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Mar 09 2013

Caps Review Part 5: Emissions caps

This is the fifth part in a series about the Caps and Targets Review being conducted by the Australian Government’s independent Climate Change Authority (CCA) this year. Part 1 summarized the global climate crisis, Part 2 explained the importance of the review and how CCA should approach it, Part 3 outlined the role Australia should play in climate action, and Part 4 debunked the economic justifications for inaction. This part makes my central recommendations on emissions caps.

Emissions caps are intended to cut emissions as fast as possible, not to limit the pace of emissions cuts or guarantee property rights to go on polluting. They should be designed in such a way that they do not inadvertently limit the pace of emissions cuts, which would conflict with the intent of the policy. Beginning the systemic change in the economy necessary to move toward zero emissions is more important than meeting an arbitrary emissions target and timetable.

The carbon price is intended as a mandatory penalty for carbon pollution and an incentive to drive investment in zero-carbon technology and energy efficiency. It is not intended to drive investment in less carbon-intensive fossil fuels. A higher carbon price is better than a lower one, because the bigger the shock to the system, the more likely it is to drive behavior change. A weak emissions cap, or weak policy design, would cause the carbon price to crash to levels like present international carbon prices, undermining the incentive to invest in zero-carbon assets.

The Government’s present target of a 5% emissions reduction below 2000 by 2020 is meaninglessly weak given the urgency of rapid global emissions cuts. The 2050 target of an 80% emissions reduction below 2000 has far too long a timeframe: the 2010s is the critical decade for avoiding dangerous climate change.

Ross Garnaut’s method of allocating emissions targets[i] (on which the government has based its approach) effectively rewards Australia for having high per-capita emissions, rapid projected population growth, and rapid projected business-as-usual emissions growth (factors which if anything justify a more stringent target for Australia than for other countries); and limits Australia’s maximum ambition for no good reason. Garnaut further recommended the calculated target of 25% below 2000 by 2020 be conditional on a global agreement unlikely to materialize, which is unreasonable for the reasons explained in Part 3. Furthermore, Garnaut’s advocacy of international emissions trading makes a mockery of dividing the work into “fair shares”.

In contrast, CCA’s mandate puts no limit on the ambition of the targets it can recommend. It should recommend an emissions reduction trajectory fast enough to shift the political focus from meeting an inadequate 2020 target to slashing emissions in a single electoral term, to accelerate the pace of change and so the incumbent government can be held accountable for its targets. The emissions cap should decrease each year, and reach zero as soon as possible.

To be consistent with an emergency response to preserve a safe climate, and to be fair on developing countries, Australia would need to cut its emissions faster than the 6%/year global rate mentioned in Part 1.

CCA should recommend a rate of emissions reductions faster than, and certainly no slower than, the observed emissions reduction rate during the fixed price period (which will be assessed by a contemporaneous CCA review). It should also be faster than the projected emissions reduction rate in a scenario where the fixed carbon price continues and is complemented by other climate policies like the Renewable Energy Target (RET) and Clean Energy Finance Corporation (CEFC). It should cause the carbon price to rise rapidly over time (ie. much faster than a few percent per year) to strengthen the signal to investors.

Yet another reason for ambitious targets is that the rapidly falling prices of renewable energy technologies make it much easier to cut emissions than was believed when the 5% target was set in 2008.

The targets recommended by the Review, if approved by Parliament, will lock in an emissions trajectory through to 2020. CCA must not make the mistake of recommending unambitious emissions caps, as such a mistake would be difficult, if not impossible, to correct for five or more years. Also, CCA should recommend amending the Clean Energy Act to clarify that carbon permits are not associated with property rights so that emissions caps can be tightened after they have been set.

To encourage voluntary actions, there must be a clear mechanism to tighten the emissions cap to account for verifiable voluntary emissions cuts, including emissions cuts from other federal, state, and local policies (ie. making those policies additional to the ETS). To prevent inertia, verified emissions cuts should be subtracted from the cap in the following year, not five years after they occur. Also, recalled permits should be cancelled instead of being reissued. Any possibility of overachieving or oversupply of permits should be welcomed as an opportunity to tighten the next year’s emissions cap.

In Part 6, I will make recommendations on the design of the carbon price mechanism.

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