Australia Officially Under Carbon Tax Tyranny

According to Australian Prime Minister Julia Gillard – who came into office swearing there would not be a tax on carbon emissions – expected consequences include higher prices for consumers and a price tab for industries of more than $380 million annually.

AFP
November 8, 2011

Australia’s parliament approved a controversial pollution tax on Tuesday, after years of bitter debate over the reform which is aimed at lowering carbon emissions blamed for climate change.

Cheers and applause broke out as the upper house Senate passed the Clean Energy Act, requiring Australia’s coal-fired power stations and other major emitters to “pay to pollute” from July 1 next year.

Prime Minister Julia Gillard said it was the culmination of a “quarter of a century of scientific warnings, 37 parliamentary inquiries and years of bitter debate and division.”

“Today Australia has a price on carbon as the law of our land,” she said as the tax, which scraped through the lower house last month, was approved by the Senate in a 36-32 vote.

“Today we have made history — after all of these days of debate and division, our nation has got the job done.”

Gillard said the scheme — which will levy a price of Aus$23 (US$23.80) per tonne on carbon pollution before moving to an emissions trading scheme in 2015 — would begin to address “the devastating impacts of climate change”.

She said the reforms, which include investments in renewable energy sources, would result in Australia cutting its carbon emissions by 160 million tonnes in 2020 — equivalent to taking 45 million cars off the road.

The government hopes the levy will create economic incentives for the biggest polluters to reduce their emissions but acknowledges that businesses will factor the carbon price into the cost of their goods and services.

To offset this, much of the revenue raised from the tax in the first three years will provide for higher family payments, pension boosts and income tax cuts to help pay for the higher cost of living.

Only New Zealand and the European Union have taken comparable economy-wide action by introducing cap-and-trade schemes, and the tax will put mining-driven Australia at the forefront of efforts in the Asia-Pacific.

“This is a big achievement, coming at an opportune time,” said Professor John Quiggin, an economics and tax specialist from the University of Queensland.

“With South Korea planning to follow suit, momentum towards carbon emission reductions in the Asia Pacific is starting to build.”

Tuesday’s senate vote caps a tumultuous period in Australian politics, largely centred on how the vast nation, which is among the world’s worst per capita polluters, should tackle carbon emissions linked to global warming.

Former prime minister Kevin Rudd harnessed an unprecedented wave of popular support for climate change action in 2007, winning elections in a landslide after campaigning to ratify the Kyoto Protocol and take other green measures.

But his plans were frustrated by entrenched conservative opposition which led to him shelving a proposed emissions trading scheme, damaging his credibility. He was ousted by Gillard in a Labor party-room coup in 2010.

Gillard went to the subsequent election promising there would be no carbon tax, but later backflipped, saying it was a necessary first step towards a flexible carbon pricing scheme.

Australia is heavily reliant on its coal exports, and thousands have rallied against the levy which they argue will raise living costs, cut jobs and ultimately prove ineffective.

Industry associations says Australia’s scheme is punitive and priced far higher than the European Union system.

Earlier media projections indicated that mining giants BHP Billiton, Rio Tinto and Xstrata would be liable for a combined $380 million annually at an earlier price of $20 a tonne.

Elsewhere in Asia, South Korea is pursuing a “cap without trade” scheme involving some 450 companies from next year in preparation for a full emissions trading scheme (ETS) from January 2015, but Japan shelved national ETS plans late last year.

China is considering a pilot ETS programme in some provinces and while there are sub-national schemes in some parts of North America no broad-scale action has been taken in the United States.

The timing of the vote is significant, representing a firm commitment ahead of high-level UN climate talks in South Africa later this month that are being called a “make or break” meeting for legally binding carbon emission reduction targets.

Clean Energy Boom Heading to the Abyss

By. Devon Swezey
Breakthrough Institute
July 11, 2011

The global clean energy industry is set for a major crash. The reason is simple. Clean energy is still much more expensive and less reliable than coal or gas, and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable.

Clean tech crashes are nothing new. The U.S. wind energy industry has collapsed three times before, first in the mid 1990s and most recently in 2002 and 2004 when Congress failed to extend the tax credit that made it profitable. But the impact and magnitude of the coming clean tech crash will far outstrip those of past years.

