Prime Minister Julia Gillard described the legislation passed by Australia’s Senate as “historic” after years campaigning for what is hoped will create a new platform for companies to trade carbon credits and cut pollution. Australia is one of the biggest emitters of carbon per head globally due to its heavy use of coal-fired power generators, which account for about 75% of electricity output, and the new tax is intended to cut carbon pollution by 160 million tons a year by 2020.

The tax will be charged at a fixed price of 23 Australian dollars (US$23.50) per carbon ton from the country’s top 500 polluters starting from July 2012, increasing 2.5% annually until 2015 before changing to a floating-rate price with the government controlling the amount of tradable permits released annually and implementing a price floor and ceiling. At that point companies will be able to trade carbon credits and the scheme is expected to be linked with other systems in New Zealand and Europe.

Business groups have criticized the tax, which they say will add to company expenses and do little to cut global pollution because Australia exports much of its carbon in the form of coal, gas and minerals used for steel making.

“The passage of the climate change legislation with a high starting price and no flexibility to adjust the price in the initial years is deeply disappointing,” Heather Ridout, the chief executive of the Australian Industry Group, said. “This is especially so given the extremely uncertain and weak global economic conditions and the volatility of global carbon prices.”

In an effort to gain public support for the tax, the government has made weighty concessions on its original plan by offering private households generous tax breaks and pension increases to offset higher energy costs.

“The carbon price is expected to have a moderate negative (fiscal year 2013) earnings impact on some emissions-intensive companies,” Tim Jordan, a research analyst at Deutsche Bank AG said in a note to clients.

Australia wants to emulate the European Union’s emissions trading system, or ETS, set up to cut greenhouse gases that many scientists claim cause global warming. The scheme imposes pollution quotas on over 11,000 manufacturers and power companies, leading to a ceiling in 2020 that will be 21% below 2005 emission levels. The EU has lobbied hard to get a successor for the Kyoto treaty, the instrument that regulates carbon emissions internationally and expires next year.

In the U.S., the world’s largest economy, support for a federal climate policy has withered but California is planning to introduce a scheme at state level. California’s Global Warming Solutions Act of 2006 requires the state to cut greenhouse-gas emissions to 1990 levels by 2020.

The International Energy Agency warned in October that as the world increasingly relies on coal to meet growing energy demand, it is headed for a “dire future” where high energy prices drag on economic growth and global temperatures rise dangerously, unless significant innovations are made to lower the cost of clean energy and carbon-capture technology.

By Enda Curran and Ray Brindal
Original source click here.

This week the new Australian Government will sit down again with various society representatives to restart the discussion on emissions policy, with a particular focus on the delivery of a carbon price signal into the economy.

These meetings will take place over the next year as a number of policy ideas are considered, but given we are at the start of the process this presents an opportunity to look again at the options. Of course a carbon price is one part of a broader policy framework, which needs to cover a number of very different sectors and also respond to commercial realities such as the development and demonstration of emerging technologies. Whatever the result, the policy approach adopted needs to trigger the implementation of emission reduction projects throughout the economy, with the lowest cost result being delivered by doing the most attractive projects first and progressively moving from left to right across the abatement curve.

This isn’t the first time Australia has visited the climate policy issue, but it is clear that the subject remains high on the national agenda, not just because of the pressing nature of the underlying problem but also, somewhat ironically, because a number of countries in the region, both trade competitors and customers, are starting to move forward with new policy ideas. Although there is no immediate threat, Australia runs the risk of longer term price exposure simply because of the actions of others. Inaction is therefore not an option.

The goal of a carbon price is to create a change in the economy, whereby the market begins to differentiate between goods and services on the basis of their carbon footprint. The carbon price, initially experienced by the emitter or fuel provider (e.g. by paying a tax or purchasing allowances from the government), is passed through to the consumers of the products provided. The result is that the cost of most goods and services will rise, but a new cost ranking will emerge which in turn will change the purchasing patterns of consumers. Products with a high carbon footprint will be less competitive, either forcing their removal from the market or driving the manufacturer to invest in projects to lower the footprint. The extra costs borne by the consumer need to be offset – this would be done by the government recycling the funds its raises from the pricing mechanism back to the consumer through some other mechanism, e.g. a personal tax reduction, a decrease in sales tax / VAT / GST etc..

