Price carbon or face a bleak future

One never ceases to be amazed at the shrill protests of big polluters against introduction of a Carbon Tax if it is above some meaningless figure such as $5/tonne, particularly from the operators of coal fired power stations and coal mines.

It seems to have conveniently escaped these enterprises that if, on July 1, 2012, a Carbon Tax of $30/tonne were imposed, the world would not come to an end and as they very well know, nor would their businesses.

What would happen is they would pass on to their customers the increase in operating costs arising from the new tax – more properly a levy. Everyone expects them to do this in order to maintain profitability and that the following things would ensue:

1. Electricity generators using fossil fuels would continue operating as before and the price of electricity would rise.

2. Households and trade-exposed industries would be compensated for the increase in electricity prices.

3. New entrants using the latest available technology would be encouraged to invest because they could produce electricity or other goods while emitting less greenhouse gas, thereby able to compete with and eventually replace existing businesses.

4. Existing businesses emitting greenhouse gases would seek to remain in business by adopting new technology, reducing energy consumption or reducing their emissions in other ways so as to remain competitive.

5. New and existing enterprises would become more active in development and application of new technology able to reduce green house gas emissions.

6. Government would be in a position to apply part of the revenue raised from the Carbon Tax to promoting and assisting developers of technology and other business enterprises which produce very low or no greenhouse gas emissions.

Government intends to impose a Carbon Tax on the 1,000 top polluters. They can and should expect to face new competition as a result. It is not likely that new competition will make its presence felt for 3-5 years but new competitors will emerge. It is new competition and, for some, the need to use new technology or otherwise reform their operations that is the real complaint of big polluters.

There are a few industries which simply have no short-medium term option but to continue (at best tweak) their present operations and no doubt, these cases are likely to receive appropriate assistance from government – or go out of business.

What should be clear is that the process outlined above will occur each year that the Carbon Tax is increased by government or, following adoption of an ETS where the price of carbon is better determined by the market.

As a result, the price of electricity will continue to rise every year - and be compensated for by government – and generators using fossil fuel will face increasing competition from low and no emission generators such as wind, hydro, importantly geothermal and, more importantly in the longer term, from solar energy.

We hear strident and vociferous complaints about this from polluting electricity generators but nothing about their plans to invest in renewable energy generation, nothing about the interim measures they might adopt to reduce their emissions, nothing about their plans to reduce carbon emissions. Instead we see polluters trying to squeeze government for every ounce of compensation they can get – not for being made non-profitable but because their continued operation may be threatened by new competition.

Those who invested in brown coal-fired power stations in Victoria were never given an undertaking that they would not face competition from more efficient generators. Nor were they assured that carbon emissions would always be acceptable. The age of quasi-monopoly for fossil-fuelled generators must of necessity come to an end, not only in Australia but in China, the United States and other major polluters.

The alternative, allowing them to continue polluting at their leisure until they can exit with maximum profit is simply not an option. The level of CO2 in the atmosphere has already reached levels not seen on Earth for 15 million years. It has already reached the point where it has triggered the release of methane from the immense deposits in the Arctic.

Those deposits are so huge that were even a fraction of them to escape, the world would be plunged into sudden, irreversible climate change. The consequences for our environment would be so rapid and vast as to challenge our continued existence on this planet. The real question is do we protect the profitability of polluting power stations, coal mines and vehicles, or do we protect our own future?