Q&A: Milne on carbon pricing changes

Greens leader Christine Milne explains why her party supported scrapping the floor price and says yesterday's carbon pricing shake-up substitutes short-term certainty for a long-term price trajectory while sending a very important global signal.

In an interview with Tristan Edis, Greens leader Christine Milne discusses:

-- What led the Greens to reconsider its position on the price floor;

-- The party's confidence a two-way link will be achieved with Europe by 2018;

-- How the price cap will work;

-- The challenge in handling the carbon farming initiative (CFI) in a two-way agreement;

-- The Coalition's soil carbon plans; and

-- Her confidence that the CER price won’t set the market clearing price.

TE: With the recent announcement, what led the Greens to reconsider their position on the floor price and open yourselves to the idea of removing that underlying price certainty there for investors?

CM: Well, I was quite excited about the prospect of linking with the EU. That wasn’t something that was on the table when we negotiated the whole carbon price/emissions trading scheme settings. And when we negotiated the floor price it was with a view to saying ‘well, we have a fixed price for three years and then we argued for a floor price of six years’. We weren’t able to persuade the government of that so we got the floor price for three but we were always concerned about what would happen in 2018 if indeed things hadn’t gone as well as we hoped in terms of global change and what if it fell to the CER price in 2018 – and that would be quite a lot of dislocation.

So that had been worrying me for some time and so the opportunity to link with the EU was just terrific because it ticks a number of boxes. First of all, it’s global linking for a European scheme and the Australian scheme. It makes it clear to everyone we are now dealing in a carbon market of 500 million people in the European Union. It basically says to people that the world is now on a trajectory towards reducing emissions and transforming to a low carbon/zero carbon economy.

Essentially you’re giving up the short-term certainty of a floor price for three years for a long-term price trajectory. And that’s what business wants, is the long-term price trajectory. So I felt like that was a really good opportunity. I just see this as full of opportunity.

TE: What about the fact that there’s still negotiations taking place. This 2018 two-way link is not signed, sealed, delivered. How confident are you that this is actually going to be achieved?

CM: I’m very confident because I spoke to some of the European Union negotiators and it’s very clear to me that they see this as a big opportunity.

Europe needs some momentum for moves towards global carbon pricing, a global carbon market. So Europe’s very keen. This is a one-way link for three years until such time as we can get that treaty negotiation by July 1, 2018. This was really the first step.

The Europeans are moving and I’m pretty confident that they’re moving to try and restore the carbon price in Europe. They’re obviously engaged in negotiating set asides to force up the price and there’s also discussions around directives. They’ve got such a pipeline of investments around renewable energy, energy efficiency. The UK’s got a big pipeline in terms of offshore wind. Germany’s got the big move to renewables. They desperately need the carbon price to be restored in Europe. And so they see this as a very important global signal.

And also between Australia and Europe it gives another strong signal to Korea and China that this is really on the move. And those economies are already working on pilot chemes and so it really adds to the momentum for global actions to bring in emissions trading to reduce emissions.

TE: Couldn’t we have agreed to a two-way link but still put in place some kind of floor price on our scheme such that we could still lock-in some kind of minimum price but at the same time always import EU ETS permits where the price was higher than the floor price.

CM: Well, the problem with that Tristan was the European Union was not prepared to link with Australia as long as there was a floor price and that was because of their own domestic politics largely.

I don’t want to put words into their mouths so I’ll be careful about what I say, but their view was that they wouldn’t be able to get the sign-on in Europe if Australia stuck with a floor price because it wasn’t the market mechanism and there would be some push back from some of their members.

TE: I noted that the price cap or the price ceiling is still going to remain in place and at the moment from reading between the lines it was about $20 above the prevailing…

CM: Above the 2015/16 price, yes.

TE: So there would be some kind of forecast of what the EU ETS price might be and they’d add $20 to that?

