Policy - Emissions trading floored Down Under

AUSTRALIA: Australia has failed to embrace an emissions-trading scheme that proponents say is key to making renewables economically competitive in the coal-dominated country. Despite this, the wind sector insists there is reason for optimism, finds Greg Bousfield.

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When Australian Prime Minister Kevin Rudd swept into power in 2007, ending more than a decade of Conservative government by the centre-right Liberal Party, he had an ambitious green agenda. This included a pledge to cut greenhouse gas emissions by 20% by 2020, which was to be achieved largely by raising the renewables energy target (RET) from the timid goals set by the previous government. In addition, his centre-left Australian Labor Party (ALP) planned to use emissions trading to slash greenhouse emissions.

Rudd also refused to promote clean coal technology, designed to reduce emissions from coal through carbon capture and storage - a bold stance in Australia, the world's largest coal exporter. The fossil fuel generates the bulk of the country's electricity and, with 12 new coal-fired power stations in the pipeline, is set to do so for the foreseeable future. By contrast, electricity generated by the renewables sector, which is often more expensive to produce, accounts for only a few per cent of the energy generated nationally. There has been little political will to increase this.

Green credentials

The new government ratified the Kyoto Treaty and, in August 2009, increased the federal RET, requiring that 20% of electricity be generated from renewable sources by 2020. To achieve this goal, Australian consumers would need to buy about 45TWh of clean energy annually by that year - approximately four times the level of the previous national mandatory renewables energy target.

The plan made wind power the second-largest form of renewables generation after hydroelectricity, providing a much-needed boost for wind businesses that had long relied on state renewables targets to compensate for a weak federal regime. Developers that had put projects on the back burner because of delays in raising renewables targets could now, it seemed, move ahead with greater confidence.

Wind power's level of reliance on government policy became apparent last year when prices for renewable energy certificates (RECs) collapsed. Under the RET, renewable energy providers receive RECs which they can then sell to entities seeking to offset greenhouse-gas emissions. A separate government incentive for household solar hot-water systems had flooded the market with RECs, causing prices to crash. After complaints from the wind sector that this jeopardised project financing, the government split the RET into smalland large-scale renewables initiatives. Most wind projects fell into the latter category and were thus eventually protected from the fallout from the solar incentive.

The government says emissions trading can be a powerful complement to the RET. Furthermore, a Carbon Pollution Reduction Scheme (CPRS) proposed by the government would establish a cap on Australian annual carbon emissions, to be lowered gradually. Entities that release greenhouse gases as part of their regular operations would need to buy permits to emit specified volumes of carbon. Businesses with a surplus of permits could sell them to others with too few - a system proponents say would reduce emissions at the lowest possible cost.

High hopes

Rudd, who has described global warming as the "greatest moral challenge of our generation", says he wants Australia to set up the first emissions trading scheme (ETS) outside the EU. At first, the initiative looked set to become law by November 2009. But progress stalled well before the draft legislation even reached the legislature last May.

The conventional energy and minerals sector opposed many of the initial proposals. Claiming it was most at risk, the coal-mining sector demanded protection, saying emissions trading would cost it more than A$14 billion ($13 billion) in the first ten years alone. There were also protests from Australia's aluminium, steel, mineral-sands and other energy-intensive processing industries linked to the country's booming resource sector.

Another key obstacle to the RET was the patchy support for green policies within Australia, whose per-capita carbon dioxide emissions are among the highest in the developed world. In particular, the government was wary of alienating working-class voters in key marginal constituencies who had helped bring the ALP into office. There was concern among this demographic that the government would do little to protect them from rising prices as energy companies passed on the costs of new carbon penalties. Adding to the pressure on the government, many businesses claimed the scheme would exacerbate the effect on consumers of future rises in energy prices and demanded concessions in return.

To get the RET passed by the senate, Rudd made a deal with the opposition to defer the CPRS vote, believing emissions trading had the support of Malcolm Turnbull, the then leader of the opposition Liberal Party. But as a condition, Rudd had to dilute much of his green ambition.

The original CPRS draft contained several concessions to industry, including allowing Australian businesses to buy an unlimited number of overseas certificates. Since such offsets would finance carbon reduction overseas rather than at home, this angered environmental groups.

In November, Rudd made a series of broad offerings to the agricultural electricity and coal industries, doling out government support to the loudest critics of emissions-trading laws in the hope of reaching political conciliation (see table). To the ire of environmentalists, the government even embraced clean coal, reasoning that forecast higher prices for carbon-reduction certificates would make the technology competitive from 2033 onwards.

