Abandoning the polluter pays principle
April 15, 2008 by Christine Milne
An edited version of this piece ran in today’s Crikey email. See also articles in today’s SMH, Financial Review and Age.
The environment movement has been united since 1972 on the fundamental issue of the polluter pays principle, stating that polluters must pay to clean up the damage they have created. It is the principle which underpins emissions trading schemes, and which drives the campaign in recent months to cut the massive subsidies to fossil fuels from the upcoming Budget.
By abandoning the polluter pays principle, WWF and the Climate Institute should be seen to have abandoned any remaining pretence of being part of the mainstream environment movement. But is this a split, or confirmation that these groups are not truly part of the movement?
WWF has long felt more comfortable rubbing shoulders with government and industry than with the environment movement they are supposedly part of, a position cemented with its decision to back the Howard Government’s EPBC legislation against the rest of the environment movement. The Climate Institute, while happy to be represented in the media as a leading environment group, has never perceived itself as such, having told people around Canberra that it sees itself as a ‘minesweeper for the Labor Party’.
Three key elements of the push these groups are announcing with the CFMEU Mining Division and the Australian Coal Association in Canberra tomorrow are for government to take the lead in technology demonstration, finding sites for carbon dumps, and covering the coal sector’s behind by taking on long-term liability for leakage.
The first of these is simply a rearguard action to distract attention from the fact that, globally, the ‘clean coal’ dream is drifting further away from reality. The collapse of the FutureGen project in the USA is just the latest example showing that, years down the track, budgets and timelines are blowing out and still no-one is able to demonstrate that the technology can and will work. Meanwhile the renewables industry, with far less government support, is moving ahead in leaps and bounds, outcompeting geosequestration even when the playing field is skewed so badly against them.
WWF justifies its position by saying we “need to know” as soon as possible whether or not geosequestration will work. The Climate Institute pushes the bizarre line that we need “balance” in energy development, ignoring the fact that the multitude of technologies that make up ‘renewables’ currently get far less support in total than the single technology of ‘clean coal’.
Under what perverse logic does the failure of an industry to perform require that it is given extra support? Many gigawatts of baseload-capable renewable energy are being installed around the world today, while the best estimates of the coal sector, that they could have a handful of commercial plants online by 2020, are being revealed as an exercise in wishful thinking. The urgency of dealing with climate change is such that we must put every bit of support we can into the technologies that can reduce emissions now, not pin our hopes on an unproven dream because it could save one industry.
The second two elements of tomorrow’s push – finding dumps and taking on liability – are exactly what the nuclear industry has long pushed for. They are the call of a dirty industry that wants to reap all the profits but carry none of the cost or risk.
Even if tomorrow’s announcement fudges the issue of who should pay for demonstration plants, this second position will breach the polluter pays principle. Indeed, the mere establishment of a taskforce, not to mention the fast tracking of legislative frameworks, focussed on this technology at the expense of others will breach the polluter pays principle. Just consider the boost the nuclear industry got from the Howard government’s Nuclear Industry Framework.
The Climate Institute and WWF, not to mention the CFMEU, should consider their position very hard over the next 24 hours. The Coal Association will be the only party to gain from the planned announcement by gaining a green and social tinge for their grab for even more government support. Is that a reasonable trade for getting a seat at the big table?
And finally, before people get too excited about a split in the environment movement, this disagreement is nothing compared to the tooth and nail fighting starting between coal, gas, energy generators, road users and every conceivable greenhouse emitting sector over who will get the lion’s share of revenue from the sale of emissions permits. Stand by for all the old grievances to come to the surface as ETS day draws near.
I think the split is a good thing.
I agree that the WWF (AKA the Bad Panda) is not a part of the environment movement. Instead WWF (or WTF as they are also know) have drifted so far into the arms of the anti environment movement they now serve as a green washing PR company for global nasties and our “do as little as possible” governments using creditability from previous good work??? and in theory some of their current work that still has merit????.
(For example of negative actions of WWF take a look at the Bad Panda site http://www.badpanda.info/ )
So the only split within the movement is the Climate Institute, though you may well have a point that they are just a Labor stooge given the reluctance to evaluate Greens Climate policy directly against Labor’s at the last federal election.
