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In the Grip of Drought, Australia Considers A Carbon Market
24 July 2008
by Jack Rosebro
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| Average increase per decade of Australia’s mean temperature, 1950-2007, in degrees C. Click to enlarge. Source: Australia Bureau of Meteorology |
Australia’s Department of Climate Change has published a Green Paper[1], or preliminary proposal, of its plan to limit the amount of carbon dioxide that the country’s major industries will be allowed to produce from 2010 forward, and has invited public comment. A White Paper, which will incorporate those comments, is scheduled to be released by the end of 2008 along with a draft of proposed legislation to enact the plan. A summary of the Green Paper has also been published.[2]
Referred to as the Carbon Pollution Reduction Scheme, the plan largely comprises a national emissions trading system that would require around a thousand Australian companies—those that produce more than 25,000 tonnes of carbon dioxide per year—to purchase permits which would give them the legal right to emit greenhouse gases. Proceeds from the sale of such permits would be distributed to Australian households and small businesses to offset increased costs, as well as invested in renewable and low-carbon energy projects. No proceeds from the sale of permits would be returned to government.
Public information sessions on the Carbon Pollution Reduction Scheme are being held this week in eight major cities, and will be followed by additional sessions in regional centers next month.
Noting that data released after last year’s Fourth Assessment Report was published by the Intergovernmental Panel on Climate Change (IPCC) “is starting to paint an even more worrying picture of climate change and its future impact,” the Green Paper estimates that if emissions of greenhouse gases (GHGs) continue to increase at current rates, the concentration of GHGs in the atmosphere will reach 1,000 part per million (ppm) of carbon dioxide equivalent (CO2e) in the second half of this century, compared to 384 ppm CO2 in 2005 and 280 ppm CO2 in pre-industrial times.
Under such a scenario, Australia’s average temperatures are projected to rise by up to 5ºC (9ºF) by 2070. The Fourth Assessment Report had previously concluded that Australia’s water resources, coastal communities, ecosystems, energy security, health, agriculture and tourism are likely to be vulnerable to the effects of climate change if global temperatures rise by 3ºC (5.4ºF).[3] In remarks made at the National Press Club in Adelaide last week, Senator Penny Wong, Minister for Climate Change and Water, laid out the rationale behind market-based reform, saying “This is not an emotional plea to abandon our self interest in favour of ecological concerns... After so many years of inaction, it is impossible for Australia to be in front of the rest of the world in tackling climate change.”[4]
Transitioning to a Carbon Market
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| Proposed schedule of sales dates for Australia’s carbon permits, 2010-2018. Click to enlarge. |
The Australian government intends to hold quarterly auctions of carbon pollution permits as soon as possible in calendar year 2010. The permits would be electronic, rather than physical, and would have unique identification numbers. Each permit would represent one Australian emissions unit: that is, the right to emit one tonne of CO2 equivalent in greenhouse gases. Permits would not have expiration dates, but would be marked with the first year, or “vintage”, in which they could be used. Permits could be auctioned up to three years before their vintage, once a year.
The Department of Climate Change, which was established around eight months ago, proposes to soften the initial impact of the Carbon Pollution Reduction Scheme with an easing of fuel taxes that would be equivalent to any increases in the price of fuel associated with the cost of emissions permits. The amount of the reduction would be adjusted as necessary for the first three years of the plan’s implementation. After three years, the government would consider whether to continue the offset.
However, Australia’s carbon profile is particularly dominated by emissions from the stationary energy sector, in part because of its reliance on coal-fired electricity. The sale of coal to Asia is also a key component of the country’s exports. Recognizing that the shift to a low-carbon economy will create “adjustment costs” for businesses, the Green Paper proposes several transitional programs, including free permits for “the most emissions-intensive, trade-exposed activities” with major competitors in countries which levy little to no carbon costs. The government’s “preferred position” is to allocate up to 30% of emissions permits to emissions-intensive, trade-exposed companies.
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| Australia’s carbon emissions profile, 2006. Click to enlarge. |
Eventually, all emissions permits would be auctioned rather than given away, although that time frame, as well as scheme caps and gateways, have not yet been worked out.
