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Feb 25, 2009

Permit Us to Make a Difference

The issue of voluntary action under the CPRS is one that the Government has tried to avoid talking about since last year. Now it's finally getting media attention. Penny Wong argued

The issue of voluntary action under the CPRS is one that the Government has tried to avoid talking about since last year. Now it’s finally getting media attention.

Penny Wong argued in an op-ed in The Australian on Monday that:

“There has also been misunderstanding of the impact voluntary action by households can have under a cap-and-trade scheme. Some argue that household action simply frees up carbon pollution permits for others to use.”

“In fact, individual and community action to be more energy efficient not only saves them money, it will contribute directly to Australia meeting our emissions reductions targets.

Saving households money, while good, is certainly not a major aim of the CPRS. Saving the planet, however, is. And as for “contributing directly” to Australia’s (weak) target of 5%, the Minister is right to suggest that household action will, but it does so at the expense of large polluters having to do it. That is, an aluminum smelter or coal-fired power station gets the advantage from your energy-saving actions at home.

The Minister went on to write: “Strong household action also helps make it easier for governments to set even more ambitious targets in the future.”

This echoes what Minister Wong said on ABC’s 7.30 report on Monday night when challenged by Kerry O’Brien. The Minister said that individual action does contribute to reducing emissions because it (a) allows the Government to reach the targets it has set and (b) allows the government to set more ambitious targets into the future.

On the first point, Penny Wong stated, “a range of measures can contribute to those targets” (meaning both voluntary action and reductions from large polluters). At face value, this seems reasonable. However, the CPRS is supposed to cover Australia’s 1000 biggest polluting companies and begin what is essentially a structural adjustment program for these companies, as our economy phases out carbon intensive industry and creates new clean industries with new green jobs. So, if voluntary action gets in the way of this transformation and means we as a nation can’t do more than the weak 5%, then it isn’t reasonable at all.

Now to Minister Wong’s second point. On the 7.30 Report, Kerry O’Brien explained that when individuals reduce emissions it frees up permits for polluters which allows them to pollute more or trade to other companies who will pollute more (as long as the overall emissions of the companies covered by the scheme is 5% by 2020). Minister Wong’s response was “and the cap can be reduced the next year”.

My mouth dropped at this point. I’ve read the white paper, and that’s not what it says. Had Minister Wong changed the scheme in response to these criticisms? But as Andrew McIntosh writes in yesterday’s Crikey:

“Either Wong doesn’t understand her own scheme or she is deliberately lying.”

The way the scheme is designed, the Government can alter the cap but only for a point five years in the future, and even then it must stay within the 5-15% target range by 2020. Macintosh explains in more detail:

“Under the CPRS, the caps will be set for a minimum of five years. If the international commitment period is longer than five years, the caps might be extended to the end of this period. The scheme caps will be updated each year, to maintain “a minimum five-year certainty period”.

In addition to the certainty period, there will be “gateways”, which are essentially a range within which the cap will fall beyond the certainty period. The gateways will be set for each year from the end of the certainty period to the end of the gateway period, which the White Paper says will be up to ten years. The gateways will be reviewed every five years, meaning the length of the gateway period will fluctuate from year-to-year.

The combined effect of these rules is to provide at least 10 to 15 years of caps — 5 years of set caps and 10 years of a cap range. Consequently, Wong is wrong to suggest the Government will be able to reduce the cap to account for voluntary action in the following year.

Once the scheme starts, the best she’ll be able to do is reduce the cap five years in advance, and even then her capacity to do so will be limited by the gateways. Further, if the Government chooses to extend the certainty period to the end of the international commitment period, she may be unable to change the cap at all until sometime around 2020.”

In her op-ed in The Australian, Minister Wong stated:

“Why else would the Government provide $3.9 billion of new investment to insulate homes and install solar hot water if we didn’t value the contribution households can make?”

Why indeed? I honestly don’t know.

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9 thoughts on “Permit Us to Make a Difference

  1. george

    I really think that the debate over how to allow individual actions to materially impact on Australia’s emissions profile under the Carbon Pollution Reduction Scheme is a red herring. Loss of additionally from individuals actions under the CPRS is a private disappointment for the individuals concerned, sure, but is far from being the most serious of flaws that fatally undermine the CPRS. If the target was more ambitious, would we still be having this conversation? Isn’t that what counts? Worse than the additionality problem, are the flaws that actually prevent Australia actually having an emissions cap at all. 1) the CPRS currently allows for unlimited trading with dubious international offset schemes; 2) It proposes to cap the price of carbon at $40 per tonne. These two flaws alone will effectively mean that Australia has no emissions cap at all.

    In comparison, the conversation about individual versus collective action is an academic sideline. Private moral lenses are not the most constructive way to view this nation’s attempt to regulate greenhouse emissions. If the interface between individual and collective action was solved somehow, but we locked our country into the 5-15% reduction target, my or your solar hot-water systems still won’t save the Great Barrier Reef, though they would make an infinitesimal difference to the National Greenhouse Accounts. Cold comfort.

    The diabolical qualities of climate change policy that Garnaut identifies derive precisely from the collective origin of the problem: ongoing rise of greenhouse gas emissions here and around the world cannot be slated home to individuals and won’t be solved in living rooms. Rather, it’s a collective disaster that demands a collective solution. What the situation demands of us is that we stop viewing this problem as individuals, and start acting as a collective to bring emissions down swiftly and immediately. The real flaws in the scheme are those that stop us from doing so.