You might think an organisation with independent funding of $10 million and not reliant of tax deductible status and government grants wouldn’t need to sidle up to the worst of the polluters and might instead advocate for radical but needed change.
What an insult to Mark Wootton and his wife Eve Kantor and the memory of the late Tom Kantor, the source of CI’s funds and their stated objective on the CI website “that the extreme urgency of the situation [global warming] requires decisive commitment and action from government and industry on a grand scale” unless of course they meant grand scale support of the coal industry.
At least the CI has shown its colours and just like a limb rotted with gangrene there comes a time when you just have to take a knife to it.
Christine:
Australia’s thralldom with “clean coal” is like a Pacific Island cargo cult.
May I please post a link once again to David Mills at Ausra re large-scale solar at http://ausra.com/pdfs/ausra_usgridsupply.pdf
There are two other things on google news today re concentrated solar power: at
http://www.nytimes.com/2008/04/15/science/earth/15sola.html?ref=business
and at http://www.salon.com/news/feature/2008/04/14/solar_electric_thermal/index1.html
Can you please set up a thread where people are only allowed to comment when they have shown some signs of having read and comprehendended all the three things above?
The interesting thing in my view is that concentrated solar is – thank heavens – getting airplay in the US. It’s about time it also got it here.
Kindest regards
“The urgency of dealing with climate change is such that we must put every bit of support we can into the technologies that can reduce emissions now, not pin our hopes on an unproven dream …”
Quite right Christene, perfectly put.
A problem we face is that sequestration remains too hypnotically appealing to the status quo for us to expect it can be killed any time soon.
Therefore the focus of our criticism must to be on gaining equal support for implementation of renewables by pointing out the outrageous risk of putting all our eggs in the basket of sequestration. It should be easy to get the climate institute to get on board that argument.
Then as renewables increasingly perform and sequestration is increasingly revealed to be problematic it will be possible for sequestration dreams to be set aside.
Being mired in deadlocks may be the most risky strategy of all. So it is a valid strategy to (even grudgingly) investigate something you don’t like with the aim of rapidly disproving it (thus killing support for it) in order that the preferred solution can proceed more quickly than it otherwise would have.
The ideal focus of sequestration research should be on very long term risk, roll out rate and overall feasibility (its weak points), and not on making demonstration sites.
The issue of why “we must put every bit of support we can into the technologies that can reduce emissions now, not pin our hopes on an unproven dream” is a very important one. There has been some quite detailed discussion of this exact issue at climateprogress.org. See for example:
http://climateprogress.org/2008/04/14/the-decarbonization-story-and-why-a-carbon-price-beats-tech-breakthroughs/
There was an interesting article in todays (April 16) Financial Review (page 11). It was stating that coal companies have been having much higher profits due to a much higher coal price, but they do not want to contribute more of their own money towards RD&D into CCS technology.
Peter, one suspects that probably speaks volumes about their level of belief in CCS.
Keeping alive the possibility of CCS means they can keep up business as usual in the meantime.
The extent to which they “put their money where their mouth is” would provide a useful test in their belief as to the true feasibility of CCS.
On the basis of the article you reference I think they are probably as skeptical of CCS as we are!
Peter, that AFR article is very interesting, isn’t it. Similarly, the article on p.8 of Tuesday’s AFR with a few fascinating quotes from John Boshier of the national generators’ forum, saying that he and others are less confident now than they were a year ago about the prospects for geosequestration - that it seems to be getting more expensive and further away.
Such a bummer that Fairfax decided to put all AFR articles behind a paywall… Can’t link to them for the benefit of other readers.
Gilbert - great point. I’ll use that, if you don’t mind
Tim, you are welcome to.
Here is the AFR article Peter referred to:
Coal profits won’t boost clean power fund
John Breusch
The coal industry says it has no intention of expanding a fund to support the development of clean power generation despite a massive increase in export earnings the two years since the scheme was announced.
In an unlikely alliance, the Australian Coal Association uesterda teamed up with the miners’ union and two prominent environment groups to call for the creation of a national taskforce to drive the research and development into clean coal technology, including the possibility of tax breaks and other financial incentives.
