Australia will not be linking its emissions trading scheme
to California any time soon. But Australia will have to increase its emissions
reduction targets to between 15-25% below 2000 levels by 2020, following
climate action by the European Union, US, Canada, and China.
At a public
seminar hosted by Grattan Institute earlier this week, the chairman of
the California Air Resources Board destroyed two myths. Mary Nichols, one of Time
Magazine’s 100 most influential people, demonstrated that the world is
moving on climate change and that cap-and-trade emissions trading schemes (ETS)
are well and truly alive.
However, political uncertainty regarding the future of
Australia’s emissions trading scheme means that, for California, linking the
Australian and Californian schemes, and by extension the EU scheme, are not an
immediate priority.
So, what can we learn from California and from climate
action around the world?
California dreaming
This year President Obama resorted to regulation to
ensure that the USA meets its target to reduce greenhouse gas emissions by 17%
below 2005 levels by 2020.
Professor Ross Garnaut joined Mary Nichols at last night’s
seminar and noted that, before its election, the Obama administration had been
looking to cap-and-trade as the most efficient and lowest cost way to reduce
emissions. Having failed to get that legislation through Congress, they
accepted that regulation
would be necessary, albeit inefficient and higher cost.
However, individual states have flexibility in how they
proceed, and California has adopted
an ETS. Its target is to scale back emissions to 1990 levels by 2020.
The scheme became operational from 1 January 2013, and there
have been three auctions of carbon allowances to date. The scheme now covers
electricity, cement, refineries and other large industries, with natural gas
and transport to be included from 2015. The scheme also covers emissions
produced in other states to generate electricity consumed in California.
Permits are currently trading above US$13 per tonne, and the
scheme includes mechanisms to support companies so they don’t move operations
elsewhere to avoid the carbon price.
Linking to Quebec
From January, 2014 the Californian scheme will be linked
with Quebec’s
cap-and-trade scheme. Mary Nichols made it very clear that this linkage had
been carefully planned, and that there is close alignment between both schemes
on the important design elements.
While Quebec will auction its permits, in contrast to
California’s decision to allocate most of its permits for free, this does not
affect the value of the permits in the carbon market place. It will be
interesting to see if and when other US states follow the Californian example,
rather than go down the higher cost, regulatory route.
While in Australia, Mary Nichols signed a Memorandum
of Understanding with the chair of Australian Climate Change
Regulator, Chloe Munro, to guide collaboration between the agencies in
addressing the global issue of climate change. Both agencies intend to learn
much from each other’s experiences in implementing an ETS.
What about China?
Discussion regarding international action on climate change
and policies doesn’t make sense without considering China, now the world’s
biggest emitter.
Both Mary Nichols and Ross Garnaut highlighted progress
being made in China to reduce the emissions intensity of its economy. Measures
include shutting down old, dirty coal-fired power plants, constraining coal
consumption, supporting renewable energy and introducing
pilot ETS programs.
At a conference on Tuesday, Xie Zhenhua, the vice chairman
of the National Development and Reform Commission, said China could spend
nearly US$300 billion on renewable energy in the current five-year plan. He
also confirmed that, in 2015, the government will gradually expand the carbon
trading pilot program towards the creation of a national market.
Australia doing its part
In Australia, both the Government and the Opposition
Coalition support Australia’s international commitment to reduce emission by
15-25% below 2000 levels by 2020, conditional on international action. The
actions being taken by the European Union and countries such as the USA, Canada
and China demonstrate that this commitment will need to be formally triggered.
It may not be as neat as many environmental activists might
wish, but global action on climate change is well beyond the claims of sceptics
and those opposed to Australia’s playing its part in this action.
In April, 2011 Grattan Institute’s report, Learning the hard way: Australia’s
policies to reduce emissions, concluded that only an economy-wide carbon
price can achieve the scale and speed of reductions required for Australia to
meet its 2020 commitments without excessive cost to the economy or taxpayer.
Adoption of this approach by an increasing range of governments suggests that
this conclusion is the right one.
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