price on CO2 emissions so that the higher those emissions, the higher the cost of generating electricity. Investors have made it clear that they will not provide capital to build cleaner new power stations until they have certainty that they will earn an acceptable return on capital.

If domestic and international use of coal (and Australian exports) is to continue, CCS technology must be used. To make it competitive with present coal burning technology, it is necessary to place a price on CO2 of $65-$80/tonne. Proven CCS technology is expected to be commercially available by 2020. If coal is to continue in use for generating electricity, CCS technology must be used and by 2020 the price of CO2 emissions must be at least $65/tonne.

Another important reason for pricing carbon is to provide consumers with a price signal persuading them to use electricity more efficiently, thereby reducing demand, generation, coal use and production and CO2 emissions.