The ACA two years ago launched a clean coal R&D fund, to be paid by its members through a voluntary 20c a tonne levy, which it estimated would raise more than $1 billion over a decade.
Since the fund was launched, the spot price for thermal coal has surged to close to US$130 a tonne from around US$50 a tonne, delivering huge profits to the sector. Prices for coking coal, used in steel making, have risen even further, jumping from about US$80 a tonne to more than US$300 a tonne.
ACA executive director, Ralph Hillman acknowledged the huge rise in prices but noted that the industry was operating on tight margins just four years ago. He said there were no plans to use the extra profits to expand the industry’s R&D fund.
“The fund I think is regarded as a great contribution for the industry and adequate for the purpose,” he said.
Other sections of the environment movement, including Greenpeace and the Greens political party, have criticised WWF and the Climate Institute for teaming up with the ACA and the CFMEU to call for more public investment in clean coal.
But WWF chief executive Greg Bourne said the potential contribution that carbon capture and storage (CCS), which involves catching greenhouse gas emissions from coal-fired power stations and burying them deep underground, should not be ignored.
“Market forces and moving ahead as business-as-usual is not going to get us to the solution,” he said.
The alliance wants 10,000 gigawatt hours of electricity a year, equating to three 500 megawatt power stations, to be delivered to the grid by commercial CCS plants by 2020.
But it stopped short of calling for a mandatory target to reach this goal, saying this was an issue for the taskforce to consider.
A spokeswoman for Resources and Energy Minister Martin Ferguson said the government would give a consideration to a variety of proposals it had received on how to progress clean coal R&D, including that put forward by the alliance.
The government is also drafting legislation to allow offshore storage of carbon dioxide, which will address the critical issue of whether government should accept liability for sequestered CO2.
The big problem with an emissions trading scheme is it does nothing to discourage emissions of exported coal.
Since we export a huge volume of coal, an ETS creates only a minimal disincentive to mine coal, since coal is only penalised for the component that is burned here.
It would be more satisfactory to have a flat tax on each tonne of mined coal, since we know it is pretty much all going to be burnt.
If that tax is applied to actually reducing global emissions then the miners can export “emissions free” or more accurately “emissions offset” brand of coal which should presumably attract a higher international price.
Of course this can only be an interim step since ultimately the coal needs to go, but it seems far better than the current Garnaut method of zero disincentive for exporting coal and would raise considerably more revenue much faster for rapid total domestic decarbonisation.
The interesting this about this method is it permits us to use foreign capital to fund our domestic decarbonisation, the source of that foreign capital is the market premium for our exported “emission free” coal brand.
It might seem hard to believe that it could be “emissions free”, however if for every tonne we export, we burn one less tonne here (by making a solar thermal plant say) then the claim can be sustained. When we are totally decarbonised we can continue to use the export premiums to fund making solar thermal plants (or other renewables) in other parts of the world (which we own and generate revenue from) and keep doing this until there are no buyers left for our coal exports.
All the way through we need to maintain the principle that each tonne exported is a tonne reduction somewhere. Ultimately the reduction takes us to zero exports and we use the brand to fund the whole exercise from foreign revenue for the brand premium.
Tim
The price of diesel at our local service stations on Saturday 19/04 (mid discount cycle) is $1.60 / litre (unleaded $1.44), or 16 cents (10%) dearer than unleaded.
A check of the price of diesel in NZ at web site (http://www.pricewatch.co.nz/), indicates that diesel in NZ is around 20% cheaper than unleaded fuel (unleaded around NZ$1.81, diesel NZ$1.43) and approx A$0.16 / litre cheaper than in Melbourne.
Could you please request the appropriate Senator to ask a question in the Senate, if Australian motorists with diesel cars, are being used by the oil companies to subsidise unleaded fuel prices, which are being actively monitored by various agencies, including the the RACV, and ACCC. As diesel is cheaper to produce than unleaded fuel, there appears to be a pricing problem somewhere in the system, or price loading by the oil companies.
