EDITORIAL: by Peter WestmoreNews Weekly
Emissions trading scheme in trouble
, November 14, 2009
The central issue in the climate change debate is whether carbon dioxide is a pollutant which is causing the world to heat up uncontrollably, or whether it is a beneficial minor component of the atmosphere which has little or no effect on the world's climate.
The Rudd Government, with support from Malcolm Turnbull, refuses to debate the issue, stating that the science is settled, and that we must move quickly to introduce an emissions trading scheme which would reduce Australia's greenhouse emissions.
A central feature of emissions trading schemes is the cost imposed on industries which produce carbon dioxide (CO2). The billions of dollars generated by the ETS are then applied to subsidise renewable energy sources such as solar and wind energy.
The nations of the European Union have had an emissions trading scheme for years, but it has been largely ineffective. Carbon emission prices collapsed in 2007, two years after the universal scheme was introduced. After the scheme was revived in 2008, emission prices rose quickly to €28, but have since fallen to about half that price.
A paper published by the Australian Parliamentary Library in September was kind to the EU scheme when it said, "By any measure, the scheme can only be regarded as a work in progress, with its final design only being progressively implemented. In these circumstances, any failure of the EU ETS to reduce emissions cannot be proof that the cap-and-trade concept is ineffective." (Emissions Trading - Has It Worked?
, p.10).Devilishly complex
Australia's scheme is devilishly complex, and will become even more obscure after negotiations with the Liberals.
The Rudd scheme is based around licences to produce CO2. The top 1,000 energy-producing industries in the country will need permits for their CO2 emissions. The Government will sell permits that will allow industry to emit 95 per cent of the carbon emitted in 2000. Once the permits are used up, energy-generators will need to buy more from someone else on the open market.
At the time of writing, the Government's legislation will fix carbon permits at $10 per tonne of carbon in 2011-12, with a transition to full market trading in July 2012. Part of the money raised is intended to subsidise solar and wind energy, and the rest will go in administrative costs and subsidies for low-income earners affected by higher electricity, gas and fuel prices.
Emissions-intensive export industries will be partially exempt, and agriculture will be exempt until a further review in 2012.
Additionally, the Federal Government is providing direct subsidies for renewable energy, including a $1,600 subsidy for the installation of solar hot-water systems, and offers Renewable Energy Certificates (RECs) to renewable energy producers, including wind and roof-top solar electrical and water-heating systems. These can then be sold to energy-users as carbon permits.
These certificates are vital subsidies for renewable energy users. Without large subsidies, solar and wind power generation cannot compete with conventional electricity generation (from coal, gas or hydro power).
Without large subsidies, renewable energy generators will not be built or else will become museum pieces, as has happened to Australia's first solar-energy farm, at White Cliffs in New South Wales.
Even before it gets underway, the Rudd scheme is in deep trouble.
As a result of the $1,600 solar hot-water subsidy, large number of solar hot-water units have been installed, with the owners then offering for sale their renewable energy certificates (RECs). The result has been a slump in the price of RECs from over $50 (per tonne of CO2 emitted) to about $30.
The effect has been to make construction of wind-power generators in Australia unfeasible. According to the Australian Financial Review
(October 27, 2009), Keppel Prince Engineering, which produces about 40 per cent of Australia's wind-energy towers, has already slashed its workforce, and may have to cut it further.
The head of one of the largest producers of renewable energy, Pacific Hydro, said that "unless there's a short-term fix by government, there won't be any investment [in large-scale wind energy] for the next two or three years", making it impossible to achieve the government's 2020 renewable energy target.
These comments were echoed by the chief economist of AGL, a major energy producer.
An interesting sidelight to the issue was an observation by a wind-energy investor that wind energy would require a subsidy
of $50 to $60 per megawatt-hour, which is approximately the current production price.
This means that a feasible renewable energy industry would require the cost of electricity, under the Rudd Government's emissions trading scheme, to double.
In light of the fact that electricity prices have increased substantially, even before the scheme has been introduced, it will be interesting to see whether Australian consumers will tolerate further massive increases - especially as they will have a negligible effect on either global CO2 emissions or global warming.Peter Westmore is national president of the National Civic Council.