Targets for failure

The true price of carbon to be set by the proposed Carbon Pollution Reduction Scheme or CPRS (the government’s ETS), is properly calculated as the total price paid for emissions permits divided by the total emissions permitted. The higher the volume of emissions covered by free permits, the lower the unit price of carbon. The Rudd Government proposes to issue a significant number free emission licences to major polluters. This may well force down the price of carbon to the extent that the ETS fails to bring about a reduction in GHG emissions by 2020. In that case MRET will have a real though small effect in reducing emissions, though not below 1990 levels.

Renewable sources currently produce a relatively low 9,500 gigawatt hours per annum. If the MRET target is to be met this will have to increase to 45,000 gigawatt hours per annum, because of expected (understated) growth in demand for energy between now and 2020. At pages xvi - xviii of its submission the Productivity Commission (PDF 547KB) notes that setting a mandatory target for renewable energy is not a cost-effective way of reducing GHG emissions. It distorts the market by making electricity more expensive, at least in the short term.

True, the MRET will attract new investment into production of electricity from renewable sources but, given the current state of technology, such a significant increase can only be met by attracting more expensive forms of production. Wind and nuclear power generation will be competitive with coal and gas once the latter are subject to paying emission licence fees. However, availability of wind is limited and nuclear generation has been rejected by government and opposition alike.

Target 4. Ensure that reduction of GHG emissions is brought about in the most cost-effective manner possible.

As noted above, the legislated requirement that an MRET operate in conjunction with an ETS ensures just the opposite.

In order to meet the mandatory target for electricity produced from renewable sources, it will be necessary to encourage investment in less efficient ways of generating electricity, notably solar. Since solar technology produces electricity inefficiently and is slow to develop, its use will force up the cost of meeting the MRET until other, cheaper means of generating electricity become available - such as geothermal or use of improved photovoltaic cells.

Not only does an MRET operating in conjunction with an ETS encourage the use of less efficient, more expensive ways of generating electricity, it requires it. Moreover, it reduces or deadens the R&D stimulus to produce energy from renewable sources in the most cost efficient manner possible.

Target 5. Introduce an ETS which will cost effectively and efficiently reduce GHG emissions and stimulate production of cheaper energy from renewable sources.

The ETS in the form proposed by governments CPRS is neither efficient nor effective since it:

• does not require government to adopt, adhere to and implement a meaningful and timely reduction of GHG emissions;
• excludes generating revenues for direct subsidies promoting research and development of renewable sources of energy or improvements in its storage (increasing efficiency and usage) and transmission (reducing loss);
• envisages international trading in GHG emission permits, even those which may be of a spurious nature - for example, those put on the market by PNG, Indonesia and so on;
• enables government to subsidise the worst GHG emitters by issuing free licences; and
• does not require government to cease subsidising or otherwise assisting GHG emitters or production of coal, a major source of global GHG emissions.

Target 6. Adopt policies which encourage international cooperation in reduction of GHG emissions, particularly by those countries responsible for the highest level of emissions.

Rather than do this, the Prime Minister, supported by Economics Professor Garnaut - though not by climate scientists - has called for those countries with the highest per capita emissions to make the highest reductions. They argue that the people of China, India and other developing economies have a right to improved living standards for their people until comparable with those of developed economies and, to do so, must be permitted to expand their energy sector and GHG emissions.