CM: That’s right and that’s the role of the climate authority. So the Climate Change Authority will consider in 2014 what the expected European price will be in 2015/16 and they will set a price and the $20 will be above the projected price. So they will obviously be taking expert advice at that time.

TE: I suppose one of the risks we run is that are still trying to sort out their set-asides and a variety of other mechanisms they might use to restore the scheme and hopefully that all gets resolved by 2014.

CM: Yes, that’s right Tristan. So basically yes of course. We are exchanging a short-term certainty of a floor price between 2015 and 2018 for the benefit of a linked scheme to 500 million people and a scheme were there is a long-term price trajectory. And since businesses make investments decisions for the long-term rather than the short-term I think it’s worth giving up the floor price for the long-term price trajectory that all Australian business will be able to look to.

TE: What was the European attitude around the eligibility of a number of abatement options through the CFI (carbon farming initiative) that have been frowned upon by the Europeans? How might that be handled going forward?

CM: Well certainly what this does is give farmers in Australia a much clearer idea that their permits will be a lot more valuable under this scheme than they would be under any Tony Abbott proposition. But of course the European Union will want to talk about that as the two-way linking negotiations occur out to 2018. It will be part of the discussions between 2015 and 2018 and I don’t know how that’s going to transpire.

TE: The other thing is Australia has been very keen to use land use change as a source of abatement or recognition for abatement and Europe hasn’t been quite so comfortable with that. So, with this agreement perhaps it could all break down on the basis of disagreements around the eligibility of land use change?

CM: Well that also depends on negotiations at the UNFCCC in relation to rules in a second Kyoto commitment period and also a global treaty, which is meant to be negotiated by 2015 and to take effect by 2020, according to what was agreed in Durban. So I think around land use there are a lot of things to be determined at two different negotiation levels if you like.

Certainly I think the issue of whether Australia opts for forest management for example in the second Kyoto commitment period is an issue. How that would then translate becomes another negotiating point. So I guess what you can say is what you’ve got out to 2018 is a higher price for carbon farming permits for farmers in Australia but what the negotiations will do in terms of land use in the long-term, it would be impossible to say at this point.

TE: The other issue is around soil carbon. This is something that doesn’t appear to have been on the radar screen for the Europeans at all.

CM: No.

TE: It’s very strongly on the radar screen with Australian politicians.

CM: Well, I wouldn’t say so Tristan. It’s strongly on the radar for the Coalition (but not) for everyone else – the science community, the government can speak for itself, but certainly for the Greens. What we have said, and clearly the legislation provides for, is that there has to be a proven methodology. And everybody, including the CSIRO, has been out there saying that we are nowhere near a methodology in terms of soil carbon.

So Tony Abbott’s contention that 60 per cent of his 5 per cent is going to be achieved through soil carbon – well, exactly how? And where is the science and where is it going to be proven? There are some parliamentarians who think it’s the silver bullet but the science community certainly doesn’t.

What I can say is that everyone agrees that enhancing soil carbon is a really good thing to do; for agricultural productivity, for moisture retention, for healthier soils, for reduction of chemicals. It’s a really good thing to do. The extent to which it will be part of emission trading schemes, it is further off than the Coalition will have you believe.

TE: Last question – they’ve cut back the allowance for CERs down to 12.5 per cent of liabilities, what gave you confidence that this will lead to a strengthening of price? We’ve had some huge reductions in electricity demand in recent years that were expected and who knows what other abatement will come out of the woodwork. How confident are you that in the end the CER price won’t set the market clearing price in light of that 12.5 per cent allowance and no floor price?

CM: Well in the negotiation of what that allowance should be that was absolutely at the forefront of my mind and it was certainly something the government was very concerned about as well, so we had to set a limit at which we felt the cap would be such that the European price would effectively bind. And so I’m confident that 12.5 per cent will do it.

TE: Okay, thanks very much for your time Christine.

CM: Okay, no worries, thank you.

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