In Australia I see essentially two political choices for taking action on climate change. Vote for a party committed to reducing greenhouse gas emissions and implementing an emissions trading scheme (ETS) or vote for a party not committed to an ETS and relying on ‘direct action’ to reduce carbon emissions. The major political parties are in essence providing these two choices to the Australian public – Labor for an ETS and the Coalition against an ETS. The two key minor, but still influential parties offer the same choice – Greens for an ETS and the Nationals against.

But what is an ETS and what is direct action? If people don’t understand the choices how are they to make an informed decision?

Direct Action

Direct action is essentially funding measures and initiatives through tax payer’s money that will reduce carbon emissions. Sounds simple enough, and of course voters can be led to believe that the government is taking control and doing something immediate to tackle Australia rising greenhouse gas emissions. The Liberal party is promoting direct action and refers to an ETS as a ‘great big tax’, but surely direct action could be termed the same – after all, direct action is still using tax payers’ money!

Emissions Trading Scheme (ETS)

What is an ETS and what advantage does it offer over direct action? The Department of Climate Change refers to its ETS policy as a Carbon Reduction Pollution Scheme (CPRS). An ETS is also commonly referred to as a cap and trade system or simply carbon emissions trading. What this means, is that the Government basically sets a cap or limit on the amount of pollution (carbon emissions) that can be emitted. This cap is sold to participants (the big polluters) in the form of carbon emission permits, which each are worth a specific amount of specified pollutant – in the context of tackling climate change, carbon dioxide. Holders of the permits are then allowed to trade the permits within each trading period set by the Government. The total amount of permits cannot exceed the cap, which over time is reduced by the Government, forcing the market to adjust and carbon emissions reductions to be achieved.

Essentially, participants of the trading scheme are allowed to pollute a certain amount within each period. If they exceed this amount (the cap), then they must purchase permits to allow them to pollute. So participants below the cap can choose to sell their permits to participants who require them. This puts a price on carbon pollution and if well designed, provides an incentive for participants to reduce their emissions.
The Labor Government came very close to passing an ETS, however it was blocked in the Senate twice in 2009. The Greens Party played a key part in the failed policy adoption of a ETS as they viewed the scheme as watered down, with a target to reduce Australia’s net carbon emissions by only 5 percent. To some degree I agree that the targets need to be much higher if Australia is to really move towards a low-carbon economy, however being too ambitious too early must have implications for our economy.

Labor is still committed to implementation of an ETS, but has postponed any commencement until 2013, claiming a divide on the issue due to a lack of consensus on climate change. They are offering direct action initiatives in the short-term, and a so called Citizens Assembly to form consensus for a future ETS. I get the feeling the lack of consensus is within the political realm, because I get the feeling most Australian’s want action on climate change, but just aren’t sure what the best action is.

Are you for an ETS or against?

I see the choice as simple – vote for a potential ETS or vote for no ETS. So what’s the advantage of an emissions trading scheme over direct action? An ETS is market-based, which from an economic perspective is more efficient and results in reducing carbon emissions at lowest cost. So the claim by the Liberal Party that an ETS is a ‘great big tax’ is not directly true. The problem lies in Government intervention in the form of subsidies and other exemptions, which are funded through tax payers’ money. Australia is a carbon emissions intensive nation, due to key sectors including the energy sector and aluminium smelter industry. An ETS without government intervention would mean these sectors would be the hardest hit, such that they would need to invest dramatically to improve energy efficiency and where above the cap, pay to pollute. This is argued to impact Australia’s global competiveness and will most likely increase the cost of commodities affected.

So, the argument against an ETS is that participants will have to spend money to reduce their carbon emissions and this expense will partly be passed on to consumers. While this may be true, at the end of the day, someone needs to foot the bill and if climate change is everyone’s problem then we should all be contributing.

Getting the balance right

The question is, do we contribute through direct government expenditure, or indirectly through a market-based scheme? Governments do not exactly have a good reputation for spending tax payers’ money efficiently so I would argue an ETS is the way to go. However, the success of an ETS really comes down to its overall design. Yes, we want to reduce emissions, but we don’t want to endanger Australia’s economic competitiveness. Like anything, it’s a balancing act, but if we get so bogged down in analysis paralysis, we’ll never achieve any real outcomes.

This blog aims to show how acting vigorously to reduce carbon emissions is good for the environment and good for business. That it is possible to create a “win-win” with the right approach. The Emissions Trading Scheme – officially known as the Carbon Pollution Reduction Scheme (CPRS) clearly, as explained in earlier blog posts, is climate negative - its not good for the environment.  

Various blogs today responding to the release of the draft CPRS legislation by Climate Change Minister Penny Wong point out that its not just bad for the environment – it goes so far in its compensation to major emittors that its actually good for big business.  

Crikey.com refer to a study commissioned by the Australian Conservation Foundation which shows that many of the major polluters will actually benefit from the CPRS as a result of the free permits handed out. The Crikey post summarises this as follows “So let’s be clear: the the Government’s rationale for amending its already-generous ETS so that it rewarded big polluters was not to prevent the loss of jobs and emissions overseas, but to ensure the profitability of big polluters.”

Paul Gilding in the Business Spectator writes “This is as good a deal as business will get. It is easy to imagine a future government, when the icecaps have melted, the cyclones are hitting and the fires are burning, imposing a much tougher regime than the one currently on the table. The CPRS is a bad deal for the climate but it’s a great deal for business. Take it and run or you’ll rue the day you didn’t.