I progressively downsized from a 3.9 litre Falcon (BA model) to a 2.2 litre diesel last year for 3 reasons. 1. Reduce fuel costs, 2. Reduce quantity of fuel being utilised, 3. A very small contribution to reduce environmental impact. I now believe that I am being penalised for using diesel, in respect of my fuel costs, which are virtually the same as would be encountered with the 3.9 litre Falcon. How can I honestly encourage my boys to conserve resources, and reduce their environmental impact, when they see that they may be penalised by industry (as well as a probable lack of interest by Governments) to do so.
Although retired, I drive part time for a company who is also experiencing large cost increases with the diesel fuel for their trucks, which of course would be passed onto their customers, and then to the community, so although I am concerned over the impact to my family, Governments should also be concerned over increased diesel costs being passed to the general public as price increases to food, and other necessities.
Thank you for your assistance in this matter.
Grant
Concerned, I agree that a big problem with emissions trading by itself is that it ignores exported coal. A tax on coal when it is mined or exported is therefore a good idea. But if a policy like this ignores greenhouse gas emissions from other sources, it would be ineffective - in 2000, only 26% of CO2 emissions were from coal ( based on data from http://earthtrends.wri.org/pdf_library/data_tables/cli3_2005.pdf ).
So some sort of ‘coal tax’ would be a good idea if it ws as well as some sort of ‘cap-and-trade’ system (or emissions tax). In this case a good ‘point of obligation’ would be at the point of export, and there may be a case for exemptions to countries where there is a sufficiently strong carbon price and significant emission reductions are made (at the moment this would probably mean the EU).
I think the idea of using the fact that there is a tax as a way of ‘marketing’ could be good, the industry having something to gain would make such a tax more politically achievable. However, it is important that any such marketing is accurate because if it is not then it would undermine the whole approach. Marketing coal as ‘emission free’ would be clearly inaccurate as the only emission free use for coal that I know of is to bury it in a hole in the ground. Marketing coal as ‘emission offset’ is also inaccurate because any tax will go to consolidated government revenue while an offset would entail spending money on projects that lead to measurable, additional, permanent and verifiable emissions reductions that at least as great as would be produced by burning the coal.
Maybe ‘emission paid for’ may be better, but I would hope that that means that the level of the tax is equal to the expected social cost of carbon, a number which depends on a whole bunch of highly subjective things such as how much we value the future and how much we value civilization and so on.
One objection to reductions in coal exports (that I disagree with), is that any reductions in coal exported will lead to it being mined somewhere else. This objection is wrong because it assumes that either the global supply of coal is completely elastic or the global demand for coal is completely inelastic. Both of these assumptions are false.
Grant, thanks for raising that. It’s an interesting point. I will raise it with Christine.
Concerned and Peter Wood, export coal is well identified as one of the myriad gaps in relying on emissions trading. Which is why we are adamant at every step that emissions trading is only one small part of a solution. A levy on coal mined / exported is something that has been suggested a number of times, and is particularly attractive if the revenue received is hypothecated (directed) towards a ‘just transitions’ strategy, that is, used to invest in attracting new, clean industries to regions currently reliant on coal mining and export, retrain workforces and rehabilitate mine sites.
Grant the reason our diesel is so expensive is a simple supply and demand equation particular to Australia.
Diesel is the fuel that powers the mining boom.
Take away the mining boom and the supply and demand relationship shifts back to diesel being cheaper than unleaded.
There is not a market problem, its exactly how the market is expected to function in order to ration goods to those with greatest demand.
This diesel demand problem is a key reason why remote stand alone power generaton should be done with renewables rather than diesel. The government has set aside $69M per annum to provide grants for 50% of the cost of implementing renewables to directly replace diesel generators. Google RRPGP.
So the truth there is actually a direct action already by Government to reduce demand for diesel (and thereby contribute to reducing diesel price below what it would otherwise be) which is the opposite of the government ambivalence you fear.
Problem is Lindsday Tanner plans to cut the RRPGP program in the upcoming budget. I think the Greens need to fight tooth and nail to prevent him from doing this, it would be an outrage if he succeeeded.
Grant@11, I was told years ago that Australia produces light crude suitable for the production of petrol, but imports diesel as it comes form heavy crude. I may have been misled about this, but it would explain a price premium for diesel.
