Undermining Emissions Reduction

The Investor Group on Climate Change, representing some of Australia’s largest institutional investors, has criticised the Opposition’s amendments to the Government’s emissions trading scheme. They argue this could defeat the purpose of the scheme to find the cheapest and most efficient way to cut greenhouse pollution.

By Jennifer Macey for AM on ABC (22 October 2009):

Investors say too much compensation for big polluters will undermine emissions trading. Some of Australia’s largest institutional investors have criticised the Opposition’s amendments to the Government’s emissions trading scheme.

The Investor Group on Climate Change includes AMP and Goldman Sachs. The investors say the proposed changes would compensate, or exclude, too many sectors of the economy.

They argue this could defeat the purpose of the scheme to find the cheapest and most efficient way to cut greenhouse pollution.

The list of those industries who may be in or out of the emissions trading scheme is growing. The Opposition says the Government’s proposed CPRS is too costly and it wants agriculture and gassy coal mines left out. More compensation would also go to coal fired power stations and the food processing industry.

Nathan Fabian is the chief executive of the Investor Group on Climate Change which represents firms like AMP, Goldman Sachs and the industry super funds.

“Agriculture, transport, mining has potentially significant compensation, the list is getting short for sectors that have to deal with the effect of the carbon price,” he commented.

“The idea of the emissions trading scheme is to find the least cost abatement, so the most efficient way to reduce emissions throughout the economy.

“Now if you start chopping sectors out of the scheme, then the market mechanism isn’t working efficiently, we’re not finding the least cost abatement, and the abatement options are going to be more expensive.”

He says unless a broad section of industry is covered by the scheme the burden may fall on a small part of the economy.

“Buildings is one area that may have a disproportionately high burden for reducing emissions, now luckily this sector is doing reasonably good work, but as it gets harder to reduce emissions in that sector, even if it costs more, the burden will fall there,” Mr Fabian said.

Lack of incentive

The building sector says it can easily cut emissions through energy efficiency but there is not enough incentive in the current scheme.

“Basically by 2030 the potential of our sector was to abate up to about 60 mega tonnes a year, now that’s a big number, that’s probably 10 per cent of Australia’s current emissions,” said David Parken, the chief executive officer of the Australian Institute of Architects.

“But that’s just the potential of it, and unfortunately the CPRS, in terms of our modelling, will only deliver about 8 mega tonnes from our sector.”

However, he does support the Coalition’s plans for a national white certificate scheme to allow households and businesses to earn credits for improving energy efficiency.

“We’re not sitting out there with a begging bowl, we’re not wanting compensation, we can make a major contribution and we could actually soften the blow on some of the sectors in the economy,” Mr Parken added.

Farmers and the coal mining sector have welcomed the Opposition’s amendments.

“It’s a big improvement on what’s currently proposed by the Government, it will maintain the competitiveness of the Australian coal industry and thus maintain jobs in regional Australia,” said Ralph Hillman, the executive director of the Australian Coal Association.

He says there are some 23 gassy coal mines that release methane during the mining process that could be unfairly taxed.

“It proposes to remove fugitive emissions from coal mining from the emissions trading scheme, but it does propose to regulate them, including quite a stiff target of a 30 per cent reduction in fugitive emissions by 2025,” he said.

“That’s quite a challenging target, because the technology for actually capturing and abating these emissions is very limited indeed, particularly in respect of open cut mines.”

But Nathan Fabian from the Investor Group on Climate Change says the earlier the economy gets used to a carbon price, the better.

“We’ve got exposure to all these sectors, emissions intensive and non-emissions intensive, we think we need to start getting the Australian economy ready for a time when there’s a fair dinkum price on carbon because that’s not far away.”

Source: www.abc.net.au and www.igcc.org.au