Carbon tax deal comes at too great a cost

The carbon tax deal struck between Julia Gillard and The Greens has finally been unveiled. Gillard says it will mean a “great clean energy future”. The Greens have hailed it as “historic”. But it fails the key tests.

It will not cut emissions, even by the measly 5 per cent target of the Labor government. It will do little to encourage renewable energy. And by accepting carbon pricing as the main mechanism to tackle climate change, it attempts to lock in the idea that ordinary people have to bear the cost of any action. More climate action would mean still higher prices.

The package is based on a carbon price—a carbon tax that transitions into an emissions trading scheme. This has not worked where it has been tried in Europe.

The European Union Emissions Trading Scheme (ETS) has been in place for over five years and emissions are still rising. The best its defenders can do is plead that it has slowed emissions growth, not actually reduced them.

And it is now clear that Gillard’s package has an ETS at its centre—phased in after just three years of a carbon tax. Emissions trading creates a new arena for the finance markets to trade in. This hands control of the “price” to the bankers that brought us the global economic crisis.

Under the ETS overseas offsets also mean companies can increase emissions and buy half of their permits from offshore, in addition to domestic offsets through a soil carbon scheme.

The carbon price will begin at $23 a tonne. The Greens are saying this means no new commercial scale coal power plants will be built. But this is not guaranteed by law. The only evidence for it is modeling by Treasury that says the $23 starting price is enough to stop them. This claim conflicts with modeling done by consulting firms Deloitte and ACIL Tasman who have said a price of between $40 and $60 will be necessary to drive out coal.

And even the Treasury admits that one of their modeled “scenarios” indicates there would be one large new coal power station built.

Almost all the existing coal power stations would continue to operate unhindered.

The Gillard government is gambling that the compensation for households contained in the package will ensure people are not out of pocket. But John Howard’s modeling for the GST said the same thing, and there were still pensioners who were worse off.
The fact is that the cost of living generally is on the rise. Many people are going to blame the carbon tax for these price rises, whether it causes them all or not. This means the carbon tax will undermine support for the kind of serious action on climate change that still needs to be fought for. It has given Tony Abbott the space to whip up public hostility.

Renewable energy
The $23 a tonne rate is nowhere near enough to encourage any renewable energy, whether wind or solar power. At best it will simply allow gas to replace coal.
But the main benefit The Greens point to in the package is the money for renewable energy.

This money was not on offer in the CPRS. It is only the increased Greens vote and pressure from the climate movement that has pushed the government to deliver it.
The main new funding is the $2 billion a year for a Clean Energy Finance Corporation. Of this half is earmarked for genuinely renewable energy.

But funding renewable energy did not require a carbon price, and $1 billion a year will not deliver much renewable energy. Because no large solar power plants have yet been built in Australia they will initially be expensive. A plant just announced for Moree in Western NSW will cost about $900 million, and is only 150MW in size, less than a tenth that of a large coal power station like Hazelwood in Victoria.

More seriously the Finance Corporation model is premised on securing additional investment from business. This mirrors the Labor government’s existing Solar Flagships program, which requires the private sector to fund two-thirds of any project.

Relying on the free market to come up with most of the funds for renewables risks seeing projects collapse. Solar Systems, the Victorian company which won government funding to build a solar plant at Mildura, was forced to close when it could not secure enough additional private sector funding.

The other half of the $2 billion is likely to fund a lot of gas power. Gas is a fossil fuel, which still produces at least half the emissions of coal. When greenhouse gases released in its mining are included, “fugitive emissions such as methane causes almost as much if not more damage than coal”, as Beyond Zero Emissions has pointed out.

Thankfully mythical Carbon Capture and Storage technology was not included in the definition of “clean energy” the Finance Corporation can spend its money on.

Another new body, the Australian Renewable Energy Agency, will be given responsibility for existing renewable energy projects worth $3.2 billion over ten years.

It is positive that responsibility for these programs will be taken from Resources Minister Martin Ferguson, who is in the pocket of the coal and uranium companies. But it is not actually new money.

As already flagged the government has given itself scope to buy out and close 2000MW of coal power stations—which is slightly larger than the capacity of Hazelwood. But this depends on negotiations with the power plant owners, so the government only says there is “scope” to make payments to close power stations in an, “orderly and planned way with realistic time frames”.

Handouts to business
As under the CPRS, there is billions in compensation for business. In fact some will get even more than they were promised under the CPRS. As Bernard Keane wrote in Crikey, “The coal industry will get a staggering $1.2 billion in handouts, in an outrageous cave-in to the industry that is responsible, more than any other, for Australia’s contribution to global warming.”

In total there is $10.3 billion for business over the first three years, with compensation guaranteed until 2018. Coal power stations alone will receive $5.5 billion over five years, compared to $7.2 billion over ten years under the CPRS. This will result in windfall profits, as power companies pass the cost of the carbon price on and pocket the compensation.

The Greens have negotiated away their credibility on climate change for some very modest measures on renewable energy. But they come at a cost of backing a policy that overall will do next to nothing on cutting greenhouse emissions, and will set back the chance of winning broad support for action on climate change.

The climate movement should not be pulled behind defending this policy. The movement needs to explain why the carbon tax isn’t enough to tackle climate change, and build pressure for the kind of government spending on renewable energy that can solve the problem.


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