Tim@13, re polluter pays and mine site rehab. What are the Greens thoughts on old mine sites being used as refuse dumps and then being tapped for the methane? Am thinking about the old Woodlawn mine site at Tarago NSW currently in use for this purpose and being thwarted by the NSW State Labor to expand the process.
If Woodlawn seems a good idea, there could be others? Rail Sydney’s waste to the mine, drop it in the hole, cover it, tap the methane produced, and power generators for 20,000 homes. In an ideal world there would be no waste, but until then?
Mcfarm, twenty years ago my then employer provided engineering services to an oil field producing light crude. They had an on-site refinery to produce (from that light crude) diesel and jet fuel to supply the site needs. The site was remote and had an airstrip. So we can make it here, but we just can’t make enough, so imports are key as you suggest.
Mcfarm, I fear that a site to be as a refuse dump it would probably need to be close to the site of the source of the refuse.
Tim, its good to know you are onto that problem. I didn’t see in your list of items (to direct coal levy revenue) any purpose for actually reducing emissions since “clean industries” aren’t necessarily emission reducers, they may merely be neutral.
It would seem better (for next 20 years or so at least) to use any levy for the express purpose of creating subtantial emission reductions, that way the coal could reasonably attract an export market premium which could be harnessed.
Given the huge shortage of workers for mining (and the outrageous salaries on offer) it seems as though any “just transition” (for coal workers) is largely taken care of without need for funding.
In any event it would take a huge (and highly unlikely) levy for the coal mining companies to lay off workers or close mines between now and 2020, so its very doubtful there would be any demand at all for “just transitions” funding, making it hard to see why that use would be appealing at the moment.
The “just transitions” concept is right for an industry in decline, but its poorly matched for an industry in a boom as coal is right now.
Surely we have zero chancing of stopping coal mining between now and 2020 and we should instead focus for now on total domestic decarbonisation.
By 2020 world pressure will have worked to begin to sap the demand for coal and then it will be far easier to kill the coal monster. Best to kill the beast when it is showing weakness and use the time between now and then to cut off its fallback lifelines (i.e. domestic use).
Gilbert @14, the RRPGP is on our agenda. I doubt we’ll rescue it, but we’re trying…
mcfarm @15, indeed, the ideal endpoint is zero waste, but in the meantime, capped waste facilities with methane capture is something we support. All waste dumps should be capped for this purpose, and many already are. Hadn’t made the connection to old mine sites, but it’s an interesting suggestion.
Gilbert @16, if you made your levy on coal high enough, you could certainly use some revenue for direct emissions reductions purposes, but in some ways it makes most sense to use that revenue stream for pure just transitions and to use revenue from the sale of emissions trading permits, for instance, as well as straight from consolidated revenue, for direct emissions reductions programs. The two can work together.
Disagree that just transitions would only work for industry already in decline. If you make the alternatives attractive enough through a range of economic and regulatory measures, it can work. And there are plenty of coal miners (I have personally spoken with many in the Hunter) who are really keen to get out of the industry. They work in it currently because their options are incredibly limited. If given good alternatives, they’ll jump at them.
Thanks for the clarification Gilbert. The Woodlawn mine site had a rail system in place for extracting the ore. This same rail system is now used to bring the waste from Sydney 250km to the mine.
Seems like a win all round; using existing efficient infrastructure, producing fuel from waste whilst simultaneously rehabilitating the tailings dams and site. There must be many more rail connected sites within striking distance of cities?
The bioreactor info is here http://svc090.wic014v.server-web.com/news-room/press-releases/woodlawnbeginspowergeneration.asp
Tim, as a short term/ transition alternative for brown coal. Agriculture in Australia can use this ‘dirty coal’ as an excellent soil enhancer on our ‘old and tired’ soils. It is after all compressed composted plant material.
Still an extractive industry, but at least the coal would be reincorporated into the soil (sequestered) with food production benefits. A couple of tons per hectare over several million hectares could be used and repeated regularly.
Not as simple as shipping to a central point or overseas, but it might help?
Hi Tim, you mention that the options of the coal miners are incredibly limited and if given them they would leave the industry. I apologise in advance as I fear you won’t like what it prompted me to say below.