In the absence of assistance, if constraints on emissions are placed on activities in Australia but not elsewhere, there is a possibility that some emissions-intensive trade exposed activities(EITEs) may choose to leave Australia (or new investment could be discouraged). If these EITEs choose to relocate elsewhere, with no consequent global reduction in emissions, it results in what is called ‘carbon leakage’.
| “Carbon Leakage” Becomes A Global Policy Issue |
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The concept of “carbon leakage”—a reduction in greenhouse gases by one country that is offset by related actions in another country—is becoming a major policy issue for governments that have carbon reduction schemes under consideration. Carbon leakage is an effect that can have one of several root causes, such as:
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| As emerging economies such as China, India, and Indonesia continue to resist calls for a global compact on carbon reduction, Australia has joined the club of countries that have begun to explore the issue of carbon leakage. While government officials had initially predicted that the Garnaut Review's caution against the issuance of free carbon permits would be heeded, that position has been reversed with the Green Paper, apparently due in part to pressure from New South Wales Treasurer Michael Costa, who has termed the Garnaut Review “nonsensical.” In response, Dr. Garnaut has referred to Costa as a “well-known denier of the science” of climate change. New South Wales and Queensland produce most of Australia’s coal, a major export for the country. |
| New South Wales is currently trying to privatize its electricity assets, 90% of which are powered by coal-fired generators. |
| Following the release of the Green Paper, the Australian Workers’ Union has also raised concerns about carbon-intensive manufacturers of raw materials such as aluminum, cement, and steel. If such companies move their operations offshore after receiving carbon permits, the AWU argues, those permits should be forfeited and transferred to affected Australian workers. “It is a form of insurance and compensation for workers who may be left in a vulnerable position because an employer has acted in a less than truthful manner,” remarked AWU national secretary Paul Howes in a recent interview. |
| Concerns have also been raised in the European Union: the German government favors an approach not unlike Australia’s, saying that it is “urgent” to grant free emissions rights to cement, steel, and other industries to prevent them from shifting operations to countries where emitting CO2 is cheap or free. However, France’s President Sarkozy, who also holds the EU’s six month rotating presidency, argues that the EU should impose special import duties on products made in third countries with little to no climate change policies. |
| Such duties—which, if enacted, would take effect after 2013—are designed to reassure Europe’s heavy industries, who are likely to face tougher emissions restrictions within the next five years. The Netherlands has begun to lobby the EU commission to ramp up a planned review of the risks of migration of heavy industry from the EU to developing countries. The review was originally scheduled for next year. |
| Carbon leakage has also been cited as an example of the shortcomings of the 1997 Kyoto Protocol, which took effect in 2005. Although 36 Annex I industrialized countries as well as the European Union agreed to monitor and reduce greenhouse gases, emissions arising form the production and transport of imports to Annex I members from any of the 137 developing country signatories, which were not obligated by the Protocol to monitor or reduce GHGs, remain uncounted and unmitigated. —Jack Rosebro |
These proposals stand in direct opposition to the opinions expressed in the Garnaut Climate Change Review[5] (earlier post), which found that while the issuing of free permits to pollute “are justified in principle, their application raises dreadful problems”—not the least of which may be “a rush for government preferment”, such as direct assistance to generators of coal-fired electricity.
However, the Green Paper advocates just that, as well as the creation of two “industry adjustment” funds, the Climate Change Action Fund and the Electricity Sector Adjustment Scheme. The first fund would assist businesses affected by carbon restrictions, yet which do not qualify for free permits to pollute. The second fund would compensate workers, communities and regions affected by the effects of the carbon market on the coal-based electricity generation sector.
Direct assistance to coal-based electricity generators is envisioned for several reasons, not the least of which is energy security: a significant drag on profitability could undermine sector investment and asset maintenance. However, some coal-fueled power plants will be favored over others by the plan. For example, brown coal, such as that mined in Victoria, has a higher water content and lower energy content than black coal, resulting in significantly higher carbon dioxide emissions per unit of electricity produced. The Carbon Pollution Reduction Scheme is intended to be tougher on brown coal assets than on black coal, although “the extent of this difference is not entirely clear” to the authors of the report.