So lets summarise the above. The CPRS is bad for the climate, but good for big business. Its lose-win legislation – a loss for the environment and a win for those businesses that are major pollutors. In the short term anyway its a win for the major polluters, but in the long run won’t be - big business managers and shareholders won’t be immune to the effects of dangerous climate change.

Which brings me back to the argument that those of us who want to be climate positive need to be coming up with ways of reducing carbon pollution that are also great for the hip-pocket - in the short to medium term and not just in the long term. With products and services that business willingly buy because its good for the bottom line as well as being good for the environment. And that we need to be making the CPRS irrelevant – by making it so easy to be sustainable that its foolish not to. We have clarity now that the CPRS won’t cut emissions, and may actually put a floor on the amount of emissions reduction that can be achieved. Hopefully this flaw will be removed over the next few months as the legislation is debated. But we have a heck of of an innovation and entrepreneurial challenge!

And there is also a tremendous social challenge – the challenge of changing society to the point where carbon pollution becomes abhorrent and morally repugnant – for most of us.

If you care about future climate stability I’d encourage you to act as a carbon-saving innovator or entrepreneur, or to influence to create a society that is carbon-intolerant, and not put too much faith in the CPRS.

Many individuals and organisations – such as CarbonetiX – are passionate about reducing carbon emissions. CarbonetiX exists to reduce carbon emissions. And we have helped our customers cut their carbon. Many individuals and organisations are similar to us. We believe that Australia and the world must make massive cuts to greenhouse gas emissions not by 2050 but NOW.

But under the Rudd government’s emissions trading scheme our passion, effort, intellect, capital, time, risk, over-time, learning, sleepless nights, stamina, ingenuity, research, education, sacrifice, persistence, investment appears as though it will come to nought. Zip. Nada. Zero.

We do a lot of work with local government. Many local governments have committed to ambitious carbon reduction targets, and some are making large investments to achieve this. There are some tremendously passionate and dedicated people in local government giving their all to this. I’m sorry to say this, but thanks to the ETS it appears as though your council’s efforts may be in vain. Given that your blood sweat and tears may make no difference how do you feel?

I’m grateful to Ian Westmore for commenting on a blog post I made earlier this week and making this clear to me.

For seven years I have slaved away under the impression that somehow my contribution was making a difference. That I, along with many others, could help Australia cut its greenhouse gas emissions significantly. Not by a paltry 5% by 2020.

Three or four years ago now I was very disappointed when the Victorian government extended the life of the Hazelwood Power Station – Australia’s most carbon inefficient major power generator, which produces between 12 to 15 million tonnes of greenhouse gas a year. That’s an awful lot of carbon. I had done quite a lot of work for the Sustainable Energy Authority Victoria (SEAV) on more efficient street lighting. It was great to be able to show how a well designed T5 fluorescent street light was viable as a substitute for a “flower pot” mercury vapour street light – yet only used one third the power. These T5s are now starting to be rolled out as mercury vapour replacements. But I remember feeling how all that effort – and in fact how the entire budget of the SEAV – was effectively futile if the same government had extended Hazelwood.

And now the ETS has come along. And in effect the way the ETS is designed its unlikely that anything more than a 5% carbon reduction on 2000 levels will be achieved. In effect any electricity voluntarily saved by anyone becomes tradeable by the nations power generators, which are part of the ETS. The electricity I help my customers save through energy efficiency and energy conservation, the electricity you might save by putting solar panels on your roof – this all translates into carbon savings at the point of generation – the power stations of the nation. The power stations – which are the nations largest carbon polluters – can then sell that carbon saved to other major industries under the carbon trading scheme, who may then chose to increase their emissions.

Ian Westmore has explained this in his comments on my blog post of 10 February, and Richard Denniss of the Australia Institute also provides an excellent explanation on the Inside Story blog. This explains it much better than I have. 

Right now I am in shock, and am still struggling to understand the immediate consequences of this to my customers, my business, my children and the last seven years of my life.

In effect the ETS is throwing down the gauntlet to anyone wanting to save the planet. Its saying “We, the government of Australia don’t believe Australia should cut its emissions by more than 5%. We dare you to try to achieve a bigger cut than this.”

Given the disincentive of the ETS, there are only two ways that I can see Australia achieving significant greenhouse gas savings. Both of them should be pursued.

1. It becomes accepted across Australia by the vast majority of individuals that producing carbon is morally repugnant. That the stigma associated with carbon pollution is such that the major polluters voluntarily aim to achieve large cuts, and do not take advantage of the ETS. 
2. We use our ingenuity and brains to come up with highly cost effective ways of saving energy, producing carbon-free energy, and marketing these solutions. Good looking technologies that are so cost effective that it’s a no-brainer not to install them. That its financially stupid not to use them. That are cool. A light bulb that uses half the power of a compact fluorescent light bulb, lasts twice as long, and costs as much as an incandescent. A solar system that costs $500 installed and powers your whole house. Electricity storage systems that are cheap. Electric cars, trucks and buses using all that cheap solar power that cost less to buy than petrol, diesel or LPG vehicles and much less to run. Building retrofits that take less than two years to pay off and halve power use.

There may be a third way that should also be pursued. I understand that the proposed ETS legislation has yet to go through parliament. This legislation should be amended so that it doesn’t limit our carbon savings to 5%. Lobby for this change.