Bernard Keane makes some good points about the proposed CPRS. However, I differ from his conclusions in a few areas.

First, the issue of making voluntary abatement count as additional to CPRS is just as important for business as for households. While most discussion about voluntary abatement has focused on households, the big sleeper is all the businesses whose business models will be destroyed under the present CPRS. For example, Fosters carbon neutral beer. Paperlinx carbon neutral paper and Green Power are dead (‘cannibalised’ by CPRS, according to Garnaut) — along with millions of investment.

Banks, media organisations and many other businesses that have made public carbon neutral commitments will be breathing hot air. Then there are all the local governments that are trying to drive local economic and community development linked to voluntary carbon neutral commitments.

Mr Keane’s suggestion that we can just buy and retire permits doesn’t acknowledge that we can’t control the form of abatement such action promotes. Many people and businesses don’t want to support activities such as energy efficiency improvement in a uranium mine, or in a coal power station, because they believe they should be shut down. They do want to support household and business energy efficiency, renewables and community-based programs, which can only be supported if voluntary abatement is recognised properly. And the government’s own discussion paper states that it is critical to empowerment of community and business for their actions to contribute to additional abatement at the aggregate or global scale.

Lack of recognition for voluntary abatement will also drive low carbon industry offshore — if someone funds a wind farm in a developing country they create CDM credits that are counted as real abatement, and can be retired. If they do the same in Australia they just free up more permits for Liable Parties. This is discrimination against Australian abatement and progressive Australian industry. The government has been prepared to throw billions at high emitters, but is not just ignoring the industries of our future, it is actively discriminating against them. This is perverse — and that’s the polite description.

Penny Wong’s claims about how the government can respond to voluntary abatement are hollow. The caps are locked in for at least five years, so the present government can do nothing to adjust them for voluntary abatement. This means we have to rely on promises by politicians who may not be there to implement promises, when there is no evidence of them setting up any mechanism to track and certify voluntary abatement or take it seriously in any way.

Any claim by Senator Wong that the government can adjust the cap to respond to voluntary abatement must be backed up by the capacity to do it under the same government, and a proposed mechanism (and allocation of resources) for tracking and certifying voluntary abatement.

I agree with Mr Keane that, due to the careful structuring of the CPRS, Australian carbon prices will be at the low end of international levels, so that voluntary abatement may not noticeably reduce the carbon price for Liable Parties. However, it remains that it will free up room under the cap for Liable Parties to emit more, and a fundamental right to ‘make a difference’ by a person or a business will have been denied.

More broadly, I disagree with Mr Keane’s suggestion that we can fix a bad CPRS. If we do not include the right clauses in the legislation, fixing it may lead to large compensation claims. We need a price on carbon from July 2010 as a matter of urgency, as the uncertainty created by delay would be very damaging, for example to investment in energy supply: we could risk blackouts and other crises because investment won’t happen until people are certain. But if we can’t get a decent CPRS, then an interim Carbon tax with the aim of transition to a CPRS by 2011 or 2012 would be preferable. This is pretty much Garnaut’s ‘second best’ option.

Essential criteria for a CPRS include:

  • CPRS must have criteria that allow government to tighten the cap with 12 months notice if the carbon price is low and modeling suggests it will stay low, or if the science shows a need for stronger targets. Without this flexibility, government locks in failure. It is reasonable for industry to accept such conditions as long as there are transparent and fair processes to determine when such features would be implemented.
  • A proper mechanism for tracking and certifying voluntary abatement, and formal processes to remove permits from auctions in the same period or at the next auction — as proposed in the Voluntary Carbon Markets Association submission (download from www.vcma.org.au in news).
  • Review of the freebies for EITEs and coal power stations — with scope to recover money retrospectively if they exploit windfall profit potential. As Garnaut’s researcher on 4 Corners pointed out, losing our aluminium smelting industry would reduce global emissions, not increase them. And, based on Australia Institute work of a few years ago, our economy would be better off because we now subsidise this industry heavily. As Garnaut pointed out, our LNG industry is well ahead of its international competitors for government assistance already, because of other generous arrangements. And the decline in the Australian dollar means they are all way ahead in terms of international competitiveness anyway since the CPRS was originally proposed. Garnaut also went through a very thorough process to recommend no handouts for coal power stations.
  • A stronger target — Garnaut has made a strong case for this. And a recent international analysis suggests that a target of 24% cut relative to 1990 by 2020 would be ‘fair’ for Australia.

Adjunct Professor Alan Pears, RMIT University is a member of the interim Board for the Voluntary Carbon Markets Association.