The Green Paper is the third major government report on climate change in Australia to be released this month. It follows by less than two weeks a draft report of the Garnaut Review, which was an economic assessment of the impacts of climate change that had been commissioned by Australia’s Commonwealth, state and territory governments. The Garnaut Review outlines the carbon reduction strategy embodied in the Green Paper, and is also open for review and comment, with a final version of the Review due 30 September 2008.
Water and Climate Change
Also preceding the Green Paper this month was the Drought Exceptional Circumstances report, an assessment of likely future climate patterns as well as Australia’s current Exceptional Circumstances standard for a one-in-20-to-25-year-drought event. The report estimates the occurrence of such events to now be every one to two years for the foreseeable future. Prime Minister Kevin Rudd was briefed on the report’s findings on 5 July, a day after the draft report of the Garnaut Climate Change Review was published. Drought Exceptional Circumstances is now online[6], along with supplemental data.[7]
For Australia, water supply and climactic change are inextricably linked. The country has suffered an epic drought for more than a decade, and in the face of record compensatory payments to farmers, is reviewing its very definition of drought. Water restrictions are presently in effect for most major Australian cities today, and Australia’s governing bodies are struggling to assess effective responses to the possibility of droughts which could shift their ability to persist “from seasons to decades”, according to the report.
The government commissioned the Commonwealth Scientific and Industrial Research Organization (CSIRO), Australia’s science agency, and the Bureau of Meteorology (BoM), to undertake the production of the drought report, which was released under the auspices of the minister of the Department of Agriculture, Fisheries and Forestry (DAFF), Tony Burke. DAFF policy, which was established in 1992 as part of a National Drought Policy, states that “to be classified as an Exceptional Circumstances event, the event must be rare, that is, it must not have occurred more than once on average in every 20 to 25 years.” Assuming that exceptional events are defined as those occurring, on average, once every 20 years, the statistical probability of such an event occurring in any single year is 5%. Critical threshold values are defined as the 5th percentile for exceptionally low rainfall, minimum temperature and soil moisture, as well as the 95th percentile for exceptionally high maximum, mean and minimum temperatures.
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| Percentage of Australia’s Murray-Darling Basin experiencing temperatures above 95th percentile, 1910-present. Click to enlarge. |
However, Australia’s current drought “has been unprecedented in its geographic extent, length and severity”, with some areas “drought declared” for 13 of the last 16 years, and some recipients receiving Exceptional Circumstances assistance since 2002. Impacts on farming, forestry, and fisheries have led to the creation of a Climate Change Division within DAFF.
CSIRO and BoM were directed to deliver a scientific assessment of future climactic events in four ways:
Likely changes in temperature over the next 20-30 years across significantly sized regions, such as northern Australia), such as consecutive sequences of unusually warm months or seasons.
Likely changes in the nature and frequency of severe rainfall deficiencies over the next 20-30 years, in comparison to severe rainfall deficiencies defined by the available instrument records. Severe rainfall deficiency is defined as an event in the lowest 5th percentile of historical records persisting for prolonged periods and over significantly sized regions.
The likely effect of projected climate changes on drought indicators such as soil moisture, water availability, or a drought index such as the Palmer Drought Severity Index, over the next two or three decades.
The place of past exceptional climatic events in the context of the likely frequency and severity of future climatic events.
Since the 1950s, most of eastern and southwestern Australia has become drier and hotter, while the northeast has become wetter. The “Big Dry” has been characterized by an increase in exceptionally dry years as well as a near absence of very wet years, drying out soils and reducing streamflows to dams. In particular, the average amount of water flowing into Perth’s dams for the past seven years dropped to a fourth of what it had been from 1911 to 1975. Perth recently built a desalinization plant at a cost of nearly A$400 million.
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| Annual streamflow into Perth’s dams, 1910-present. Click to enlarge. Source: Water Corporation of Western Australia. |
Adelaide, which is the capital of South Australia, will soon seek bids on the construction of a desalinization plant that will provide up to a third of the city’s water needs as a hedge against “variability in water supply and the shortage of water that climate change is likely to bring,” according to South Australian Water Security Minister Karlene Maywald. The cost of water in Melbourne is expected to double by 2013. Water availability is now affecting real estate prices in parts of the country.