Fading prospects

As the weeks passed, it became increasingly clear that even Rudd's watered-down ETS was in danger of failing. Senators belonging to the Greens, who might have aligned with the prime minister to push the CPRS, lambasted the giant carve-outs for polluting industries. Although the party has a tiny minority in the senate, it plays a pivotal role as tie-breaker, since the larger parties have nearly equal representation in parliament.

Meanwhile, Rudd's litany of concessions bore no fruit. Turnbull's political colleague Tony Abbott made a successful challenge for the party leadership over the concessions on CPRS, which he condemned as "a great big tax". Dismissing global warming as a global fraud, he said there was no point in Australia punishing itself with an emissions-trading system that may not even be matched by other countries. The timing of Abbott's rise could not have been worse for Rudd: leaving him empty-handed at last December's climate summit in Copenhagen, Denmark.

With Abbott's assumption of party leadership, the coal industry intensified its campaign against emissions trading with a multi-million-dollar television campaign in key coal-mining marginal seats. It hammered home the argument that the CPRS would lead to a fall in demand for coal, leading to mine closures and unemployment. The campaign was supported by the vocal Australian Coal Association, which represents the black-coal producers of New South Wales and Queensland (mostly small coal-mining companies or subsidiaries of larger corporations). The larger Mineral Council of Australia, which represents 85% of the country's mining and processing companies, also voiced its opposition to emissions-trading legislation.

A January poll by market research firm Roy Morgan suggested public support for the proposed carbon-trading bill had fallen four percentage points since November to 46%. Among the opposition coalition's supporters, 62% opposed the legislation, up 17 percentage points from the November survey. This coincided with growing cross-party scepticism about the threat from global warming. At the same time, public support began to shift from Rudd towards Abbott.

In February, Abbott launched his own plan to achieve a 5% emissions cut by 2020: a multi-billion-dollar initiative to "buy back" emissions from industries that cut emissions below business-as-usual levels. Abbott would presumably leave the RET in place, but he favoured a huge "solar sunrise for Australia" extending existing solar subsidies.

Abbott's policy was roundly discredited - even by his own party - although it was supported by the minerals sector. His plan scuppered his attempts to enlist the Greens, who said his proposals were open to shady deals behind closed doors. The Greens insisted on a 40% cut on 1990 emissions levels by 2020, no use of overseas certificates and all permit revenue to be spent on emissions-reduction schemes and renewables.

Election looms

One area where support for carbon-trading legislation has been unwavering is the wind sector, where hopes are that such a mechanism would lock in higher prices for coal-generated electricity - giving wind a competitive advantage as it would not incur a carbon penalty. However, wind operators do not expect a big leg-up any time soon.

Had the CPRS launched this year as expected, the carbon trading laws would have earned the government proceeds from the initial round of emissions-certificate auctions. But with carbon prices currently low, an ETS will only begin to provide support for wind around the 2020 expiry date for the federal RET. Wind industry figures insist the target provides sufficient assurance to investors, for now. Lane Crocket, the general manager of development at Sydney-based Pacific Hydro, says: "Not having the CPRS hasn't damaged the wind market. In early years, the CPRS wasn't regarded as absolutely necessary to get new projects funded." In any case, he adds, the price of carbon over the next few years is unlikely to raise the price of electricity generated from conventional fuels.

The senate rejected the CPRS twice before it was most recently sent to parliament in February. That month, a climate-sceptic senator from a minor opposition party gagged debate, effectively removing the bill from the legislative agenda. No new attempt to revive it is likely before an election, which could be as late as November.

Last year, the government planned to build its election campaign around the opposition's rejection of emissions trading. But, with public interest in climate change flagging, the fate of emissions trading in Australia is now unclear. "The Greens might work with the government to set a temporary carbon price for the next couple of years to allow continued debate on CPRS," says Crocket. Then again, such a move could just as easily fail to take root in the country's minerals-focused economy.

Giving way

Among the concessions the Australian government has offered industry to achieve carbon cap and trade, it has pledged to:

  • Entirely exempt agriculture from the carbon-reduction laws for the first 15 years after implementation
  • Broaden a scheme aimed at compensating the electricity sector for the additional cost of carbon trading by raising the number of subsidised permits by 75%, to nearly 230 million permits and extending the programme to ten years
  • Double assistance to the coal industry to A$1.5 billion ($1.38 billion) over five years
  • Give the food-processing industry A$150 million ($138 million) and electricity generators A$4 billion ($3.7 billion)
  • Accept clean coal technology

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