THE TRUTH ABOUT CARBON
Mention Kazakhstan to most Australians and chances are the conversation will turn to Borat, the comic character in Sacha Baron Cohen's mockumentary on the former Soviet republic.
What Australians are less likely to know is that Kazakhstan is one of the growing number of nations that have adopted emissions trading schemes.
Introduced as a pilot this year as part of the government's promised "green revolution", the Kazakh scheme covers oil, gas, mining and chemical industries. It is tied to a target of a 5 per cent cut in greenhouse gas emissions by 2020. Although the scheme is small in global terms, experts say its introduction is indicative of the gradual spread of carbon trading.
A World Bank report released in May told two stories about the world's efforts to put a price on carbon. It found the long-held goal of a global scheme had stumbled and the prospect of a co-ordinated international approach to tackling climate change would remain uncertain for years to come. But it also found national and regional schemes were proliferating, each tailored to local circumstances.
About 40 countries and 20 states and provinces either have a scheme or are bringing one in. Together, those jurisdictions are responsible for 21 per cent of global emissions. If emerging economies considering national schemes - including China, Brazil and Chile - joined the party then carbon pricing could cover countries producing nearly half the world's carbon pollution.
Little of this international picture has filtered through to Australia, where over the past week the nation's three largest parties tested credulity by espousing positions openly contradictory to what they stood for in recent years - and in some cases as recently as a few weeks ago.
Polls suggest the brazen policy backflips are a turnoff for voters, who have increasingly become disengaged from the climate debate.
"Desultory", is how Richard Dennis, executive director of the left-leaning Australia Institute, describes the debate. "These should be important conversations that politicians should take seriously in debating each other and in explaining what we're doing, and why. Who can blame people for tuning out of a shrill, semantic and at times downright disingenuous policy debate?"
On Tuesday in Toowoomba, Prime Minister Kevin Rudd launched a news conference by announcing the government would "terminate the carbon tax" to alleviate cost-of-living pressures on consumers and small businesses. Moving to a floating carbon price linked to the much lower price in the European Union emissions trading scheme, he claimed, would leave the average family $380 better off.
Rudd's grab was dutifully widely replayed, but in truth he had terminated nothing, just announced a plan to move from the temporary fixed carbon price to a market-set price a year earlier than planned. And he can not even make the shift without the support of the Coalition or the Greens, both of which oppose the change. Where Rudd once talked of climate change as the "great moral challenge of our generation", he is now emphasising the impact of carbon pricing on families, undercutting the government's long-held argument that most people had already been well compensated for price rises linked to the scheme.
In response, the opposition accused the government of changing nothing but the name - from a tax to a trading scheme. In reality, the word "tax" does not even appear in the laws passed in November 2011. The landmark bill was a permit trading scheme with an initial three-year transition period - a compromise between the ALP and Greens.
Opposition Leader Tony Abbott, who once called for an emissions trading scheme, now described the system he once backed as a "so-called market in the non-delivery of an invisible substance to no one". It added fresh weight to claims that Abbott did not accept mainstream scientific advice that climate change was a human-made problem.
Meanwhile, Greens leader Christine Milne declared that Rudd's proposed shift sent a signal that he wanted to make it cheaper for industry to pollute and that he was a "fake on climate". Critics pointed out the Rudd shift was incorporated into the scheme the Greens helped design. Rudd just wants to bring it in a year earlier.
Only occasionally did the debate stray to the key question of whether an emissions trading scheme would do what it was supposed to do: cut greenhouse gas emissions sufficiently for Australia to fulfil its part in reducing global warming.
The Coalition argued that it would fail. On ABC1's Q&A on Monday night, Liberal deputy leader Julie Bishop declaimed, repeatedly and unchallenged, that "emissions trading schemes had not been a success anywhere in the world".
Is this correct? While one can argue about definitions of success, the evidence suggests that even when trading schemes have been poorly designed they have still cut emissions.
Environmental permit trading schemes were first devised in the US in the 1990s to reduce the sulphur dioxide and nitrous oxides that caused acid rain. The cost of the cuts were much cheaper than expected. It led to the US leading calls to introduce cap-and-trade as the solution to climate change. But the US Congress famously baulked, and it was left to the Europeans - initially trading sceptics - to bring in the world's first major carbon scheme in 2005. The design of the European scheme, which covers more than 11,000 power stations, factories and airlines, has been widely criticised but in the most basic terms it has worked: emissions under the scheme are down by 10 per cent since 2008.
There are other examples. A comparatively tiny trading scheme that covers power plants in nine states in the north-east of the US led to a 33 per cent emissions cut in its first three years.
