Now you pay polluters

By January 31, 2017Australian Politics

The Abbott Federal Government replaced the ‘carbon tax’ of the previous government with the Emissions Reduction Fund (ERF). This fund essentially uses a tender process to reduce carbon dioxide emissions. Confidential formal bids are made, applying for a certain amount of dollars to reduce emissions by a certain amount. The government then presumably chooses the lowest priced bids. To this end, the government has set aside $2.55 Billion to reduce Australia’s emissions to a level 5% below 2000 levels by 2020. That $2.55 Billion is from taxpayer funds.

The winning bidders effectively enter into a commercial contract with the regulator (the Clean Energy Regulator) for the delivery of the contracted emission reductions. Payment of the money will be made to the successful bidder only after the project’s emission reductions have been achieved and verified.

In early 2015, the first round of tenders were decided and $660 Million was allocated to reduce carbon dioxide emissions by about 47.33 Million tonnes. It worked out to be about $13.95 per tonne. The then environment minister, Greg Hunt, considered this a “stunning result” in that the average price was below the price of $23 per tonne of the Clean Energy Act (i.e. the ‘Carbon Tax’)

To reduce its carbon dioxide emissions to 5% below 2000 levels, Australia needs to reduce its emissions by 236 Million tonnes by 2020. The 47 Million tonnes is approximately 20% of the required reduction and the $660 Million is approximately 26% of the funds allocated to reach the overall target. So, there was already an apparent shortfall of the required rate of reduction. However, that was only after the first series of tenders.

In late 2015, the second round of tenders were decided and $557 Million was spent to reduce carbon dioxide emissions by 45 Million tonnes. This works out to be about $13.12 per tonne, significantly less than the first tender average. However, while almost half (47.7%) of the $2.55 Billion has been spent, only a little over a third (39%) of the emission reductions have been achieved. It is clear that more than the original $2.55 Billion will have to be spent to get the required reductions.

Under the Carbon Tax, the price (as stated above) was set at $23 per tonne in 2012 when it came into effect. This required companies that emitted over 25,000 tonnes per annum and were not in transport or agriculture to purchase ‘carbon units’. At that time, just over 180 companies were liable to pay for these units. Because the price on carbon dioxide emissions would eventually flow onto consumers, the government increased the tax-free threshold so that those on low incomes would be compensated for any increase in prices due to the Carbon Tax. In addition, those on low and middle incomes received cash grants as compensation for any concomitant price increases.

Six months after the introduction of the Carbon Tax the department of Climate Change and Renewable Energy reported a 9% decrease in emissions from electricity generators, and three months later it was reported that emissions from electricity generators had fallen 6% from levels in 2008-2009. Since the introduction of the ERF, emissions from electricity generation, which had been at a long term low a few months after the repeal of the Carbon Tax, have started to climb again, with the fastest climbing segment being that of coal. Emissions from this have started to climb also, rising about 2.7% in the year to March 2016.

To try to prevent such increases continuing, the federal and state governments announced a National Energy Productivity Plan to increase energy productivity about 40% by 2030 (i.e. effectively generating more economic value for each unit of emissions). If the trend in emissions had continued on the 2010-2014 path, this would have been a piece of cake, but now it urgently requires a range of new energy efficiency measures.

It is interesting to note that a few larger companies, which have obtained grants under the ERF, have also been donors to the Liberal Party, Labor Party and National Party. So, the ERF could be construed as in part an elaborate system of money laundering. Taxpayers’ funds are given to some large companies (e.g. Woolworths, Woodside, Bluescope, AGL) and then a proportion of that money is donated to the major political parties.

Perhaps most importantly, the ERF has been rubbished by most economists as an effective system to reduce emissions. Indeed, even the Business Council of Australia and the Institute of Public Affairs believe that it is less efficient than a market based system. Because the system is so complex, there is a relatively large bureaucracy needed to police it and assess the applications.

Under the Carbon Tax, the revenue raised was as much as $6.6 Billion in 2012-2013, slightly higher than forecast. Then environment minister Greg Hunt stated that getting rid of the carbon tax would not hurt the budget, but that is patently absurd. It is also interesting to note that some of the companies that paid the most under the carbon tax are those who minimise their tax liability by moving profits offshore. Under the Carbon Tax, Macquarie Generation paid $468.6 Million; Woodside Petroleum paid $171.9 Million; Alcoa Australia paid $137.2 Million; BHP Billiton paid $77.5 Million. Under the Direct Action policy, for several projects planting eucalypts in Western Australia and New South Wales, Woodside was given about $4 Million. So, from Woodside, the taxpayer used to get $171.9 Million, whereas now we give them $4 Million, and what has this done for us? It has done very little, as emissions are now increasing again. As I said, just an elaborate money laundering scam.


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