CEF is not just one big tax on everything
1 Dec 11
There are four key elements to the Government’s Clean Energy Future (CEF) package: a carbon price, renewable energy, energy efficiency and action on the land.
This article summarises the package.
Carbon Price
After studying more than 1000 policies to reduce carbon emissions, the Productivity Commission identified carbon pricing as the most cost-effective way to achieve this. This is a market-based approach in that it uses price to correct market failures.
To date, the market has failed to provide a clean environment because until now businesses have been able to freely emit carbon pollution; unless they are held accountable there’s no incentive for them to consider different ways to conduct their business. Now, 500 of Australia’s biggest polluters will have to pay $23 for each tonne of carbon pollution released into the atmosphere. This provides an incentive to reduce pollution and use energy efficiently; it makes clean energy more competitive and encourages investment in its development; and, importantly, it provides funding to assist affected households, support jobs and implement the other elements of the CEF package.
Nine in 10 households will receive some combination of tax cuts and increased pensions, allowances or family payments to help them with the cost of living impact of the carbon price. This will be permanent and will increase in line with the cost of living. Details of the CEF package, family assistance and how to reduce energy consumption can be found at www.cleanenergyfuture.gov.au.
Around 40 per cent of the carbon price revenue will be used to help businesses adjust to change and support jobs, particularly in energy-intensive trade-exposed industries (EITE); that is, industries that require a large amount of energy and compete in the global market against businesses from countries that don’t yet have a carbon price. The aim is to assist business and prevent ‘carbon leakage’ that occurs when companies move overseas, taking pollution and jobs with them.
The carbon price, mixed with other economic incentives and regulations, is intended to transform the type of energy we use and how we use it. A good example of the transformation process is the electric car. With subsidies, tax credit, stricter vehicle emission standards and government investment, the cost of electric cars is coming down (estimated to be down 80 percent by 2020). As it does, the demand for these products increases. The US aims for 1 million electric cars on the road by 2015; and major economies aim for 20 million by 2020.
The total cost of the CEF package is $3.8 billion over four years; $2.7 million of this will assist households and businesses adjust. Past experience in Australia and overseas suggests that governments underestimate the rate of commercial innovation. Once adequate incentives for innovation are in place, the cost of schemes such as this is less than expected.
Renewable energy
More than 85 countries have renewable energy targets; either legislated or planned. Australia’s renewable energy target is 20 per cent of electricity by 2020. To achieve this, funding is available to commercialise and deploy clean energy proposals such as geothermal, wave, large scale solar and low-emission co-generation. The funds will be managed by the Clean Energy Finance Corporation which will be independent of government with a Chair from the field of banking/investment and board members with expertise in renewable energy, low pollution technologies and investment.
An indication of the potential for green energy is the average annual growth rate of the photovoltaic market over the last decade, which has been 40 per cent/year globally; with capital cost falling 22 percent for each doubling of capacity.
Energy efficiency
Building codes have been revised for minimum energy efficiency standards. The CEF package will provide grants to improve energy efficiency in local government and community-use facilities and to assist energy efficiency in low-income households and remote Indigenous communities.
Grants and tax breaks will be available for eligible businesses that invest in energy efficiency and low-polluting technologies. Funds will be available to assist educational institutions and industry to develop training materials and new skills to adjust to the changes.
Coal-generated electricity is the largest source of emissions in Australia, responsible for 37 per cent of carbon pollution. There will be a negotiated closure of some of the most emission-intensive plants. This will send a message to the market that new capacity in low-pollution energy is required. At the same time, energy security in a transitional period will be supported by assisting other generators; provided they have publicly-available clean energy investment plans.
Action on the land
A significant component of the CEF is to support land-based activities. A carbon price won’t apply to agricultural emissions from livestock or fertiliser use. But economic rewards (such as grants and tax offsets) will benefit landholders to either reduce carbon pollution or take carbon from the atmosphere and incorporate it into plants or the soil. Storage of carbon in the landscape is a great opportunity to reduce the problem of climate change and at the same time protect Australia’s biodiversity and build more productive and sustainable agriculture.
Planting trees or protecting existing bush areas helps conserve Australia’s native plants and animals and improves livestock health and productivity by providing shelter during periods of high or low temperature extremes or heavy winds. Trees protect against erosion and provide habitat for insect-eating birds. For example, Honeyeaters, who consume 24-36 kg of insects per hectare per year, require a well-developed native understorey and a variety of nectar producing plants. A flock of 100 straw-necked Ibis will eat over 25,000 pasture insect pests in one day; but they need vegetation near water for safe night time roosting.
Storing carbon in soil has the potential to offset carbon emissions by 0.4 to 1.2 Gt /year; that’s 5 to 15 percent of the global emissions. Soil carbon can be increased through reduced tillage, reduced stubble burning or growing a green manure crop for the purpose of incorporating organic matter into the soil. Increasing soil carbon improves soil structure and increases soil fertility and microbial activity. It increases the water-holding capacity of soil providing more protection during droughts.
Landholders will be able to generate credits for each tonne of carbon they store in their soil or trees. The credits can be sold to businesses wanting to offset carbon pollution. The CEF package includes extension to landholders about these opportunities, and investment for research to find new practical methods for storing carbon in the landscape and measuring it in order to improve future carbon-trading opportunities.
These developments change the economics of land management. Many farmers have lacked the resources to implement these types of long-term management strategies. The land use actions that are part of the CEF package make this possible.
This article focuses on the Government’s CEF program for the next three years. Starting in July 2015 a cap-and-trade scheme will be implemented to further facilitate reducing carbon pollution at the lowest cost. The current CEF program helps to prepare Australia’s industry and land management for this next step.
The CEF will be independently reviewed regularly and the reports will be public.
The CEF is not just one big tax, but an integrated program to reduce carbon pollution and initiate restructuring, making the necessary changes to develop a cleaner environment and a low-carbon economy.
Sandy Fritz
References available on request