Carbon Price Cheapest Way to Reduce Pollution

Australia’s Climate Change Minister Greg Combet admitted that “the carbon intensity of our national electricity supply is one of the highest in the world. To deliver one kilowatt of electricity to a household, we emit about 1kg of carbon pollution”. He says the responsible path is to take measured steps towards reduced dependence on carbon pollution and putting a price on carbon pollution tilts the economic balance in favour of low pollution options. “A carbon price mechanism is the cheapest way to reduce carbon pollution”.

Speech by Australian Minister of Climate Change and Energy Efficiency Greg Combet at Carbon Expo in Melbourne, as published in The Australian (13 October 2010):

LABOR has a proud record of initiating tough reforms, whether it was the Fisher government’s battle to set up the Commonwealth Bank, Curtin’s introduction of uniform taxation or the visionary reforms of the Hawke-Keating governments.

The government accepts that climate change is real and that human activity is contributing significantly to it through carbon pollution, and that if emissions continue to grow without restraint, our climate could change in ways that present grave risks to our economy, environment and way of life. The only responsible course is to reduce the risks of climate change by cutting carbon pollution.

We do not need to make this change overnight – indeed this economic transformation will take decades – but it is necessary that we get started. The Australian economy is deeply dependent on energy sources that generate carbon pollution. The carbon intensity of our national electricity supply is one of the highest in the world. To deliver one kilowatt of electricity to a household, we emit about 1kg of carbon pollution. The responsible path is to take measured steps towards reduced dependence on carbon pollution.

Last Friday, the government released the report of the Prime Minister’s Task Group on Energy Efficiency. The report reinforced the government’s strategy and the need for a price on carbon.

In its last term, the government introduced legislation that would have put a price on carbon. However, the Greens and the Coalition blocked this legislation three times in the Senate.

We know, of course, of the division within the Coalition over the Carbon Pollution Reduction Scheme. But the fact that the Greens blocked the CPRS three times has received surprisingly little attention. The CPRS was a cap-and-trade emissions trading scheme that would have delivered quantifiable and significant reductions in pollution. If the CPRS had been legislated, in the year 2020 our carbon pollution would have been at least 144 million tonnes lower than it is at present projected to be. By way of comparison, this is roughly two-thirds of Australia’s emissions from electricity generation, or roughly twice our road transport emissions.

The Greens wanted stronger targets and deeper cuts in pollution and less transitional support for industry. Now that their focus on the primacy of their targets appears to have been set aside and they have joined the government’s multi-party climate change committee, I look forward to their involvement in consideration of the real economic effects of public policy in this area.

Passing legislation on carbon pricing was never going to be easy. Big economic reforms never are. But change we must. If we are to remain internationally competitive in the long term, our industries must become less carbon intensive. Putting a price on carbon pollution tilts the economic balance in favour of low pollution options.

The repeated finding of independent analysis is that a carbon price mechanism is the cheapest way to reduce carbon pollution.

Decentralising the signal to abate, through a carbon price, means the government does not have to prescribe to individual firms or sectors how they are to reduce their emissions. A carbon price therefore encourages ingenuity and innovation. It does this through the everyday decisions of investors and businesses.

Alternatives to a market-based mechanism, such as regulatory or subsidy-based approaches, cannot alone operate on the scale required to meet the government’s targets and would be extremely costly. Put simply, other approaches, such as that proposed by the opposition, will cost Australians more and will not be able to deliver the emissions reductions of the scale required to meet our targets. It is an odd time in Australian politics when an apparently market-friendly Liberal Party advocates old-school Soviet-style command and control measures rather than supporting a market-based solution to such a great challenge.

The impracticality of these alternative approaches was confirmed in the advice provided by the Treasury to the government and opposition. The advice was that: “Direct action measures alone cannot do the job without imposing significant economic and budget costs . . . Moreover, many of the direct action measures cannot be scaled up to achieve significant levels of abatement, and for those that can be scaled up, the cost per tonne of abatement would rise rapidly.” In the long term, if global carbon pollution emissions are not reduced, the risks to our economy, country and way of life are too great. Both Nicholas Stern and Ross Garnaut have made it clear that the costs of this transition will be much greater if we don’t start now.

The absence of a carbon price is already having significant effects. Without a carbon price, business must build more risk into investment calculations, with the result that investment will be more expensive than it needs to be, leading to less investment taking place.

This is occurring already.

The chief executive of the Energy Supply Association of Australia, Brad Page, has stated that the uncertainty related to domestic climate change policy will result in a rash of smaller capacity, open-cycle gas turbine generators being built to meet incremental rises in energy demand, rather than fewer but more cost and emission-efficient baseload combined cycle gas plants. This is supported by analysis undertaken by AGL and the Climate Institute. They estimate that uncertainty caused by a delay in a carbon price, could cost the economy and consumers up to $2 billion a year in higher electricity prices or about $60 a household in 2020. Let me make this clear, opposition to a carbon price will force up electricity prices.

As previous big economic reforms have taught us, we sometimes need to do difficult things for the sake of our long-term national prosperity.

Our priority now is to agree on carbon pricing arrangements that are achievable, economically responsible and fair. This reform will create jobs, strengthen the economy and build a sustainable environment. Combined with the great strides we are already making on renewable energy and energy efficiency, a carbon price is a structural reform that will ensure Australia begins its transformation towards the low-pollution economy of the future.

Source: www.theaustralian.com.au