INSIGHT: Australia's proposed emissions scheme 'a disaster'

27 October 2009 17:01  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--Debates over emission-reduction bills often lead to huge amounts of horse-trading and compromise, high levels of emotion – and in Australia’s case possibly an early general election.

The “Lucky Country” might also see an erosion of its competitive advantages, which include low-cost energy and huge natural-resource exports - with a potential impact on the local liquefied natural gas (LNG) industry.

“The proposed Australian emissions-trading scheme (called the Carbon Pollution Reduction Scheme) is a disaster,” said an Australian oil-products industry source.

“It will cost industry a lot of money and will achieve absolutely nothing in terms of reducing global carbon-emission levels.

“What we are planning might make a difference if we had a population comparable to the US. But we are the size of the continental United States and have a population close to that of New York State.”

Australia’s population was just over 22m on 23 October, according to the Australian Bureau of Statistics; New York State’s population was estimated at just above 19m in 2008.

One of the compromises being discussed by the Australian Senate reportedly involves increased concessions for coal-fired power stations.

Prime Minister Kevin Rudd’s ruling Labor Party needs the support of seven MPs from other parties to get the proposed legislation through the Upper House.

The Senate has already rejected the bill once - in August.

A second rejection would force an early general election, which must in any event be held on or before 16 April 2011.

Opposition amendments to the bill would raise retail power costs by 5% as against 20% under the government’s plan, claims Malcolm Turnbull – leader of the Liberal Party/National Party opposition.

But disputes over the bill - which Rudd wants to be able to sign into law before the Copenhagen Climate Change Conference on 7-18 December – go much deeper than just retail electricity costs.

“Australia needs to have an informed debate about the national allocation the government is proposing to negotiate in Copenhagen, “said Michael Hitchens, CEO of the Australian Industry Greenhouse Network (AIGN) in a recent press release.

This would allow fair comparisons on the cost of compliance compared with other economies such as the EU, the US and China, he added.

AIGN is a network of industry associations and individual businesses established to promote joint action on climate change.

Members include Australian cracker operator Qenos, ExxonMobil Australia, BP Australia and Western Australia-headquartered natural gas producer, Woodside Petroleum.

The “national allocation” Hitchens mentioned relates to Australia’s commitment to reduce emissions by 25% over 2000 levels if the world reaches a deal to stabilise global greenhouse gas levels at 450ppm of CO2-e (carbon dioxide equivalent) or lower.

If such a deal - which seems very unlikely - isn’t reached, the government says it will unconditionally cut emissions by 5 -15% from 2000 levels by 2020, and 60% by 2050.

The problem with this approach is that while these percentage cuts are similar to those being planned by the US and Canada, different base years are being used, said Access Economics in a briefing paper prepared for the AING.

Under legislation in the Senate, the US plans a 20% emissions-cut from 2005 levels by 2020. Canada has officially announced a 20% reduction by 2020 over 2006.

Australia’s use of 2000 as the base year means it will have to make deeper cuts than these other two countries, added Access, an Australian economics consultancy.

Higher costs of emissions abatement would also mean a reduction in Australia’s GNP (Gross National Product) of 1.1% by 2020 compared with 0.2% for the EU and 0.4% for Japan.

“Relatively high abatement costs are due to the dominance of low-cost coal fired power generation, which means that a relatively large penalty will need to be placed on carbon to encourage fuel switching in Australia,” said Access.

Perhaps the biggest problem of all is “the per capita comparable effort” resource-rich countries will have to make to cut pollution.

Australia’s heavy reliance on resource exports would make the cost to the economy greater than certain other countries, claimed Access.

“Domestic permit prices will be fixed at A$10/tonne of CO2-e over 2011-12 with a transition to a full market from 1 July 2012,” added Access.

“Economic modelling indicates Australia will be a net importer of permits, which means the price will likely be the international price or the capped price starting at A$40/tonne.”

Australia’s LNG industry is reportedly worried about the costs of the bill.

Planned LNG investments include the huge A$34bn Gorgon project in Western Australia, to be operated by Chevron with ExxonMobil and Shell as partners.

Numerous others include the A$12bn Pluto project, which is being pursued by Woodside Petroleum.

Time is running out for the informed debate the AIGN wants on the carbon-reduction bill as the Copenhagen meeting is now only a month-and-a-half away.

So far the government has issued “little quantified information” to get the discussion going, Hitchens added in the September press release.

Pressure from industry comes as the Labor Party faces calls from environmentalists to make the proposed bill tougher.

Australia is called the Lucky Country because it has enjoyed many years of strong economic growth, and has suffered relatively little during the economic crisis.

Striking the right balance on an emissions bill could well be important in making sure this reputation is kept.

Read John Richardson’s Asian Chemical Connections blog
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By: John Richardson
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