Australia will not be linking its emissions trading scheme to California any time soon. But Australia will have to increase its emissions reduction targets to between 15-25 per cent below 2000 levels by 2020, following climate action by the European Union, US, Canada, and China.
At a public seminar hosted by Grattan Institute earlier this week, the chairman of the California Air Resources Board destroyed two myths. Mary Nichols, one of Time Magazine’s 100 most influential people, demonstrated that the world is moving on climate change and that cap-and-trade emissions trading schemes are well and truly alive.
However, political uncertainty regarding the future of Australia’s emissions trading scheme means that, for California, linking the Australian and Californian schemes, and by extension the EU scheme, are not an immediate priority.
So, what can we learn from California and from climate action around the world?
This year President Obama resorted to regulation to ensure that the USA meets its target to reduce greenhouse gas emissions by 17 per cent below 2005 levels by 2020.
Professor Ross Garnaut joined Mary Nichols at last night’s seminar and noted that, before its election, the Obama administration had been looking to cap-and-trade as the most efficient and lowest cost way to reduce emissions. Having failed to get that legislation through Congress, they accepted that regulation would be necessary, albeit inefficient and higher cost.
However, individual states have flexibility in how they proceed, and California has adopted an ETS. Its target is to scale back emissions to 1990 levels by 2020.
The scheme became operational from January 1 2013, and there have been three auctions of carbon allowances to date. The scheme now covers electricity, cement, refineries and other large industries, with natural gas and transport to be included from 2015. The scheme also covers emissions produced in other states to generate electricity consumed in California.
Permits are currently trading above US$13 per tonne, and the scheme includes mechanisms to support companies so they don’t move operations elsewhere to avoid the carbon price.
Linking to Quebec
From January, 2014 the Californian scheme will be linked with Quebec’s cap-and-trade scheme. Mary Nichols made it very clear that this linkage had been carefully planned, and that there is close alignment between both schemes on the important design elements.
While Quebec will auction its permits, in contrast to California’s decision to allocate most of its permits for free, this does not affect the value of the permits in the carbon market place. It will be interesting to see if and when other US states follow the Californian example, rather than go down the higher cost, regulatory route.
While in Australia, Mary Nichols signed a Memorandum of Understanding with the chair of Australian Climate Change Regulator, Chloe Munro, to guide collaboration between the agencies in addressing the global issue of climate change. Both agencies intend to learn much from each other’s experiences in implementing an ETS.
What about China?
Discussion regarding international action on climate change and policies doesn’t make sense without considering China, now the world’s biggest emitter.
Both Mary Nichols and Ross Garnaut highlighted progress being made in China to reduce the emissions intensity of its economy. Measures include shutting down old, dirty coal-fired power plants, constraining coal consumption, supporting renewable energy and introducing pilot ETS programs.
At a conference on Tuesday, Xie Zhenhua, the vice chairman of the National Development and Reform Commission, said China could spend nearly $US300 billion on renewable energy in the current five-year plan. He also confirmed that, in 2015, the government will gradually expand the carbon trading pilot program towards the creation of a national market.
Australia doing its part
In Australia, both the government and the Coalition support Australia’s international commitment to reduce emission by 15-25 per cent below 2000 levels by 2020, conditional on international action. The actions being taken by the European Union and countries such as the US, Canada and China demonstrate that this commitment will need to be formally triggered.
It may not be as neat as many environmental activists might wish, but global action on climate change is well beyond the claims of sceptics and those opposed to Australia’s playing its part in this action.
In April, 2011 Grattan Institute’s report, Learning the hard way: Australia’s policies to reduce emissions, concluded that only an economy-wide carbon price can achieve the scale and speed of reductions required for Australia to meet its 2020 commitments without excessive cost to the economy or taxpayer. Adoption of this approach by an increasing range of governments suggests that this conclusion is the right one.
Tony Wood is Program Director, Energy at Grattan Institute. He owns shares in a number of companies, both directly and via his superannuation fund. Some of these could be impacted positively or negatively by the policies associated with this article.