The Wilkins Review
Later this month, the Australian government is scheduled to release the Strategic Review of Australian Government Climate Change Programs, a wide-ranging assessment of climate policy. The expected report is informally referred to as the Wilkins Review, after its lead author, Roger Wilkins, who heads Citigroup’s Government and Public Sector Group for Australia and New Zealand.
In a May interview with ABC National Radio’s Geraldine Doogue of Saturday Extra, Wilkins provided what appeared to be a preview of his findings, saying that solutions to climate change “will probably be on the supply side and technology,” fostered by a carbon market “that doesn’t attempt to decide what technology and what sources of power... and lets people sort of innovate and try and figure out different ways of doing things.”[8]
Resources
[1] Australian Government Department of Climate Change: Carbon Pollution Reduction Scheme. July 2008
[2] Australian Government Department of Climate Change: Carbon Pollution Reduction Scheme Summary. July 2008
[3] Intergovernmental Panel on Climate Change: Working Group II Report-Impacts, Adaptation and Vulnerability. 2007
[4] Penny Wong, Minister of Climate Change and Water: Text of 16 July speech at National Press Club, Adelaide
[5] Ross Garnaut: Draft report, Garnaut Climate Change Review. 4 July 2008
[6] CSIRO/Bureau of Meteorology/DAFF: Drought Exceptional Circumstances. 7 July 2008
[7] CSIRO/Bureau of Meteorology: An assessment of the impact of climate change on the nature and frequency of exceptional climatic events—supplementary information. 8 July 2008
[8] ABC National Radio (Australia): Transcript of interview of Roger Wilkins by Geraldine Doogue, 24 May 2008
July 24, 2008 in Australia, Climate Change, Climate Change Adaptation, Policy | Permalink | Comments (31) | TrackBack (0)
Comments
Posted by: Axil | July 25, 2008 at 06:58 PM
“…power plant pollution kills approximately 30,000 people annually in this country—about the same number as the annual deaths from drunk driving and homicides combined.”
Health impact assessments use unit “life-year”, casually interpreted as “death per year”. What “kills 30 000 people annually” means that coal pollution reduces life of 30 000 people by 1 year, or 1000 people by 30 years, or (what closer to reality) reduces life of 30 million people by 8 hours per year.
It is incorrect to compare such numbers with actual death from road accidents and homicides. Other vice, tobacco smoking has killed during the century more people than it was born.
Posted by: Andrey Levin | July 25, 2008 at 07:37 PM
@ Andrey Levin
The passage you site is from the Harvard law school. I point out to all readers that you are questioning that school and not me.
The area of risk assessment at the EPA is very complicated and has been before the Supreme Court on many occasions. I reference the following:
Shifting Sands: The Limits of Science in
Setting Risk Standards
Cary Coglianese
Gary E. Marchant
Oct 2003
RWP03-036
This paper can be downloaded without charge from the Social Science Research Network at:
http://ssrn.com/abstract=443080
Posted by: Axil | July 25, 2008 at 08:08 PM
@Axil
Thank for the response to my 7/25 post where I forgot my name.
So you are saying the source of particulate in California and mercury in Washington State is coal fired power plants?
How odd, I would be interested in which coal plants were the sources, what the pathway was that got it there, and which people were exposed?
The main source of particulate in California is transportation. The source of mercury in Washington State is a pulp mill that is not running anymore and a smelter in Canada that has corrected the problem.
My electricity comes from coal. My air quality is good. I repeat, coal is not the cause of the problems you cite as your links indicate but you apparently did not read them closely. Maybe coal is killing folks where you live but not in the US.
Kit P
Posted by: Kit P | July 26, 2008 at 09:14 PM
Kit P
You are dead on with regard to your observations about coal fired electricity. Its not the coal per se, it's the cleanup technology employed. And your point about the best combustion plants that produce the least toxics, are the most efficient and profitable, is also dead on the point.
