ECC Energy Update - June

by Jordan Valageorgiou - Tuesday, 21 June 2011

Carbon pricing

What is a carbon price and why do we need it? More importantly will it affect me and how will it affect me?  Does energy efficiency have a role in reducing carbon emissions?  How?  Is Australia leading the world in having a carbon price?

What is it?

Two basic approaches to achieving the required emissions reduction: a market-based approach, built around putting a price on carbon emissions; and a regulatory approach, or direct action.

In the market-based approach, carbon can be priced in two ways. Fixed-price schemes, or carbon taxes, set the price and the market decides how much it will reduce the quantity of emissions. Floating price schemes set the quantity of emissions and permits to emit are issued up to that amount. The permits are tradeable between businesses and so the market sets the price. There are various hybrid approaches that combine fixed prices for a period with floating later on, and floating prices at some price levels with a price floor or a price ceiling or both.

A three-year fixed carbon price followed by a carbon trading scheme with a floating price.

One distinct advantage of reducing emissions through a market-based carbon price is that it raises considerable revenues. These can be used to buffer the transition to a low-carbon economy.

A carbon price of $26 will raise approximately $11.5 billion in the first year (2012-2013).

Why do we need it?

The two most important reasons for putting a price on carbon are to utilise economic mechanisms to:

  1. Reduce Carbon pollution which is the major contributor to Climate change.  Ross Garnaut argues in his paper ‘Australia in the Global Response to Climate Change’ that the science of climate change has confirmed that the earth is warming and that human activity is the cause. The resulting changes in the physical world are more harmful than the earlier science has suggested.
  2. To reduce peak demand for energy. Warmer summer temperatures have resulted in the installation of more air conditioners and swimming pools with pool pumps. These energy consuming technologies are all in use at the same time on hot summer afternoons and the energy providers during this peak demand have difficulty supplying sufficient energy.  These peak demand times occur about 2 to 3 times a year yet the suppliers need to build new power making facilities to meet the needs at these times 2/3 times per year. A carbon price will make the energy bought at these times by consumers more expensive and the consumers are expected to use, say the pool pump, at other times than the peak time and use their air conditioners more efficiently.

More detailed information:

·        Ross Garnaut report and website http://www.garnautreview.org.au/update-2011/garnaut-review-2011.html

How will it affect consumers?

The media has forecast a huge increase in prices of energy due to the new Carbon price but the attached document prepared by The Climate Institute (see attachments and website  www.climateinstitute.org.au )    suggests that the extra cost will be $2.45 a week less than the cost of the average amount of food wasted each week.

Low income earners and energy efficient households pay the larger proportion for their energy. This is because the cost of the service to the property is about a third of the energy bill if the bill is say $150 a quarter that is about 7 – 8 kWh per quarter.  A big energy user who has air-conditioning, a pool pump, uses a clothes dryer regularly and a lot of hot water, has a lot of lights etc could have a quarterly bill of $2000 and the service charge of $35 is a very small proportion of the bill.

Any increase in the price of energy will be an additional burden for low income households who use the least electricity depending on the number of people living in the household or other specific issues.   Often this group of low income earners are unable to reduce their bills any further as they live in rental accommodation or cannot afford energy efficient appliances.  For this group there has been a lot of discussion about how they could be assisted and a tax and transfer system (similar to what happened when the GST was implemented) has been suggested.

A consortium composed of the ACTU, The Property Council, Clean Energy Council, Brotherhood St Lawrence, The Climate Institute, Energy Efficiency Council and ACOSS has been discussing these issues and lobbying the government (see attachment Energy efficiency and affordability for Australian households)

 Energy Efficiency

According to Ross Garnaut, the carbon price if set at $26 will raise $11.5 billion in the first year (2012 – 2013).  He suggests that a proportion of these funds be used for targeted energy-efficiency assistance for low income households. The above consortium recommends that the Federal Government commit to significant investment in energy efficiency improvements as part of the assistance package for low income households to accompany the introduction of a carbon price and that funds from the carbon price be allocated to these programs.

The bilingual educators employed by the ECC are already offering the community workshops on energy efficiency.  For information about saving energy in your home go to http://www.savepower.nsw.gov.au/households/power-saving-tips/how-to-save-power.aspx .  For tips to save power in your small business go to http://www.savepower.nsw.gov.au/business/power-saving-tips/how-to-save-power.aspx .

 Is Australia leading in pricing carbon?

Dr Bill McNeil Senior Fellow. Climate Change Research Centre. University of New South Wales said the following in an interview on the ABC on 24 February 2011

Many countries don't have a formalised carbon price but what they call it is a shadow carbon price.

So I'll give you an example. So last year this London economic think tank actually produced some analysis around the world of what shadow carbon prices are actually going forth right now. And in China the shadow carbon price today, over the last few years has been about $16 a tonne.

So what that means essentially is that China even though they don't have a carbon price legislation, because of the actions of the government putting forward targets, because of the actions of their government in developing clean technologies and clean energy, they actually already have a carbon price within the economy
.

A report by the Productivity Commission released on 9 June 2011 found that Australia’s current policies, including a goal of sourcing 20 percent of power from renewable energy by 2020, imply a carbon price of $1.70 a ton for electricity producers, the study found. That compared with $29.30 in the U.K., $14.20 in China, $5.10 in the U.S., $3.10 in Japan and $0.70 in South Korea. (http://www.pc.gov.au/projects/study/carbon-prices/report )

The report shows that pricing carbon is the most efficient way to drive fuel-switching from coal to gas, but it is not enough to drive the transition to renewable energy," said Greens Senator Christine Milne.

Australians are the top per-capita emitters of carbon dioxide among developed nations, ahead of the United States, with more than 80 per cent of the pollution coming from reliance on ageing coal-fired power stations.