My mind boggled just a little at the comment. There are many unfilled vacancies in the mining industry and people are being pulled from other sectors and generously trained by the hiring mining companies. A coal miner would have a far superior resume as compared with other non-miners who are being brought in. Options are not limited, opportuny abounds.
We also have a massive skills shortage in the city based trades generally and one would expect the skills exercised in mining means miners would be able to move into those trades fairly easily and there are ample training schemes and encouragements for people to take up trades. Again options with existing schemes to support them.
The only basis I can imagine for them not leaving the industry is it may involve moving to another place to work. Thats a pretty thin excuse. Plenty of other Green ideas have a lot to say about where people should live and work for a sustainable future and coal miners should have no special status that says we’ll change the world just to suit them.
With the greatest respect the Greens party shouldn’t be advocating social welfare for high income coal miners.
And even if you offered them some new avenue where they didn’t need to move from home then it is an absolute certainty that the booming coal demand would ensure new workers immediately filled their places. In that case the “just transitions” scheme would have been premature and achieved nothing other than shifting deckchairs and subsidising a new industry with dubious optimisations (being coal miners dwelling preferences) at taxpayers expense. A dubious optimisation is millstone around the neck of an industry radically increasing its risk of failure.
A large coal levy would result in no sackings of coal miners. This is for the simple reason that the price of coal today minus the price of coal 2 years ago (when their job still existed) would be larger than the levy.
Given the coal boom I can’t see any link between a coal levy and job risk for miners for at least a decade. Pay to transition one, out and another will coal miner appear, like the head of Medusa.
A reluctance to use a coal levy to fund implementation of renewables implies a surprising level of confidence that decarbonisation will be easy. Tim, you don’t sound nearly worried enough about the scale of the challenge
Gilbert, you raise interesting points re dubious optimisation which are relevant as it is the location issue which is key to the people I have talked to. They don’t want to move to outback QLD or WA and are keen to stay in the Hunter. The issues you raise do need examination and discussion and I’ll raise them with various people in the Just Transitions crowd.
Re your latter point:
It implies nothing of the sort, Gilbert. How did you come to that conclusion?
A levy on coal is likely to raise a goodly sum of money - possibly even up in the hundreds of millions. But, really, that is a drop in the ocean next to the tens of billions that will be raised by an effective emissions trading scheme, or next to the $31 billion earmarked for tax cuts, or next to the suggested $20 billion or so that may be surplus in the upcoming Budget. Or, indeed, next to the billions that could be found by cutting fossil fuel subsidies, cutting military spending, etc.
Saying that a coal levy could be used to fund Just Transitions as an elegant solution in no way suggests that we limit the sum of money being allocated to decarbonisation. Indeed, quite the opposite. It allocates the smallest source of funding to that aspect while the much much larger sources go to decarbonisation.
Further, along those lines, a coal levy as I see it would not be intended as a way to close down the coal sector. There is no way a levy would be an appropriate way of doing that. The levy would be a way of getting the corporations to contribute to Just Transitions (note, this is not wefare as it would come straight out of the companies’ pockets, not taxpayer funds) while regulation is used to progressively close off the industry and replace it with sustainable alternatives.
mcfarm@19,
have you looked into biochar? Google it and give me your thoughts.
Thanks,
Tim
Tim, we have a different conception of the levy. When the levy was first raised in this thread, it was clearly in the context of being meaningful for the purpose of offsetting emissions.
We export around 220 million tonnes per annum and rising. A levy “possibly even up in the hundred millions” suggest you have a levy of possibly $1 per tonne assuming you only meant to apply it to exported coal.
Each tonne of coal produces near enough to 3 tonnes CO2e. So this suggests the levy is a cost of 33 cents per tonne of CO2e. Thats not a realistic number for something intended to offset emissions.
If we accept a prevailing CO2e price of say $40/tonne then the coal levy would need to be $120/tonne to be equivalent. This wouldn’t fly obviously as it would be too shocking since its 100% of the prevailing price of metallurgical coal.
However 10% of this wouldn’t be unbearably shocking so we could start at $12/tonne coal in 2009. And we could increase this by $1/tonne per year, so by 2020 we are at $23/tonne levy. It is still woefully small to be funding the $40 per tonne CO2e offset but its a compromise.