As an example, an IGCC "clean coal" coal plant, now fully developed and that can be ordered by an Utility anytime, can reach about 55% thermal efficiency. It produces about 20% more electricity than an old 40% efficient pollution belch-er with the same amount of coal. The toxics are way down, and it can burn lower grades and cheaper coal to boot. If the old smoker did that, its efficiency would drop even some more. An IGCC even makes CCS only a cost forbidding exercise in do-nothing symbolism; but not a technical impossibility.
Due to the well intentioned, but misguided Mr. Carter, and the Nuclear critics, (like myself), many an old polluting coal plant is still around and working in the USA.
Because to fix it was made prohibitive by Carter's mandates; and its replacement by the early Nuclear plant, was scrapped years ago. There was simply nothing else to use, so they continued in operation.
But these are a minority of the operating coal utilities. Our air is clean, and getting cleaner, even with 50-60% coal generation. It all depends on how you do it. Coal generation will be with us for a long time. A newly commissioned IGCC will be running 60 years from now, toward the end of the century.
New Nuclear and even a tiny contribution of "renewables" will bite into its proportion of electrical generation. Even better; we know that power plant emissions will drop some 30% in CO2 and lots more in toxic air emissions by the Nuclear Renaissance. There are better things to do with fossil, then simply burn it.
The politicians are running away from Cap-and-Trade as fast as possible lately. They liked the idea of green cover to raise taxes, and hand out favors in the form of indulgences for campaign bribes.
But there is no longer any green cover, and the voters don't want to hear of tax increases to raise gasoline prices.
GW has disappeared for a decade, and conventional well documented periodic weather oscillations like the PDO ensure it will stay that way for a while. Predictions are we won't see any periodic natural warming for twenty years or more, to buttress the siren call of the usual mob exploiters like Algore and his sock puppet Hansen. Their time has come, and gone.
I agree this has little to do with green cars. They are coming, for certain now.
Every manufacturer now pledges to build them. And eagerly trots out his concepts and pre-release models. Meanwhiel esarly modeslare starting to appear for sale.
Only a few years ago the issue was not so certain. The European makers were all speaking to diesel as the ultimate answer. That doesn't answer the limitation of fossil supplies, and is dead. Wishes for fuel cells were prevalent. That idea foundered on the issue of cell cost, storing H2, and the issue of using fossil to making H2. Desires to use temperatures near the melting point of mild steel to raise electrolysis efficiency were stillborn. That wish has been replaced everywhere except in the minds of diehards like CARB true-believers.
The march of technology has apparently made electrified autos with all the flexibility of electric generation that implied, a winner.
BTW, the knot-head Ruud, with his support collapsed, has recently announced no new Australian great green step forward. Until after the next election in 2011 or so. If the gentleman lasts that long. By then no one will pay the least bit of attention to the dead scare of AGW. Any more, than we worry about Y2K, today.
Posted by: stas peterson | July 27, 2008 at 11:07 AM
@Stas
Sometimes real problems are harder to solve the perceive problems. There was a time when making burning coal was very dirty, especially home heating but the attitude to small risk were different. Cars did not have seat belts and most adults smoked.
The goal of regulation should be to require utilities to keep emissions so low that it is difficult to detect the emissions above background so that any impact is not noticeable.
Kit P
Posted by: Kit P. | July 27, 2008 at 03:49 PM
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@Jul 25, 2008 4:28:09 PM
There appears to be some confusion between loony virtual models and well done risk analysis that show the risk in insignificant as required by US regulations.
Source:
http://www.law.harvard.edu/students/orgs/elr/vol31_1/potts.pdf
Reference:
How and to what extent should this nation force older, originally grandfathered power
plants to upgrade their pollution control equipment? This issue is so divisive
because power plant pollution is the greatest single source of air pollution
in this country, yet low-cost power is critical to this nation’s economy.
Although abating this pollution would lead to higher nationwide
energy costs, according to a recent Congressional report, power plant pollution
kills approximately 30,000 people annually in this country—about
the same number as the annual deaths from drunk driving and homicides
combined.6 Yet, because of various grandfathering provisions, only about
one-quarter of all power plants have completely updated pollution control
equipment and over sixty percent are wholly exempt from many Clean Air
Act (“CAA”) requirements.7