Peter Castellas, chief executive of the business-focused Carbon Market Institute, says: "Emissions trading has reduced emissions in projects all around the world."
But there have also been significant problems, and some experts believe now is not the right time for Australia to link with the EU scheme. The EU price rose to €30 in mid-2008, but in the past two years it crashed as the economic recession set in and industry slowed, creating an oversupply of unwanted permits. After falling to €3 this year, the price now sits on about $A6, prompting a debate over whether the market is damaged beyond repair.
At that price the scheme is powerless to encourage lower-polluting technologies, which are instead encouraged by separate renewable energy incentives. Coal-fired power generation has staged something of a comeback. Writing in New Scientist this month, David Strahan, the author of the The Last Oil Shock, said the EU scheme was now regarded as "a basket case".
Chris Davies, a British member of the European Parliament who sits on its environment and public health committee and helped set up the trading scheme, disagrees but does not deny there is a problem. He says the low price is also a sign the scheme is succeeding: industry has reduced emissions and as expected under the design of the scheme there is less demand for extra credits.
The EU Parliament has tried to fix the problem by what is known as "backloading", under which some of the oversupply of carbon credits will be temporarily removed from the system in a bid to inflate the price. An initial attempt in April failed, triggering a 40 per cent collapse in the price, but a second vote on a watered-down proposal was passed last month. The plan is still navigating the EU's labyrinthine system.
In Australia, there has been an underlying assumption in much of the debate that a lower carbon price triggered by linking to the EU scheme would mean a smaller emissions cut. But this is not necessarily the case. Under a carbon tax a higher price is needed to trigger deeper emissions cuts. The higher the price, the greater the incentive for polluting industries to find cheaper and cleaner ways to do business. But there is no limit on emissions - if businesses choose to, they can can wear the tax and keep polluting.
But emissions trading schemes cap or limit total emissions. The limit is enforced through the permit system - only enough permits are sold or given away to reach the cap. The number of permits decreases over time, reducing carbon dioxide output. If an Australian company decides to emit more it can buy credits from the EU. Whenever it does this, European businesses emit less. The theory says emissions are cut wherever it is cheapest, and the atmosphere is not picky about where on the planet that happens.
Erwin Jackson, deputy chief executive of Australian think tank and lobby group the Climate Institute, says shifting from a carbon tax to a trading scheme linked to Europe will be good for the environment if it comes with the right greenhouse target. "We will have a regulated limit on the amount of pollution we can pour in the air, and we don't have that now," he says. "That's a good thing. The biggest deal is going to be how the cap is set."
In Australia, the Climate Change Authority chaired by former Reserve Bank governor Bernie Fraser will advise on what caps and targets the government should set, taking into account the state of the economy and what other countries are doing. Both the government and opposition have committed to an emissions cut of between 5 and 25 per cent by 2020.
The authority is due to give its initial advice on caps in October. New Climate Change Minister Mark Butler reiterated this week that the new Labor leadership team would take it seriously if still in government. The Coalition has promised to abolish the authority.
Theoretically, linking to Europe could give Australia access to a massive pool of cheap carbon credits that would allow it to set much tougher greenhouse targets without significantly increasing the carbon price. But that assumes the European price stays low, and that is not guaranteed. Economist Warwick McKibbin pointed out this week that after linking with Europe, the carbon price could fluctuate through a range of factors, not least the exchange rate.
Frank Jotzo, director of the Australian National University's Centre for Climate Economics and Policy, is among those opposed to linking with Europe now. He says the goals of the scheme should include driving a shift to a cleaner economy in Australia, which he says in the short term is best achieved through keeping a gradually increasing government-set price.
Emissions from Australia's electricity system have fallen about 7 per cent over the past year. The carbon price is only one factor contributing but Jotzo says it has played a role by making some of the dirtiest power plants too expensive to operate. Removing or cutting it makes clean-energy sources less competitive.
Deutsche Bank analyst Tim Jordan has mixed feelings about whether the time is right to link to Europe. While the initial premise of Australia moving to emissions trading was that the world was steadily heading towards a harmonised carbon price, he says those days are gone and links between schemes are likely to happen on a case-by-case basis.
Europe and New Zealand are open to linking with Australia, but China appears to be avoiding global connections as it introduces a series of regional pilot schemes. California, which started trading last year and has a stable price of about $US15, is expected to link only with Quebec.
In this fragmentary world, the biggest question for Australia is how to best play its part in the global push to tackle climate change. Experts agree it is a trial-and-error process. There is no one answer, but it is worth noting that an overwhelming weight of economic institutions and investigations - including from the OECD, World Bank and, in Australia, the economically dry Productivity Commission and economic advisers to both sides of politics - agree that emissions trading must be at least part of the answer.
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