Coal mining volumes will almost certainly increase as export bottlenecks disappear, indeed the industry projects a 50% increase in volumes by 2020. NSW is planning to double its export rate in very near term. But lets calculate on no volume increase for this purpose.
The total levy between 2009 and 2020 (i.e. 12 years) on this basis would be $46 billion all to be used for decarbonisation.
Put this together dollar for dollar with industry money for projects to building solar thermal plants and you have $92B sloshing about.
Now we are talking, this could really help to decarbonise our electricity generation by 2020 and allow more ETS revenues to be used for helping the disadvantaged by giving them free efficient fridges, lightbulbs, insulation and such.
This levy will have zero justifiable impact on domestic electricity prices, since it only applies to exported coal.
Rudds $31B tax in cuts you mention is specifically off limits for decarbonisation so sadly it can’t be counted, so I’m not sure why you included that. The $20B surplus is not available, its going to be conserved so it doesn’t count either. Personally I think that this is appalling and feel both should be applied to decarbonisation, but wishing is not reality. Its also exceedingly doubtful (since global warming predicts destabilisation) that military spending will be cut for the benefit of decarbonisation.
It’s also not fair to compare (as you appeared to) $31B tax cuts over several years to levy for one year, but I’ll let that slide.
I’m not up to speed, over what time period does the ETS generate tens of billions for decarbonisation?
The conception of a levy related to offsets is very different to a social levy. The above conception picks up a huge amount of cash from the coal exports not available from an ETS.
True, Gilbert, they are different approaches. I noted that when raising our policy, but I should have addressed your suggestion rather than mine.
But your figures leave out an important number - the current price of thermal coal on inflated global markets is around $130. There is no way in the world the coal sector will wear a 10% levy on their exports. Just as you say the tax cuts are off limits as it ain’t gonna happen, I say to you you are dreaming if you think a levy of more than $1 a tonne (2% of the recent and more realistic long-term global price of $50) will fly.
If you whack a 10% surcharge on Australian coal, our competitiveness will fly out the window and the industry will crash nastily. We’d be better advised to close it down over time with regulation, which is what we feel is the appropriate method.
Estimates I’ve seen (I’ll try to find them), suggest if the cap is stringent enough, and 100% of permits auctioned, revenue from emissions could be well over $20 billion a year and rising as the cap gets tighter.
Finally, I’ve had this discussion with you and others on this blog before, but I simply don’t believe in the government having to step in and build the new infrastructure. If you’re talking about raising sums in the order of $100 billion, that can only be for literally rebuilding our infrastructure. I don’t think that’s good policy. far better to get the policy settings right to make it happen - through R&D&D, feed-ins, loan guarantees, pre-permitting, etc.
Tim, Gilbert, referring to the AFR article:
“… the spot price for thermal coal has surged to close to US$130 a tonne from around US$50 a tonne, delivering huge profits to the sector. Prices for coking coal, used in steel making, have risen even further, jumping from about US$80 a tonne to more than US$300 a tonne.”
Suppose for arguments sake we placed a levy of US$12 on a tonne of coal, this would be equivalent impact on profits to a price for thermal coal of US$108 a tonne and a price for coking coal of US$288 a tonne. The Australian Coal Association has a breakdown of Australia’s coal exports at:
http://www.australiancoal.com.au/exports0607.htm
According to the ACA figures, 245 Mt Australia exported of coal, of which 114 Mt was thermal coal and 134 Mt of metallurgical coal (which I guess is the same as, or similar to, coking coal). The ACA figures for the average prices are somewhat than the AFR figures. In any case, a $12 surcharge will lead to a small loss of profit, and possibly also small losses of competitiveness and reductions in supply especially of thermal coal (which is the idea of imposing a carbon price). How much a reduction in coal production you get will depend on the price-elasticity of coal supply.
What it will not lead to is our competitiveness flying out the window and the industry crashing. If the world coal price goes down, the $12 surcharge will have a greater impact on production, but the cost to the economy will be lower, because the coal will be worth less anyway. I suspect the coal industry will say that the industry will crash, but this is just the usual rent-seeking that you get from greenhouse gas intensive industries.
