Will Australia’s emissions waiting game pay off?

With the New Zealand Emissions Trading Scheme (ETS) having just passed its first anniversary, it is a good time to look at whether a market-based ETS is likely to have any impact on our country’s emissions. After all, while New Zealand has forged ahead with the ETS as its primary response to climate change, our closest neighbours, who have a bigger emissions reduction target, have yet to implement any emissions reduction measures.

After just 12 months, it is, of course, too early to draw any meaningful conclusions. However the Minister for the Environment, Dr Nick Smith, outlined the scheme’s performance in his recent speech at the Climate Change and Business Conference.

According to Dr Smith, the emissions levels reported in the deforestation, energy and industrialised sectors were 30% lower than forecast, whereas transport, or liquid fuel emissions, were about 25 percent higher than expected.

Dr Smith also reported behavioural changes, particularly amongst the forestry sector, as every year since the ETS started, the sector has seen a growth in afforestation and a reduction in deforestation, a trend that is forecast to continue. Applications for renewable energy sources also continue to grow.

This view needs to be treated with caution as the figures for 2010 are projections only. New Zealand’s current position is that we are in credit – net emissions are below Kyoto commitments. Measured reductions in total emissions have occurred prior to the implementation of the ETS and for 2009 could be due to the high rainfall in that year increasing hydro electricity generation, the economic downturn, and low log prices delaying harvesting. In 2009 NZ emissions were 11.9 Mt higher than 1990 (our target) and NZ can only meet its Kyoto commitments due to the forest sector removing CO2 from the atmosphere. It also needs to be remembered that the forest sector will not always lead to net removals.

New Zealand’s ETS is a market-based system which aims to create a financial driver to reduce emissions by imposing a cost on carbon. Participants have an emissions allocation which is converted into carbon credits. Those companies that emit more than their allocation have to purchase additional credits from those participants who have an excess due to their activities that absorb greenhouse gases.

By not taking an early stance, Australia has the opportunity to benefit from the experience of other countries to design a system that works best for its situation. The emissions profile of Australia is very different to that of New Zealand, for example there is a much smaller agriculture sector. Therefore its emissions reduction response needs different actions.  A comparison of the Australian and NZ schemes, as they currently stand, is shown below.

  New Zealand Australia
Name Emissions Trading Scheme Clean Energy Future
Progress Implemented but under review To go to senate for approval
Price Capped at $NZ 25 per tonne CO2 ($AU 19.90) Fixed Price period to July 2013 $AU 23.00 - 25.40 per tonne CO2
Coverage All sectors but some have allocations and phase in period 60% of emissions
Sectors Energy, fishing, forestry, horticulture, agriculture, waste, synthetic gas, liquid fossil fuels  and industry 500 of the largest emitters in a number of sectors
Sectors Excluded No significant sectors but this is subject to the results of the current review Agriculture and Land Use Change
Phase in Period

Payment for 0.5 emission units for every 1 unit emitted until Dec 2012.

Agriculture enters in 2015 with 90% allocation.

Waste and Synthetic gas enter in 2013.

Fixed price period July 2012 to July 2015, then a cap and trade system
International Linkages Units can be bought from approved international sources. NZ forestry can sell units internationally Cannot trade international units until after the fixed price period (July 2015)
Other Relevant Policy Energy Efficiency and Conservation Strategy

Carbon farming initiative

Renewable Energy Target

If Australia was to follow New Zealand’s example with a similar ETS, costs related to direct inputs, such as electricity, diesel and fertiliser, would force prices up in the produce sector. Transportation and packaging would be additional impacts to the supply chain. It then begs the question of how these costs would be recovered, whether consumers would foot the bill, and if that would actually work against the desired result of behavioural change.

Whether the ETS is a primary driver for emission reductions is yet to be proved, but the jury is out on whether the carrot (incentives to buy “greener” products) or the stick (regulation and taxation against emitters) is more productive. Australia can benefit from watching and waiting to learn from everyone else first, but it must be backed by strong analysis.

The need for emissions reductions to prevent human induced climate change has prompted emission reduction programmes across the globe that aim to change consumer purchasing behavior towards goods with lower embodied emissions and efficient modes of transport. It remains to be seen if such changes will reduce emissions enough. Other changes that reduce consumption and population are also likely to be required.

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