In terms of the carbon price itself, there are really only four direct options:

1. A cap-and-trade system. This is the approach now operating in the power and industrial sectors in the EU. By design it delivers a specific environmental outcome (through the overall cap) and does so at the lowest overall cost to the economy by driving participants to progressively implement projects from left to right across the abatement curve. Once mature, allowances are typically auctioned by the government into the market with the funds being recycled back to the consumers purchasing the goods and services from the sectors covered by the system. Early on, as the economy begins adjusting to the carbon pricing mechanism, the government may allocate some or all of the allowances for free.
2. A carbon tax. This operates in much the same way as a cap-and-trade approach, although is arguably less efficient in delivering a clear environmental outcome. There is no cap. But it does establish the new capital flow through the economy and does force price differentiation on the basis of relative carbon footprints and market response.
3. A baseline-and-credit approach. In this approach the government establishes a baseline emissions for each sector on a CO2/unit of production basis. The participants can earn credits by exceeding the baseline or have to surrender credits if they fall short. The credits are tradeable and can be banked as in the cap-and-trade approach. However, there are a number of drawbacks with such an approach;
   1. The environmental outcome in terms of absolute emissions is uncertain as it depends on the level of production.
   2. It is complex to manage as it requires accurate benchmarking across many different sectors. Because of the trade of credits, benchmarks should also represent an equivalent effort when comparing sectors.
   3. With credits only issued after a given period of emissions, forward trade becomes very limited. The resulting market lacks liquidity which in turn means poor price discovery.

   The approach doesn’t set up the same flow through the economy as illustrated above. One reason is that there is no immediate constraint on emissions as production increases, which can mean a weak price signal. There is also no net change in the cost of goods and services, but only a limited redistribution around a mean. It is unlikely that whole sectors will lose market share (e.g. cement against some other building product) as each sector really only competes with its own benchmark. As such, the market plays much less of a role in driving change.

4. A project mechanism. This is operating today in many developing countries as they use the carbon price opportunity delivered through the CDM to start the process of reducing emissions through targeted projects. However, it is not a mechanism to decarbonise the economy on a large scale, with say the national government operating as the credit purchaser. It effectively reverses the capital flow shown above. The government buys from the emitters, which means it must raise taxes to extract this money from the consumer. The consumer might get some of this back through a lower cost of goods and services as efficiency should have increased as a result of the projects but it means that the market does not determine the way forward – rather the government does through its selection of projects to fund. It will also be a major exercise for the government to establish the necessary evaluation boards to assess projects etc. Finally, this approach will result in a somewhat random attack on the abatement curve, rather than the comprehensive and ordered attack that a carbon price, ideally via cap-and-trade, would deliver.

There is also the indirect approach, in other words creating an implicit carbon price within certain sectors of the economy by implementing a regulation of some kind. There is huge scope here, but each regulation will typically target a specific point on the abatement curve, rather than the more ordered left to right approach that delivers a lowest cost outcome. Examples include low carbon fuel standards, efficiency standards, renewable energy requirements, emission performance standards and so on. However, it is well suited to some sectors where a direct response to a carbon price may be limited.

A particular disadvantage of this approach is that it is often done in tandem with a direct carbon price mechanism, such as cap-and-trade, for example the renewable energy standard in the EU that operates in the same space as the emissions trading system (ETS). The two are not really compatible in that the renewables requirement results in certain projects to taking place that are further up the carbon abatement curve than would otherwise be the case with the ETS acting on its own. This results in two outcomes – it forces the carbon price to a lower level than it would normally be and it drives up the total cost of the solution for the economy as a whole.

In the wake of a deep recession and in the midst of a tough political environment, governments without comprehensive climate policy may well look to a variety of proxy approaches to deliver emission reductions across the economy. These will certainly deliver something, but matching the efficiency and order imposed by establishing a very market responsive approach will be difficult. It will also cost the economy more than is necessary, a difficult route to justify in the current global economic conditions.

Original source: The Energy Collective

AUSTRALIA’S clean energy sector is struggling because of delays in the imposition of an emissions trading scheme, leaving the renewable energy target system devised by the Howard government as the only reliable economic carrot worth chasing.

Business owners across the country are grinding their teeth at the delays in putting a price on carbon, the single most critical element in any energy regime that wants to increase the economic attractiveness of renewables and decrease reliance on coal-fired power generation, currently the cheapest system by a long way.

“Emissions trading scheme” (ETS) is the generic term for what we need and carbon pollution reduction scheme (CPRS) is the specific name of what was proposed and rejected in Canberra early in 2010.

And because the RET system is significantly smaller and less comprehensive than any ETS, we are beginning to see the scary phenomenon of lower prices for renewable energy stocks.

