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Carbon No Longer Captures Australia

Politics / Climate Change Jul 17, 2014 - 04:35 PM GMT

By: Andrew_McKillop

Politics

Fragile Trust and Ambition
Both Australian and international NGOs operating the climate-change and Low Carbon lobby were quick to accuse Australian government legislators of “going backwards in time” and destroying the nation's standing in the world by pushing back proposed legislation to further raise carbon taxes and further reduce national CO2 emissions.


Wednesday July 16, the Australian Senate voted to repeal new carbon laws that put a higher price on greenhouse gas emissions – but one key reason was pure politics. Since 2007, no less than three Australian prime ministers have stumbled, then fallen from power in political infighting driven by “the carbon crisis”.

The previous Labour government moved in 2007 to set a “price on carbon” - that is a carbon tax – claiming the new tax would slash emissions by 160 million tons over 13 years, by 2020. It offered voters billions of dollars in compensation for higher energy prices. The “carbon tax offsets” ranged through every nook and cranny set by Keynesian-thinking, from tax breaks and aids to companies and corporations, to welfare payments even including aid for womens' associations, gay couples, illegal immigrants and to be sure, Australia's massive environment protection and green business sector.  This spending program, as well as the internationally-trifling and tiny amount of CO2 emissions that would be saved (world emissions are around 30 billion tons per year) were openly derided all through his 2013 election campaign by today's prime minister, the pugnacious “unreconstructed male” who likes sport, beer and nice looking females, Tony Abbott. 

The Labour party's bombast and grandstanding on the issue, always aided by the Greens surely helped seal the fate of prime minister Kevin Rudd, who constantly defended “carbon tax offset” spending as “one of the most dramatic reforms ever attempted in a leading energy-reliant economy”. Attacks on Abbott's Liberal party, and on the independent senators who voted alongside Abbott's Liberals in the Senate to reject the proposed new carbon tax, predictably worked the theme of Australia now being a Bad Boy pariah in the developed world but the country has growing “climate sceptic” allies, especially Japan and Canada.

"There is no question there is [only] fragile trust and ambition around the world," said John Connor, chief executive of Australia's left-leaning Climate Institute. "At the [2013] international climate talks in Warsaw, Japan, Canada and Australia were standouts in going backward, so steps like this do matter." The climate lobby now openly fears Australia's voice will no longer be heard – and lobby delegates to the coming Obama-Hollande-Ban Ki-Moon climate talks in Paris will not have diplomatic status and privilege.

Reality Bites
For Australia's climate lobby it is a mark of shame that alongside South Africa, Poland and China the country ranks among the world's Big 4 most coal-intensive economies, measured by coal's role in generating national electricity. Several Australian states are close to 100% coal-fired for power generating and the reason is brute economics. Victoria State's massive lignite and coal mines have hundreds of years of reserves and are among the world's lowest cost open cast mines. Queensland's coal is the same. Marginal fuel costs of coal-fired generating can be as low as 1 US cent per kWh. In climate conscious Germany (presently increasing its coal burn!) domestic power users pay around 25 euro cents or 34 US cents a kWh.

To be sure, the Australian Senate vote again highlights the difficulty in ever implementing the additional measures to cut carbon emissions that will be pushed at the global climate talks next year in Paris. Australia's decision to “go backwards in time”, along with Japan and Canada, deals another blow to the supposed or claimed “international consensus” - only in a declining number of developed countries - on the subject. With the world's 12th-largest economy, Australia is among the world's highest per capita greenhouse gas emitters, due to its reliance on coal-fired power generating, and widespread use of coal in industry. Measured on a daily per capita basis, the country's emissions are presently around 49 kilograms of CO2 or equivalent greenhouse gases, compared with a world average of about 12.75 kilograms. US emissions in 2013 were around 46 kilograms per capita each day. Kevin Rudd's “Keynesian climate plan” basically proposed to further reduce emissions about 4.2%, or around 23 million tons a year, equivalent to the country's emissions every 15 or 16 days by substituting CO2 with taxpayers cash. This was a supposed “painless carbon cutting process”, also claimed as able to restore economic growth, favor R&D in climate tech and even reduce social inequality.

Rudd's basic problem was timing. After the global financial crisis took hold in 2008, this seriously slowed Australia's natural resources boom, including its huge coal exports. The end of the decade-long mining boom became clear by 2012, shaking voters out of their traditional apathy on the country's massively growing and complex climate laws and policy. At the time, Australia was a key player in the “international consensus” on Keynesian climate economics and fiscal measures — and hailed by the International Energy Agency as “model legislation for all developed countries”. When Australian employment turned down as energy bills and living costs rose, however, the game was lost.

