The Labor federal government and the Greens said on January 23 that an 8.6% fall in emissions from the energy sector proved the new carbon price scheme was working. But evidence from Europe suggests Australia’s emissions trading scheme is likely to hinder, not help, emissions cuts.
The Australian reported that climate minister Greg Combet’s staff said energy sector emissions were 8.6% lower in the six months from July to December last year when compared with the same period in 2011.
Industry consultants Pitt & Sherry told The Australian that the energy sector emissions drop was unprecedented.
Greens and Labor politicians rushed to give the carbon price credit for the result. Greens leader Christine Milne said "the carbon price has triggered an 8.6% drop in pollution" — a misleading claim as the 8.6% figure applies only to energy use, which makes up about half of Australia’s total emissions.
WA Greens MP Robin Chapple also said the result was evidence the Clean Energy Futures package, which includes the carbon price, was "indeed delivering on its promises".
A spokesperson for Combet was more guarded, saying the fall in energy sector emissions was due to several factors. But the spokesperson still told The Australian that the result showed “the government’s clean energy policies have been implemented smoothly and are working as intended to cut carbon pollution”.
The government released no figures or evidence to verify the role of the carbon price. But it is doubtful it contributed much at all. Certainly no one — not even the most one-eyed supporters of market-based climate policies — predicted the carbon price would have made such a difference in such a short time.
A big reason for the fall in energy emissions was a change in Australia’s overall energy mix.
Renewable energy — solar and especially wind power — has replaced some energy that previously came from coal. Wind and solar costs have continued their downward trend, which has helped with the renewable rollout. But the government’s Renewable Energy Target, which mandates that 20% of Australia’s energy be renewable by 2020, has also had a positive impact.
Other factors in the lower emissions result include the closure of big pollution sources such as two South Australian brown coal-fired power stations and the Kurri Kurri aluminium smelter in NSW.
Another big cut came from Bluescope Steel’s decision to scale back production at its Port Kembla steelworks. The flooding of Victoria’s Yallourn coalmine, which forced the huge nearby coal-fired power plant to reduce it operations, is another factor.
Although it is not at all clear how the carbon price helped lower emissions, it is quite clear that the scheme will now help slow the pace of emissions cuts in the future.
Under the scheme, the government promised the biggest polluting industries billions of dollars of free carbon credits. But the 8.6% fall in emissions is a surprise: the big polluters will now hold more carbon credits than they were expected to use.
This means there is already a substantial surplus of credits in Australia’s emissions trading system. Polluting businesses can save these free credits for the future: cashing them in as an alternative to cutting emissions.
The oversupply issue is not going away. Australia’s scheme will join with Europe’s emissions trading scheme (ETS) by 2018. There, a huge oversupply of credits has built up over the past eight years rendering the scheme useless.
UBS analyst Per Lekander told Bloomberg News on January 21 that Europe’s carbon permits were “worthless” and the scheme would not actually cut emissions before 2045.
He said: “With the current emissions cap — 1.74% reduction per year — the ETS will be long each year until 2025 and it will take until 2045 before the current 1.5 billion tons surplus inventory has been eliminated.”
A January 18 auction of European carbon credits in Germany was cancelled because industry and financial buyers offered to pay so little. Johannes Teyssen, the CEO of German power company EON SE, told Manager Magazin on January 18 that Europe’s ETS was now "a joke the whole world laughs about".
There are now growing calls from EU politicians for the public to bail out Europe’s carbon trading scheme and buy up the 1.5 billion surplus permits. If this happens, it would deliver another huge windfall of profits to polluting industries, which received most of the permits for free.
An alliance of 50 environmental and social justice organisations launched a statement on February 4 with an alternative solution to Europe’s carbon trading debacle: scrap the ETS and focus instead on effective climate policies.
The statement said: “After seven years of failure, the EU’s claims that it can ‘fix’ its collapsing Emissions Trading Scheme no longer have any credibility. We believe that the ETS must be abolished no later than 2020 to make room for climate measures that work ...
“The EU’s fixation on ‘price’ as a driver for change not only has locked in an economic system dependent on polluting extractive industries — with fossil fuel emissions increasing sharply in 2010 and 2011.
"The failure is also set to spread more widely insofar as the ETS is used as a template for other carbon markets proposed for countries such as Brazil and Australia and as a model for other ‘ecosystem service’ markets in biodiversity, water and soils.”
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