As part of its effort to combat the economic recession, the federal government pumped nearly $80 billion in direct investment and tax credits into the clean energy sector, catalyzing an unprecedented industry expansion. Solar energy, for example, grew 67% in the United States in 2010. The U.S. wind energy industry also experienced unprecedented growth as a result of the generous Section 1603 clean energy stimulus program. The industry grew by 40% and added 10 GW of new turbines in 2009. Yet many of the federal subsidies that have driven such rapid growth are set to expire in the next few years, and clean energy remains unable to compete without them.

The crash won’t be limited to the United States. In many European countries, clean energy subsidies have become budget casualties as governments attempt to curb mounting deficits. Spain, Germany, France, Italy and the Czech Republic have all announced cuts to clean energy subsidies.

Such cuts are not universal, however. China, flush with cash, is bucking the trend, committing $760 billion over 10 years for clean energy projects. China is continuing to invest in low-carbon energy as a way of meeting its voracious energy demand, diversifying its electricity supply, and alleviating some of the negative health consequences of its reliance on fossil energy.

If U.S. and European clean energy markets collapse while investment continues to ramp up in China, the short-term consequences will likely be a migration of much of the industry to Asia. As we wrote in our 2009 report, “Rising Tigers, Sleeping Giant,” this would have significant economic consequences for the United States, as the jobs, revenues and other benefits of clean tech growth accrue overseas.

In the long-term, however, clean energy must become much cheaper and more reliable if it is to widely displace fossil fuels on the scale of national economies and become a commercially viable industry.

Breaking the Boom-Bust Cycle

Why is the United States still locked in this self-perpetuating boom-bust cycle in clean energy? The problem, according to a new essay by energy experts David Victor and Kassia Yanosek in this week’s Foreign Affairs, is that our system of clean energy subsidization is jury-rigged to support the deployment of only the least-risky and most mature clean energy technologies, while lacking clear incentives for continual innovation that could make clean energy competitive on cost with conventional energy sources. Rather, we should “invest in more innovative technologies that stand a better chance of competing with conventional energy sources over the long haul.” According to Victor and Yanosek, nearly seven-eighths of global clean energy investment goes toward deploying existing technologies that aren’t competitive without subsidy, while only a small share goes to encouraging innovation in existing technologies or developing new ones.

This must change. Rather than simply subsidize production of current technologies, we need a comprehensive energy innovation strategy to develop, manufacture, and deploy riskier but more promising clean energy technologies that may eventually compete with fossil energy at scale. Instead of rewarding companies for building the same product, we should reward companies who continuously improve designs and cut costs over time.

Such a federal strategy will require major federal investments, but of a different kind than the subsidies that have driven the clean tech industry in years past. For starters, we must dramatically ramp up funding for early-stage clean energy research and development. A growing bipartisan group of think tanks and business leaders have pushed an investment of at least $15 billion annually in energy R&D, up from its current $4 billion level.

Targeted funding is needed to solve technology challenges and ensure that innovative technologies can develop and improve. One key program that helps fulfill this need is ARPA-E, which funds a portfolio of innovative technology companies and helps connect them with private investors. But ARPA-E’s budget has continually been under assault in budget negotiations, hampering its ability to catalyze innovation in the energy sector and limiting its impact.

We also need to invest in cutting-edge advanced manufacturing capabilities and shared technology infrastructure that would help U.S. companies cut costs and improve manufacturing processes. As the President’s Council of Advisors on Science and Technology wrote in a report released last week, manufacturing is vital to innovation, “because of the synergies created by locating production processes and design processes near to each other.” Furthermore, bringing down manufacturing costs, such as by supporting shared infrastructure for small firms, or offering financing for the adoption of innovative technologies in manufacturing, will be a key component of reducing the costs of new clean energy innovations.

Lastly, the nation’s hodgepodge of energy deployment subsidies is in dire need of reform. As Breakthrough and colleagues wrote in “Post-Partisan Power,” we need an energy deployment regime that demands and rewards innovation, rather than just supporting more of the same. Brookings’ Mark Muro (a co-author or PPP) expands, “targeted and competitive deployment incentives could be created for various classes of energy technologies that would ensure that each has a chance to mature even as each is challenged to innovate and locate price declines.” Rather than create permanently subsidized industries, such investments would “provide the opportunity for opportunity for all emerging low-carbon energy technologies to demonstrate progress toward competitive costs,” while speeding commercialization.

It is clear that the current budgetary environment in the United States presents challenges to the viability of the fast-growing clean energy industry. But it also presents an opportunity. By repurposing existing clean energy policies and investing in clean energy innovation, the United States can be the first country to make clean energy cheap and reliable, a distinction that is sure to bring major economic benefits in a multi-trillion dollar energy market.