Why? Isn’t every new windmill or solar panel in Australia a long-term positive?

Yes, but until the much delayed Australian election result brought forward the likely date for a renewal of the ETS/CPRS debate, investors and generators alike have been thrust back on a little part of the overall picture, the one investment certainty in an ocean of waffle: the Renewable Energy Certificate system by which electricity producers must reduce their emissions by 20 per cent by the year 2020.

And because those generators have been buying certificates on the open market, as they have been encouraged, and building windfarms, the amount of clean energy being produced in Australia is at risk of plateauing.

They’re scaling up gradually but not only do they not have to get there just yet, but there are now reports that they’re very close to having enough certificates to cover themselves for 2011-2013.

Which means that anyone who builds a wind farm from scratch in Australia in the near future and who does not have a contract with an electricity provider had better have a lot of electricity users of their own planned, because those providers won’t be buying until they have to.

In simple terms, our attempts to wean ourselves off coal-fired power have struck growing pains and we’ve barely started.

Wind isn’t of course the only renewable, following well behind hydro power — but it is still well ahead, in cost and time terms, of large-scale solar power. That makes it the biggest game in renewables in Australia at the moment.

That’s something the existing generators have emphatically noticed and they are forging ahead with new wind capacity.

The bad guys, if you want to call them that, are ironically the only ones likely to make much money out of wind in the short to medium term.

For instance the $1 billion Macarthur wind farm in Victoria being jointly developed by AGL and its New Zealand partner Meridian Energy looks likely to earn its developers so many renewable energy certificates (RECs) that the price of those certificates will stay at around $40 per megawatt hour.

This is not enough to make any new wind farm economical on its own for a company that doesn’t generate electricity from more old- fashioned sources such as coal.

The $1 billion 420-megawatt farm, near Hamilton 260 kilometres west of Melbourne, is due for completion early in 2013.

That capacity, which incidentally was recently uprated by 25 per cent because of the introduction of bigger turbines, will be enough to power more than 220,000 average Victorian homes and save more than 1.7 million tonnes of greenhouse gases each year. AGL recently said that was the equivalent of taking more than 420,000 cars off the road.

There’s strong opinion out there that with that sort of scale of construction, Australia will hit its grated renewable energy targets easily. Jenny Cosgrove, a power analyst at stockbroker Wilson HTM, was recently quoted as saying we’re rapidly approaching a balance of supply and demand for the period up to 2013, and that’s not including the supply of small-scale RECs that she estimates to total more than 21 gigawatt hours by the end of this year.

“It will take a number of years before this excess supply is absorbed,” she said.

Conclusion?

Our large-scale power generating industry turns out to be well ahead of our federal government on the renewables side of the ledger and householders are catching up fast.

So strong has been the demand by households to be involved in generating their own electricity that the federal government had to devise a whole new system called the SRES, Small Scale Renewable Energy Scheme.

To the credit of the ALP federal government earlier this year, “the number of systems receiving support under the SRES will be uncapped to ensure small scale installers have certainty”, to quote a government fact sheet issued in February.

The problem with all this is that there’s all the difference in the world between generating an increasing percentage of Australia’s electricity from renewables, and pushing less CO2 into the atmosphere by the more challenging process of phasing out coal-fired power generation.

It’s an irony that before the federal election John Brumby’s ALP state government in Victoria had done more to move on the emissions issue than the federal government had, by canvassing in July the idea of shutting at least part of the ancient and notorious Hazelwood brown coal power station in the Latrobe Valley.

At the time he did it Julia Gillard had put off the likely action date on setting a carbon price until 2012, thus earning him significant brownie points with his proposal to shut down 25 per cent of Hazelwood by 2014 to save four million tonnes of CO2 emissions annually.

Admittedly the idea is dependent on federal funding to hand as much as $1 billion in compensation to the plant’s owners.

But in a legislative landscape where nothing appeared to be happening, the idea got media traction.

The final 76-74 settlement of the House of Representatives on September 7 in favour of the battered ALP incumbent presages a likely second attempt to bring in an emissions trading scheme of the sort that was proposed, then abandoned, early this year.

New Green MP Adam Bandt clearly wants an ETS, if a tougher scheme than the one previously rejected, and during the negotiating process that followed the election ex-National Party independents Tony Windsor and Rob Oakeshott both highlighted the need for an early debate on the ETS as one of their most urgent priorities.

It’s also worth noting that on the eve of the August election, Gillard said she would view a victory as a mandate for a carbon price provided the community was ready for it.