$12 per tonne is likely to be very low compared to a carbon price in a domestic ETS (if it is making anything like the reductions that we need to). We could reduce coal exports by imposing a price, or a cap-and-trade approach (where export permits would be auctioned, tradeable, but not interchangeable with with permits in the domestic ETS or anything else). A price (tax) would be simpler and probably preferable. The export permit price should eventually approach something similar to the domestic ETS price.
No need to google biochar or agrichar Tim, I’ve been playing with ‘Terra preta’ it for a couple of years. It has the potential to permanently (well for thousands of years anyway) lock up carbon in soils and improve fertility dramatically. The charcoal acts like a coral reef for the soil biota, in other words it offers shelter for the billions of ‘critters’ that inhabit the soil. One teaspoon of healthy active soil contains more organisms than there are people on the planet.
Much research is being done on this at the moment, but you must create the charcoal by burning it. I’ve been playing with parabolic solar biochar machines with varying degrees of success. Basically a black pipe with concentrated solar energy on it, any plant waste as feed stock in one end, and biochar out the other. Sounds simple but getting the material to move through the pipe at the right speed, drive off the steam and char the material is proving problematic. I’m sure with a better budget, a few sensors and a responsive program, it is doable.
Anyway biochar has the potential to sequester millions of tons of carbon, and do it without limit. Exciting? Yes! Will it be done? Not without some political intestinal fortitude.
Tim, I didn’t leave out the price of coal, I deliberately included it, although I referenced (and underpriced evidently) the more expensive metallurgical coal.
I believe you haven’t considered three key factors. Remember the goal here is domestic decarbonisation.
Firstly the initial proposal was clear that the levy is not lost to the exporters, value is retained by them. The most sensible interpretation is that they get in return for the levy a saleable carbon credit equal to the value of the levy. The reason is simply that the levy is applied to a domestic activity that generates a valid carbon credit and it is central to the proposal that the government must ensure and warrant this. That credit can either be sold by the coal exporter with the coal to collect the proposed branding premium, or more likely separated and sold on some global carbon trading market. This is valid since it is above and beyond our mooted ETS and as Kyoto signatories we can trade on global carbon trading markets. There will not be the apocalyse you predict. The scheme does not require them to suffer any loss. Despite their overwhelming and unprecedented profits and great capacity to withstand significant impost they completely avoid any impost with this proposal.
Secondly we know that at 60% by 2050 Garnaut’s ETS is aiming too low. As such it is mandatory (meaning we have no choice but) to find a mechanism to do more to reduce emissions than the ETS. The scheme we are discussing related to exported coal seems perfect for the job of getting us the rest of the way while incurring no extra pain on the disadvantaged amongst us.
Thirdly, (on your final point) the mechanism you propose of government not funding building national infrastructure is a radical experiment. All precedent is to the contrary. All national infrastructure has historically been initially funded either completely or in majority by governments. This applies globally. The idea that for this most vital challenge we have ever faced we can throw away the only model (i.e. total government backing) that has ever succeeded seems very risky. The first lesson in risk management is only take one serious risk at a time. It looks like you are suggesting we take two big risks at once and I don’t think that is good policy.
I don’t suggest the government owns the infrastructure in the end. It merely provides enough seed funding (likely 50%) to ensure the project risk is low enough to get private funding for the remainder. The global credit crisis has seriously curbed the availability of project capital and so it will seriously hamper the availability of funds for these new and daring projects. It will be impossible to fund this without significant government underwriting. Those who tell you different are the ones who are dreaming.
Greens generally come across as fairly anti-corporate. This is understandable since corporate liability limiting has left a record of outrageous and destructive short sighted corporate behaviour. This makes it unusual that the Greens would be hands off and rely on corporates to follow the rules and get this right. Alarmingly at times they simply do not follow the rules. This is too critical a challenge to simply assume from here on the evidence of the past does not apply. Something about your final point just doesn’t sit right.
This can be overcome by government underwriting projects with actual funds, where the drawdown of those funds is contingent upon demonstrating proof of meeting target milestones. A loan guarantee fails to provide this progress mechanism. A loan guarantee is almost certainly a far more risky approach (with less control) for government than a fixed dollar commitment. Loan guarantees are nasty, nasty things.