Now is probably not the most opportune moment to tell the world that you've got this wonderful new financial product you want to trade in a specially created artificial market. But Kevin Rudd insisted last week that his government will issue carbon pollution permits to be bought and sold in an emissions trading market in 2010.
On one level, the Prime Minister deserves marks for sticking to his guns when it might have been easier to defer the scheme until the ramifications of the global financial crisis become clearer. After all, the crisis has been exacerbated by excessive risks taken in trading exotic financial products.
The more puzzling aspect is why Rudd has decided to put all his eggs in an emissions trading basket when complementary measures can help tackle the problem of global warming caused by the release of greenhouse gases such as carbon dioxide. Tremendous scope exists to cut emissions by improving the efficiency of energy usage and by capturing carbon via revegetation projects across large tracts of damaged rural land.
The attraction of these measures is that they reduce the pressure for the price of carbon pollution permits to rise steeply to cut emissions from sources such as burning coal for electricity generation. Some Labor politicians worry that voters fear what will happen to the price of electricity, despite government assurances that low income earners will be fully compensated. Others fear that they could lose their jobs in heavily polluting industries.
Treasury modelling released last week reinforced the prime minister’s determination to start the trading scheme in 2010. The modelling shows the scheme will have minimal impact on economic growth and provide bigger benefits the earlier it is introduced. Treasury found that industries will not be forced to move offshore. However, it says some coal-fired electricity generators may need to be shut in future years.
As with all modelling, the assumptions behind the Treasury’s reassuring results can be questioned. Although the modelling does not include the impact of the latest dislocation caused by the global financial crisis, Treasury argues this will have little bearing on a study covering 2010 to 2050.
The modelling produces an initial price for a carbon pollution permit in 2010 of $23 a tonne, if the goal is to reduce emissions by 2020 to 5 percent below the levels in 2000. The price would be over $48 a tonne for a reduction of 25 percent — the level an international scientific panel says is needed to prevent serious damage from global warming.
Contrary to its backwards-looking reputation, the Australian Council of Trade Unions last week urged the government to introduce a stronger than expected target for cutting emissions. It predicted this would create up to one million jobs by 2030 in green industries.
Perversely, the May budget deferred planned spending on developing new technologies essential to cutting emissions. Likewise. The Rudd government has done little on the energy efficiency side— failing, for example, to introduce tighter standards for electrical appliances, vehicle emissions, or increased use of insulation in homes.
Just as surprisingly, the government is ignoring attractive options to encourage rural Australians to play a major role in reducing emissions. Due to worries about asking farmers to buy pollution permits to cover emissions from livestock and land cultivation, the rural sector will not be included in the initial stage of the pollution reduction scheme. But this overlooks the positive side which would let farmers make money from selling offset credits for storing carbon in soil and vegetation. Ultimately, these opportunities could result in large cuts to Australian emissions in a relatively painless manner.
In the final report of his Climate Change Review, released in the September, Professor Ross Garnaut saw tremendous potential for absorbing carbon in soils and plants. The report said, "The comprehensive restoration of degraded low value grazing country in arid Australia ... would remove up to the equivalent of 250 million tonnes of carbon dioxide per year." That’s about half the nation’s present emissions. Garnaut is not suggesting that land restoration on this scale will fully eventuate, but achieving half the potential gain would make a significant contribution to the reducing emissions.
In discussing a related approach, Garnaut says carbon farming — involving the planting of suitable trees or other vegetation — could absorb over 140 million tonnes of carbon dioxide a year. He says that a recent study shows farmers could earn up to $100 per hectare more a year than from current land use by to selling carbon offsets, even if a pollution permit price were only $20 a tonne. One advantage of carbon farming is that there are no costs for harvesting and transporting timber. Nor does it matter if the land is in a remote area, or producing only marginal returns from its current usage.
Moving down this path would also help tackle problems of soil salinity and erosion, as well giving farmers a chance to improve their income while abandoning agricultural practices that damage the land. It would also make it easier to meet stricter emission targets. To achieve these benefits, however, the government needs to start now — not in a decade’s time —on rolling out demonstration programs to introduce farmers and land care groups to the opportunities.
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