The main reason for the Emissions Trading Scheme’s rejection in April was the Greens’ emphatic belief that it ought to go further than it did, particularly in relation to the excessively generous protection that the Greens thought it granted to existing “dirty” electricity generators.

Opposition Leader Tony Abbott’s noisy objection to it was the most widely reported element of the ETS’s rejection.

But it was the Senate Greens’ blocking stance against the ETS on the grounds of its perceived inadequacy, tied ironically in with the Coalition senators’ objection on the entirely opposite ground that the measure was excessive, that finally did for it. Coalition doubters weren’t its only executioners.

Can that happen again?

Certainly, particularly as the number of Green senators is going to go up on July 1 as a consequence of the August election, but there’s a growing belief among the majority of electors in Australia who want to see an ETS legislated soon that a modest scheme is still a great deal better, particularly in perception terms, than no scheme.

Perhaps we should leave it to Henry Derwent, President and CEO of IETA, the most powerful emissions trading body in the world, to give us an external view of the rejected Australian ETS.

“Australia’s emissions trading scheme was first-rate, comprehensive and effective.

“It was probably insufficiently flexible but it was potentially very efficient,” he told a press conference in Singapore in August.

Derwent runs the Geneva-based International Emissions Trading Association.

Original source: http://www.theaustralian.com.au/special-reports/climate-change/climate-series-delays-test-true-believers/story-fn5oikwf-1225935460834

A report to be released by Greenpeace today shows the big banks provided loans worth $5.5 billion to the coal industry over the past five years – seven times more than the $784 million lent to the renewable energy sector.

None of the banks would refuse to finance new coal-fired power stations yesterday, but the Westpac media relations manager, Jane Counsel, said apart from historical customers, the bank’s future funding would be likely to focus on projects leaning towards energy efficiency and clean energy, to help make the transition to a low emissions economy.

”Westpac supports the development of an efficient, affordable, safe and secure energy system that recognises and addresses the need to reduce carbon emissions,” she said in a statement.

“Within Australia, in the short to medium term, we do not expect that new coal-fired electricity generation will be attractive from an environmental viewpoint. Therefore the application of technological solutions to reduce emissions is critical.

”We will continue to work with government and with our customers as regulatory frameworks around the introduction of carbon constraints firm up in the jurisdictions where we operate.”

ANZ, recently ranked the world’s most sustainable bank, was the biggest financier to Australia’s coal industry according to the report, by the Dutch economic consultancy Profundo, providing loans worth $1.7 billion.

It was followed by the Commonwealth Bank ($1.6 billion), NAB and Westpac ($1 million each), and Suncorp ($227 million). Two other institutions surveyed, Bendigo Bank and the Mecu credit union, did not lend to the coal industry.

ANZ also provided more finance for coal-fired power stations than any other bank surveyed, at $650 million, compared with Commonwealth ($546 million), Westpac ($454 million), NAB ($382 million) and Suncorp ($18 million).

Greenpeace wants the banks to rule out financing a dozen planned power stations around the country, including Macquarie Generation’s Bayswater B plant in the Hunter Valley and Delta Electricity’s Mount Piper extension near Lithgow, which are both proposed as gas or coal-fired.

A Greenpeace campaigner, John Hepburn, said most Australians opposed construction of new coal-fired power stations. “A lot of people have just voted for action on climate change. Those people would actually be quite outraged to realise their savings in the bank are being used to make the problem worse.”

Commonwealth Bank said it had no financing commitments to the construction of any new coal-fired power stations and had the lowest debt exposure to single asset Australian coal-fired generation financings among the big banks.

A spokesman for ANZ, which topped bank sector rankings last month in the global Dow Jones Sustainability Index for 2010, said the bank was Australia’s leading renewable energy financier and “renewable projects already [represent] one-third of our energy portfolio”.

Greenpeace said the Profundo survey, which collected publicly available data on loans to coal-fired power stations, coalmines and coal port infrastructure, showed bank branding on sustainability was a “triumph of spin over substance”.

A Profundo analyst, Jan Willem van Gelder, said in Amsterdam that banks around the world were struggling to develop responsible lending policies, given climate change and the need to finance a shift to more sustainable energy production.

Mr van Gelder said if there was less supply of capital for coalmining companies and coal-fired power stations, then loan interest rates would rise and coal industry projects would become less attractive. “I don’t think that is yet the case, but it wouldn’t surprise me if it would happen in near future,” he said.

Original source: http://www.smh.com.au/business/clean-energy-to-trump-coal-for-bank-lending-20101001-16138.html