The World Bank in May 2014, in its “State and Trends of Carbon Pricing” report on carbon pricing in 40 countries, with an estimated US$30 billion annual value, singled out the Abbott government's solid opposition to carbon pricing  as one of the biggest international threats to “rolling out similar programs” in other developed countries, and much further down the line, in the emerging economies.

Tony Abbott made a campaign "pledge in blood" to voters and business to prioritize growth above climate laws, taxes and supposed “energy transition”, and has delivered on his promise – but the Senate vote also showed that independent senators, with deciding votes in the upper house, also sided with his Liberals. For Labour and the Greens, this was a massive and outright defeat. Jubilant Mr. Abbott told voters in a news conference after the Senate's decision that what he called a destructive and damaging new tax “which didn't actually help the environment is finally gone,"

Keynesian Climate Plans
Labour and the Greens had constantly upped the ante, believing voter apathy and lack of knowledge on the issue was cast in stone. Disputed estimates of what the proposed climate tax program would have cost extended to $9 or $10 billion Australian dollars a year by 2016-2017, at exactly the moment that the mining boom ebbed, during which record mines sector investment and employment had shielded Australia through much of the recent global economic downturn.

Without matching emissions policies in other industrialized countries, Mr. Abbott said earlier this year, the tax was a self-inflicted shackle on national companies and citizens' living standards – only equaled in Europe, where the ETS-emissions market has been operating since 2005. Abbott's Liberal spokespersons have multiplied press statements and conference speeches on the “dysfunctionality” of Europe's now troubled climate-energy legislation and carbon finance, but due to political decider apathy, rather than voter apathy in Europe, ETS and related climate legislation and finance stumbles forward.

In Europe, unlike Australia where the 2013 election featured the climate issue, the subject of climate change and what to do about it has retreated far down the list of issues moving voter sentiment, making it a travesty for Australian Labour and Greens politicians to claim their country “is now a pariah”. Labor Senator Lisa Singh however did just that. She said in a fiery Senate speech: "This is a fundamental moment in Australia's history. We are about to devastate the future of this country", bandying the keyword “pariah”

While carbon finance and taxation have merely added one small additional brake on the European economy and a further small decline in living standards, the rejection of the Australian proposals by Labour and the Greens may have quite rapid economic effects. Australia's troubled but massive potential LNG development program and its high-cost infrastructures was directly threatened by the proposed new carbon pricing mechanism. Unlike all other major LNG producers and exporters, the proposed additional energy taxation would have made Australian LNG exporters compete in global markets against suppliers who pay no such tax at all. Many huge spending plans in LNG were on hold, awaiting the result of the vote.

Australia's coal sector, heavily affected by international trends for coal demand and imports, had also delayed or canceled investments and the mining sector in general – fingered as a “carbon pariah” by Labour and the Greens – was heavil apprehensive about the proposed measures. "We have been very clear that we are strong supporters of both the repeal of the carbon tax and the mining tax," BHP's CEO Andrew Mackenzie said in an interview. He said that the new tax, combined with the high value of the AUD were the two main handicaps his mining conglomerate faces. Some other major energy users outside the power sector, like national airlines were seriously affected by existing and proposed carbon taxes – Virgin Airlines said in a statement that existing taxes had cost it $27 million in the first 6 months of 2014, pushing it into lossmaking. To be sure, losers will include several Australian power producers who were receiving tax aid and payments to offset increased electricity prices to final consumers, and aid to financing the previous “20% by 2020” Labor government plan – copied on the European model – for massively raising the role of renewable electricity in national power supply by 2020.

Unlike Europe, Australian business was very aware of this issue and individual businesses. Many corporate and company spokespersons for businesses as widespread as supermarkets and transport operators were quick to say they will surely continue to invest in strategies to reduce energy needs, regardless of carbon tax. One reason for this is simple – even in Australia, energy prices are rising.

The major impact of the Australian decision will however be political. The US Brookings Institution, along with the IPCC, IEA, IBRD and other “climate friendlies”  previously described Australia as an "important laboratory and learning opportunity" for “thinking about climate change and energy”. With Japan and Canada, it had been one of the first major countries outside Europe to adopt a carbon price, and Australia was also comparable – in some ways  - with the US concerning its energy-intensive lifestyles, industries and commerce, and its CO2 emissions. Australia's Labour and Greens had however taken “Mother Country” England as a role model, especially when in 2008 the UK Labour party made its rash commitment to “slashing” UK emissions by at least 80% (from a 2005 base) in the 42 years to 2050.

Tony Abbott, who shares the present Canadian government's antipathy to carbon finance, and always identifies himself as a “climate sceptic” said during a recent visit to Ottawa and Washington that climate change was "not the only or most important problem that the world faces". This is sure and certain.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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