Climate Change: Setting a price on carbon

March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

How might that be achieved?

March 19, 2011

Carbon tax Emissions Trading Scheme Additional actions

Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

Assessing appropriate responses

Assessment of impacts

Demand, technology, social, envir. options Biogeo chemistry of greenhouse gases Climate sensitivity, response time to gases Regional climate response to global CC Response of all sectors to CC Global emissions over time Atmospheric accumulation Global climate response Regional climate response Impacts ↓ Risk

Determination of mitigative response

What can happen?

The physical world What might it do?

Our sensitivity Are we vulnerable?

Adaptability March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

What are we trying to do?

Reduce greenhouse-gas emissions Internalise the cost of emissions The Kyoto Protocol tackles emissions of six greenhouse gases:

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carbon dioxide (CO 2 ) methane (CH 4 ) nitrous oxide (N 2 O) hydrofluorocarbons (HFCs) perfluorocarbons (PFCs) sulphur hexafluoride (SF 6 )

Emissions trading

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A market-based approach to control pollution Also known as cap and trade Provides economic incentives for achieving reductions in the emissions

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Used for minimising emissions of sulphur

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Carbon Pollution Trading Scheme, CPRS

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Introduced by the Labor Government and nearly with bipartisan support in 2010

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Brought down Malcolm Turnbull

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The European Union Emissions Trading Scheme in place since January 2005, stabilised at around €20 per t CO 2e March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

Emissions trading

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Favoured by industry and commerce; those committed to the use of markets

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Least priced

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No picking of winners

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Modification heavily lobbied for by those claiming:

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International competitive disadvantage (threatening loss of jobs or moving off shore)

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Transitional costs Not really convinced that there was/is a need Simply conservativeness- the world is fine as it was thank you March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

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Emissions trading

A Cap is set of total allowable emissions and then that cap is slowly over the years reduced at a rate determined by the objective of meeting total emissions reduction targets

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All emitters, or some selected sub groups are allocated emissions allowances based on their current emissions (grandfathering) or through an auction

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Those capable of reducing emissions below their allowance will have permits to trade Those who do not will have to buy them or pay a penalty for over emitting

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Experience with the EU Emissions Trading Scheme showed their initial free allocations were too generous (it was easier to reduce emissions than thought) so the price initially collapsed

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The CPRS threatened to do the same under pressure from big emitters March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

“Along with others, I have tried to pry economists away from narrow assumptions about self interest.

Behavior is driven by a much richer set of values and preferences”

Gary Becker, Nobel Prize acceptance lecture, 1992 Behavioural economics:

“ …people are susceptible to irrelevant influences …emotions, short-sightedness” Ariely (2009): Predictably Irrational

Identity Economics: “Peoples identity defines who they are..(and this) influences

March 19, 2011 Aust. Inst. Physics/Roy. Aust. their decisions..” Akerlof and Kranton (2010): Identity economics

Emissions tax

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Advantage: Can be introduced with minimal rules form government quickly Disadvantage: It is difficult to assess the appropriate level of tax to achieve the desired emissions reduction

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Labor with the assistance of the Greens and independents are planning to go this way initially and then to introduce trading All are concerned about:

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Forewarning likely futures so all can be prepared no surprises

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Transference of tax of or trading income to least advantaged in the community March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

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Additionalities

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Targets (e.g. EU, China, 20/20/20)

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EU 20% reductions included growth targets for developing states – Romania, Bulgaria et al.

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Germany -40%; UK -34% on 1990 by 2020 Energy efficiency

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Domestic appliances

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Motor vehicles

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Commercial and industrial equipment Renewable energy Standards Information – labelling etc. March 19, 2011 Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change

Policy development in the shadow of the role of party and media

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“Today’s politicians are a bunch of robots who would rather chase soundbites than make policy”

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“If politics was a “game” in ’93, it has been refined to an artform today”

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“Policies are little more than ephemeral utterances created from focus groups and polling, summarised in a media grab. It has become a race to the bottom” March 19, 2011 John Hewson, The Age, 27.02.2011

Aust. Inst. Physics/Roy. Aust. Chemical Inst. Climate Change