A Layman’s View of Carbon Reduction Policies

A Layman’s View ofCarbon Reduction Policies

A Layman’s View of Carbon Reduction Policies

Overview• History of climate change policy debate

• Projected impacts

• Australian Government’s response

• Opposition proposal

• Implications for agricultural sector

A Layman’s View of Carbon Reduction Policies

The Development of Australia’s Climate Change Policy

A Layman’s View of Carbon Reduction Policies

Intergovernmental Panelon Climate Change

• The IPCC is acknowledged by Governments around the world, including the Australian Government, as the leading authority on climate change science

A Layman’s View of Carbon Reduction Policies

Intergovernmental Panelon Climate Change

It states:• Warming of the climate system is unequivocal

• Humans are very likely to be causing most of the warming that has been experienced since 1950

• It is very likely that changes in the global climate system will continue well into the future, andthat they will be larger than those seen in the recent past

A Layman’s View of Carbon Reduction Policies

Since the 1950’s our climate has changed

• 0.9°C warming since 1950• More heat waves• Fewer frosts

• More rain in NW Australia• Less rain in S & E Australia• Sea level rise 70mm

Source: BOM

A Layman’s View of Carbon Reduction Policies

Local changes – NSWBy 2030 Canberra’s climatecould be similar to Dubbo:

• Warming of 0.6 to 1°C• 2 to 5% decrease in rainfall

This is a moderate climatescenario.Source: CSIRO

A Layman’s View of Carbon Reduction Policies

Potential impacts on agriculture• More heatwaves likely

• Fewer cold and frosty days

• More intense and sporadic rainfall

• More frequent or intense droughts

• Exceptional circumstances declarations likely twice as often and over twice the area by mid century

A Layman’s View of Carbon Reduction Policies

Australia’s policy response• Both the Australian Government and Opposition parties have

agreed to reduce 2000 emissions by at least 5% by 2020 and possibly by up to 25% depending on what the rest of the world does

A Layman’s View of Carbon Reduction Policies

Government’s key policy response• An Emissions Trading Scheme (ETS) or Carbon

Pollutions Reduction Scheme (CPRS)

• Market based solution• Sets targets (cap) and issues permits (trade)

• Makes big polluters pay (ultimately consumer funded)

• Uses money collected from big polluters to compensate households

A Layman’s View of Carbon Reduction Policies

Cap and trade• An ETS places a price on carbon emissions

• CPRS is a ‘cap and trade’ system – It works by putting a ‘cap’ – or annual limit on

emissions– Permits or Australian emissions units (AEUs) will be

allocated or auctioned up to the total annual cap – Over time the scheme cap will reduce in line with

Australia’s international obligations– Long-term certainty for investment

A Layman’s View of Carbon Reduction Policies

Government’s key policy responseis CPRS How does it work?

A Layman’s View of Carbon Reduction Policies

Cap and trade• The second aspect of the scheme, is that

businesses will be able to ‘trade’ permits

• Businesses havea choice: – reduce emissions– buy more permits

• Market drawsout the leastcost abatement

A Layman’s View of Carbon Reduction Policies

Why an ETS?• Climate change is a global problem

– Guaranteed emission reductions– International linkages– Least cost abatement, at least in theory

A Layman’s View of Carbon Reduction Policies

Why not an ETS?• If not introduced across the globe

– Make Australian production relatively more expensive

– Shift production and pollution to countries that do not price carbon

– Reduces our employment and shrinks our economy without addressing global warming

– Political reality is that an ETS is unlikely to be consistent across industries nor across national borders

A Layman’s View of Carbon Reduction Policies

Opposition’s key policy response• Direct action to reduce emissions – command and

control• Driven by regulation and subsidies• Offers a quick fix and arguably easier to adjust to

economic changes• Works for small reductions but not able to be

scaled up • Government to try and pick winners • Public purse (taxpayer) funded• Emissions Reduction Fund is the key vehicle used

A Layman’s View of Carbon Reduction Policies

Emissions Reduction Fund• Funded by the Government

• Invest annual average $1.2 billion in CO2 emission reduction activities

• Businesses that reduce emissions below their baseline able to sell abatement to the government

• Businesses that emit above baseline penalised

• Small businesses able to opt-in

A Layman’s View of Carbon Reduction Policies

Agricultural emissions

• Agricultural emissions have been excluded from CPRS indefinitely– Therefore, farmers will be excluded from liabilities by

not having to buy permits

A Layman’s View of Carbon Reduction Policies

Agricultural offsets• CPRS offsets will apply to agriculture

– Offsets are rewards for reductions in emissions from sources not covered by CPRS such as agriculture

– Offsets are sold into the covered sector (highemitters such as power stations) for use against CPRS liabilities

– Therefore, farmers will be able to generate income from reducing emissions, earning offsets andselling them

A Layman’s View of Carbon Reduction Policies

What are offsets?

Source: DCC

A Layman’s View of Carbon Reduction Policies

Two types of offsets

• CPRS offsets– Uncovered sources that are counted towards

Australia’s international commitments, such as agricultural emissions including livestock, fertiliser use and burning of agricultural residues

A Layman’s View of Carbon Reduction Policies

Two types of offsets

• Voluntary market offsets – not CPRS permits– Uncovered sources not counted towards Australia’s

international commitments, including through soil carbon and biochar

– Transition to CPRS once abatement internationally recognised

• International rules satisfied and CPRS requirements met

A Layman’s View of Carbon Reduction Policies

Agricultural opportunities underOpposition proposal

• Like CPRS, no direct costs or liabilities

• Potential income through:– replenishment of soil carbons– tree planting and forestry activities

A Layman’s View of Carbon Reduction Policies

In summary

CPRS• Market based solution• Emissions certainty• Provides target flexibility• Scalable• Market draws out least

cost abatement in theory• International linkages• Costs passed to

consumer

Direct action• Regulation and subsidies• No emissions certainty• Less flexible• Not scalable • Government to try and pick

winners • No international linkages• Taxpayer funded

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A Layman’s View of Carbon Reduction Policies

Questions

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