Matthew Warren – confused or maybe just plain wrong?

An AFR opinion piece on the carbon price floor from the former head of the Clean Energy Council, Matthew Warren, is muddled in its pursuit of regulatory certainty, lacking in understanding of Australia's emissions trading history and at odds with a viewpoint he signed off on in 2011.

The former CEO of the Clean Energy Council and recently appointed head of the Energy Supply Association of Australia, Matthew Warren has penned an opinion piece in today’s Australian Financial Review that is extremely critical of the government’s carbon price floor. He calls the $15 carbon price floor a “design flaw”, and says it will, “simply add to the cost of energy without adding to investment in cleaner energy generation.”

The only conclusion any reasonable reader would take from such heavy criticism is that the floor price should be abandoned altogether – which is pretty much what the ESAA has suggested in prior submissions to government.

These submissions (one in August 2011 and another in February 2012) argue that the government has essentially created a giant loophole by allowing businesses to buy international carbon credits or CERs, which have a going price of about $5, and avoid any top-up fee to bring the effective carbon price back-up to $15. The top-up fee is explained in my other piece today in Climate Spectator.

This seems rather at odds with a submission signed by Matthew Warren back in May 2011, when he was CEO of the Clean Energy Council, which states:

While an effective scheme will establish a forward market for carbon and allow any short-term volatility to be mitigated, there is still a risk that some factors could result in a carbon price substantially below the level necessary to enable long-term investment in cost effective abatement. This has, in fact, been the experience in the European Union Emissions Trading Scheme (EU ETS) and is a key factor behind the UK moving to adopt a price floor for carbon.

“The CEC supports the principle of a carbon price floor to help reduce downside risk in the carbon price following the transition to a floating market price.”

The submission then goes on to point out that such support would understandably be contingent on transparent rules and low administrative burden and also interestingly that, “international linking does not undermine the effectiveness of the price floor.”

How does Warren reconcile the idea that government should not impose any regulations to correct for CERs being below the floor price, while at the same time believing that international linking should not undermine the effectiveness of the price floor?

I should acknowledge that Matthew Warren makes a reasonable point in his piece in the AFR that: “Investors in the new energy infrastructure we need are looking at an investment horizon of at least 20 years. Three years of carbon price floor is therefore meaningless.” 

However if this is the case, then how is moving from a fixed carbon price of between $23 to $25 over the first three years, which then plummets to $5 any better?

Investors in power generation and a range of other capital intensive and long-lived assets must deal with shades of grey rather than hard black and white, because regulatory certainty over anything lasting 20 years is impossible. A floor price of $15 ascending by 4 per cent per annum locked in for three years is far from perfect. But I’m pretty confident that investors will take this as a stronger signal of the government’s long-term intent to clean-up power generation than $5.

If Matthew Warren’s concern is that a three year floor price is too short, then he would sound a lot less confused if he asked that the floor price be locked-in for say 10 years. This would be a lot more constructive than asking for it to be completely undermined by a free for all on international carbon credits.

Lastly Warren might be a little more convincing if he bothered to brush-up on the history of emissions trading in this country. In the opinion piece he makes the extraordinary claim:

“Our haste to put a price on carbon was always going to lead to implementation problems….In Australia we designed a hugely complex carbon pollution reduction scheme, abandoned it and then just introduced a carbon price – all in less than five years.”

Actually, government and stakeholders have been debating and working on emissions trading in this country all the way back to 1997. In 1997, the Australian government lobbied heavily for the Kyoto Protocol to provide for trading of emission entitlements across countries. This was accompanied by Productivity Commission studies of the potential to use an emissions trading scheme to control carbon emissions.

In 1999, the government released a series of discussion papers broaching a range of design options for a national emissions trading scheme.

In 2000, partly as an experiment in emissions trading, Australia introduced a certificate trading scheme in renewable energy.

In 2002, the state of NSW developed the world’s first mandatory emissions trading scheme that took effect in January 2003.

Over 2002 and 2003, a cross-departmental group of federal government officials developed a proposal for an emissions trading scheme which John Howard knocked on the head just prior to Cabinet debate.

In 2005, we commenced an extensive design and consultation process around a national emissions trading scheme led by state governments. Much of this work around a scheme design for a national emissions trading scheme was then subsequently adopted by John Howard’s Task Group on Emissions Trading. It then underwent further refinement under Rudd to become the Carbon Pollution Reduction scheme in 2008.

This design then remained largely intact under the final carbon pricing scheme that has now been legislated including the emission reduction targets and the design of assistance for emissions intensive trade exposed industry.

Matthew Warren if this is your definition of haste, I hate to see what you consider to be slow.