Opposition maintains ambitious targets but aims to minimise cost to households and defers details until after election
April 26, 2016 — Labor is proposing two emissions trading schemes – one for big industrial polluters and an electricity industry model similar to one once backed by Malcolm Turnbull – in a climate policy that trumps the Coalition’s ambition but minimises the hit on household power bills and leaves important detail to be determined post-election.
The policy will cost $355.9m over four years, with $300m earmarked to help regions and industries facing upheaval in the transition to a cleaner economy.
As Australia’s greenhouse emissions from electricity generation continue to rise, Labor’s policy promises to speed the shift to renewables, through a radical plan under which power generators would be forced to pay for the closure of a competitor’s dirty brown-coal fired plant and also through an electricity-industry specific “intensity based” trading scheme, similar to the kind of scheme many in business expect will be created post-election after a review of the Coalition’s Direct Action plan.
But the policies have been cautiously crafted – and some crucial details deferred – to avoid a repeat of the anti-carbon tax campaign waged by the Coalition in the past.
The intensity-based scheme would require generators with an emissions intensity above an electricity industry wide baseline to buy “credits” from those below it – effectively penalising polluting power stations and rewarding clean ones.
The idea was most recently proposed by the Australian Energy Market Commission in a submission to the Coalition government, with the AEMC stating that it could operate “without a significant effect on absolute price levels faced by consumers.” The plan is similar to the model originally proposed by Turnbull in 2009 when he was opposition leader, and to the sort of scheme that could evolve from existing Coalition policy if the government “ratchets up” the baselines, leaving open some prospect of bipartisanship in the bitterly-contested policy area.
Australian National University academics first proposed the second-part of Labor’s policy – the radical scheme under which big brown-coal generators, near the end of their operational life, would submit bids for how much money they would need to receive in order to shut straight away and deal with the community and employment fallout, with the cost of the winning bid spread across all the other generators in the market, who would enjoy higher prices because of their competitor’s closure.
The academics estimated the scheme could cause a one-off rise of between 1% and 2% in retail power bills, but subsequent modelling by Reputex found the impact could be even lower – between 0.2% and 1.3%.
Labor is hedging on the third aspect of its policy to force change on national electricity generation – the possibility of an extension to the renewable energy target – saying it remains committed to to its 50% renewable generation target by 2030 but would consult on what extra policies might be needed to achieve it, with a further RET not the favoured option.
With the costs of “gold plating” investments in poles and wires now washed through the electricity market, residential power prices are forecast to fall in coming years, meaning Labor is likely to argue that any minor cost increases from its policies will be barely noticed.
The ALP is also taking a highly cautious approach to reducing emissions from heavy industry, proposing a two-stage ETS and deferring decisions on details.
Between 2018 and 2020 a “cap” would be imposed on big industrial emitters, but those exposed to international competition exceeding the cap would be allowed to meet their entire liability by buying international permits, currently priced at less than $1 a tonne. This means the cost would be minimal.
After 2020 the scheme would morph into a more traditional ETS, but Labor says it will consult on the details. Agriculture, road transport and refrigerants will be left out of the first phase of the scheme.
The Labor leader, Bill Shorten, who will unveil the policy with his environment spokesman, Mark Butler, on Wednesday, said that unlike the Coalition, Labor accepted climate science and was prepared to avoid the high costs of inaction.
“We do not consider climate change a question of ‘belief’, we know it is an economic and environmental reality … The cost of inaction, to our economy and the environment, will be profound. This is not a price Labor is prepared to make the next generation of Australians pay,” he said.
Labor’s policy would also:
- Establish a legal “trigger” so the commonwealth government can prevent runaway land clearing, particularly in Queensland, which is threatening to undo Australia’s emissions reductions elsewhere. The trigger is likely to be included in the Environment Protection and Biodiversity Conservation Act. The New South Wales premier, Mike Baird, is also poised to unveil a winding back of land clearing restrictions.
- Continue the life of the Climate Change Authority, with $17.4m extra funding
- Offer $90m to help local communities shift to cleaner power generation
- Double Australia’s energy productivity by 2030, compared with the Coalition’s promise to increase in by 40%.
- Accept the target of “zero net pollution” by 2050. The Coalition has committed to it by the end of the century.
- Stick with the target of reducing emissions by 45% by 2030 based on 2005 levels – as recommended by the Climate Change Authority, compared with the Coalition’s pledge of a reduction between 26% and 28%.
- Provide an extra $200m to the Australian Renewable Energy Agency
- Remove restrictions on the investment mandate of the Clean Energy Finance Corporation imposed to appease Coalition senators opposed to wind farms.
When Labor first committed to the 45% reduction several Coalition frontbenchers, including the environment minister, Greg Hunt, said Labor’s plan would cost the economy $600bn.
That claim was discredited by the leading economist Warwick McKibbin, in modelling done for the government, who found that a 45% reduction in emissions would result in a loss 0.7% of Australia’s gross domestic product, compared with 0.3% for the Coalition’s target. $600bn is about 2% of Australia’s GDP.
Most experts believe Direct Action has little chance of meeting Australia’s long term greenhouse commitments. The Coalition has said it will review the policy next year.