Saturday, January 29, 2011


 This post was first published as a guest post by John Davidson before the 2010 federal election.  Much of what was said then is still very relevant:

Since their last change of leaders both Labor and the Coalition have placed “putting a price on carbon” as the key driver of climate action on indefinite hold. They also look like moving to some form of direct action for at least the next few years. In addition, while the polls are continuing to show support for climate action this support has softened since Copenhagen. There is a reluctance to support changes that will have much effect on people’s lives or the economy, particularly if certain large countries with much lower per capita emissions than Australia don’t start reducing their emissions first. (In 2007, even the US per capita figure for emissions from the consumption and flaring of fossil fuels was 9% lower than Australia.)
So in this changing political environment does it still make sense to continue urging the Labor party to include putting a price on carbon as part of their election promises or to concentrate on arguing for an effective direct action program?

I have long argued in favour of a simple climate action plan that uses various forms of direct action to drive climate action instead of an ETS (or anything else that depends on putting a price on carbon.) Direct because direct action has the potential to achieve targets with lower price increases and more certainty that the planned outcomes will actually be achieved. Simple because it is easier to sell something politically when people have some chance of understanding what is proposed and how it will affect them personally. Simple, because we need to get some serious real action started early in the next parliamentary term instead of wasting another three years doing little more than work on the next grand climate action plan.
However, a simple direct action plan is no guarantee of a good outcome. If too much of it depends on unproven technology (such as geosequestration) it can become an excuse for more procrastination. If it gets taken over by emotional arguments against various technologies (such as gas fired power) it will reduce what can be achieved within politically realistic price restraints. If decisions are being made on the basis of marginal seat politics, special interests and fear of the political muscle of big polluters it could become just as bad (if not worse) than what CPRS became.
So the aim of this post is firstly to reiterate arguments against proposals for an “introductory” carbon tax and then set out what I believe should be the core of Labor’s climate action proposal for the next three years. I will be arguing that Labor’s policy should be based the following principles:
1. Existing programs should be continued until something better is in place and working.
2. The initial focus for the next term should be on getting serious action started on cleaning up electricity (including the possibility of the replacement of coal-fired with gas) and reducing the fuel consumption of new cars. 
3. The nominated emission reduction target should be covered by the action to clean up electricity. All other gains and personal efforts should be treated as a bonus for the next 10 years.
The problem with “introductory” carbon taxes:
Recent experience with MRET suggests that the price of carbon must be at least $40/tonne CO2 (=¢4.3/kWh for black coal power) for investment in renewables to be justified. This means that investors in renewable electricity need to be assured that the price of power will rise by at least ¢4.3/kWh above the current price before their investment is justified. However, if the carbon tax is only $30/tonne CO2, consumers will feel the pain of a ¢3.2/kWh price rise without any new investment in renewables. This reduced tax should be enough to justify the conversion of coal fired power plants to gas fired using CCGT (Combined Cycle Gas Turbine). However, if the price drops further, a point will be reached where conversion to gas cannot be justified either. Consumers will suffer the pain of increased power costs without any reduction in power generation related emissions.
By contrast, if we drive the investment by setting up of contracts for the supply of cleaner electricty, the average price of electricity only needs to ramp up slowly as the proportion of cleaner power increases. For example, this means that the increase in price of power after 50% of coal fired has been replaced by renewables would only have to be ¢2.15/kWh vs ¢4.3/kWh if carbon taxes are used to drive the investment. In addition, setting up of contracts will give a more certainty concerning the rate at which the cleaning takes place since the competitive tendering process sets the price. There is no need to second guess what carbon price is needed for investment to take place.
Targets and action:
Penny Wong has stated that the government’s current target is the equivalent of a 25% reduction in total emissions by 2020 from the current level. At the moment, the MRET power target is 20% renewables by 2020. (=10% reduction in total emissions.) The government also excluded transport from the CPRS so it is worth asking what else they expect to happen to give the 15% reduction in emissions not covered by cleaning up electricity?
We know that electricity will have to be cleaned up before 2050 so the simplest way of meeting the 2020 target would be to do it all by reducing power related emissions. (A 50% reduction in power related emissions would be required to give the 25% reduction in total emissions.) So what should happen during the next term of government as part of the plan to achieve this?
It will take 3 to 4 years between the signing of a contract and the cleaner power coming on line. Because of this all the contracts required to meet the 10 yr target would need to be signed before the end of 2016. On this basis it does not seem unreasonable for at least half the contracts required to meet the 2020 target to be signed before the end of the next term of government. (NOTE: The lag before new cleaner power comes on line means that it will take until at least 2014 before the power cleanup related price rises start. It is important to point this out.)
It should also be noted that the economics of using CCGT as part of the transition to clean power are better if all the investment in CCGT takes place as early as possible in the cleanup process. The calculations in this link also suggest that the use of CCGT may result in power prices that are lower enough compared with renewables to be politically significant. (As well as giving a lower average cost of power for the next 40 years even though all the CCGT will eventually be replaced by lower emission alternatives .)
All the above suggests that Labor policy should, for power related emissions:
    1. Allow for a CCGT transition if this minimizes the cost of reducing emissions. 2. Commit to the signing of the contracts required to reduce emissions by at least 25% before the end of the next parliamentary term. 3. Allow the contracts required to cover the full 50% target to be signed as early as practical if enough CCGT tenders are competitive.
Reducing car related emissions:
Even if we agreed with Abbot that “AGW is a load of crap” there is still a strong case for reducing our dependence on imported oil. It makes sense for Labor to go to the election with at least some proposals for driving down oil consumption.
Doing something about the fuel consumption of cars would be a good starting point. ABS reported that the average fuel consumption of Australian passenger vehicles was 11.5 litres/100km in 2007 compared with 11.4 litres/100 km in 1963. See ABS fuel consumption data. There are some cars on the market that consume close to 3 litres/100 km and a number of low cost cars that consume less than 5 litres/100 km. Small plug in hybrids will reduce fuel consumption below one litre/100 km for typical urban trip mixes.
Our experience with recent fuel price jumps suggest that increasing the price of fuel has little effect on total fuel consumed. It would make a lot more sense to leave fuel prices unchanged and concentrate initially on driving down the average fuel consumption of new cars using an MRET style system. (Set a target and insist that producers and importers either keep the average fuel consumption of the cars they sell below this target or buy credits from companies that average below the targets.)
There are potential arguments about exceptions for large families and people who live or work in places where 4 wheel drives really do make a difference. Labor should consider going into the election with the broad outline of an MRET type system and a promise to consult before the system is finalized. They should emphasize that this approach does not require fuel or registration price increases.
What about the Greens?
There are a number of things I would like to see the Greens do. The most obvious is to continue to apply pressure to adopt more challenging targets and to argue for policies and actions that will help the willing to do more to reduce their carbon footprint.
I would also like the Greens to drop calls for putting a price on carbon, get behind direct action and push both sides of politics to do more. I would also like to see more emphasis placed on arguing for actions that get the maximum gain for minimum pain. (Minimum pain can include physical discomfort as well as cost.)
I would be particularly encouraged if opposition to the use of a gas transition was dropped. What really counts is the amount we emit over the next 40 years and our rate of emissions by 2050. By all means insist that investors in CCGT understand that their generators will only be allowed to run for a limited amount of time. But also recognize that we can do a lot more cleanup using CCGT before we run into price driven political barriers.

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