  2. michaelwel

    Jonathan

    I agree with you in spirit that if a householder sells their RECs the buyer would seem to have bought the emissions avoidance but this is not the case in law.

    I wish that the State and Federal Governments would clean up the accounting mess but there is so much entrenched double counting at so many levels that some businesses and states will get caught in a difficult situation with reform. Under the National Greenhouse and Energy Reporting System (NGERS) Determination 2008, all these benefits go to the grid, not the customer. It is not possible to buy renewable energy or low emissions energy in Australia under Australian Law. GreenPower appears to be nothing more than a donation to all based on a proof of generation certificate (the REC).

    I believe that the householder keeps the emissions benefits only because I don’t think that the Department of Climate Change has included household and small scale generation in determining the State Grid factors. I have been meaning to check this for some time.

    If you wish to explore the meaning of a Renewable Energy Certificate, it is covered in the Renewable Energy (Electricity) Act 2000 (Division 4, P 17) but you will find that it is the most underdefined piece of rubbish that you could imagine. Whilst a REC represents 1 MWh of renewable energy, it doesn’t include the aspects of use and has no relevence to greenhouse gas emissions. This is why the Department of Climate Change isolates policy documents dealing with renewable energy from emissions trading and emissions accounting. The National Greenhouse and Energy Reporting System (NGERS) Regulations and Determination (2008) do not include the phrase ‘renewable energy’, and provide no mechanism for customers to reduce their electricity related emissions when buying renewable energy.

    On individuals “choosing to sell” their RECs, most householders are not informed what RECs are or are not, or what it means to sell RECs or even that they are selling their RECs. Most householders just sign the paperwork for their new PV or hot water systems without the slightest clue about what is going on. If RECs are discussed they are often presented as a rebate.

  3. Jonathan Maddox

    EnergyPedant,

    I must take issue with what you say about the benefits of solar energy collection at or near the point of use. Present winter and summer peaks may be close, but the winter peak is created by a huge chunk of electric-resistance heating in poorly-insulated homes that we should not expect to continue. With better insulation (thanks K-Rudd) and a very cost-effective switch to combustion heating those winter electric peaks could be massively cut. The gradual move away from electric water heating will also reduce winter demand more than it does summer.

    (Of course all that could be undone by the growing use of appliances like the “heatstrip” patio heater at the harbourside bars of Sydney. I can’t believe these obscenities are considered a trendy innovation.)

    The summer peak most definitely does coincide with peak incident sunlight and thus peak solar PV generation; it is bigger and more costly to reduce just by switching low-cost appliances; and the cost of overloaded substation equipment wear-and-tear (this is where most of the maintenance costs of already-built transmission go) is greater in a heatwave than on a chill winter’s night. The summertime peak-shaving benefits of solar PV are large and cost-effective in areas with limited grid supply. This, not the climate benefit, justifies some subsidy, at least in capacity-constrained distribution areas. Quintupling the number of renewable energy certificates awarded to domestic solar PV panels anywhere is a silly way to deliver that subsidy.

    All that said, I do agree that on-grid solar PV is not yet a very cost-effective way to reduce emissions. Further subsidy might be justified by the knowledge that if demand is kept high for photovoltaic equipment, the industry (globally) will likely deliver on its promise to cut costs and increase volume to the point where PV *is* a cost-effective alternative first to wind and then to coal.

    If you were buying emissions reductions today the most cost-effective measure would be to hand out nice woolen shawls and cardigans to all the underdressed drinkers at those trendy bars and vandalise the patio heaters 🙂

    Oh, and recycle all the discarded aluminium you can get hold of.

    The idea that the greenhouse emission benefit of people’s voluntary actions — insulating their houses, solar hot water, expensive renewable power generation — should be alienated from them without compensation is absurd and I hope does not reflect any actual legislation.

    If OTOH someone chooses to *sell* the renewable energy certificates their solar PV panels earn, they have sold their clean electricity and received compensation for it so the buyer “owns” the emissions reduction; if domestic generators want to be “carbon neutral” in their own right by means of generating their own power they must surrender the appropriate quantity of MRETs without selling them. They could even surrender more and become carbon negative, I suppose 🙂

    Note that a renewable energy certificate and an emissions permit are different things, though since both are special-purpose units of fiat currency and (when emissions permits begin to be issued) both will have a cash value, they will in some sense be “morally” equivalent despite the different ways they will be created, circulated and surrendered. The main thing is, if an emissions market is actually working, “voluntary” reduction of personal emissions becomes economically equivalent to a sacrifice of money and can be achieved with greatest economic efficiency by choosing your own behaviour and investments based on what benefits *you*, economically, whilst buying RECs or emissions permits on the market and surrendering them unused. Doesn’t work of course if the market is closed to the general public.

    Whether the market will work depends mostly on how clear its signals are. It can’t work effectively with volatile prices as Europe experienced — with luck the Rudd/Wong scheme will avoid this pitfall.

  4. EnergyPedant

    Michael,

    Thanks for pointing out the NGERS stuff.

    My idea with green power was that if a large proportion of consumers switch across it would actually change the generation mix.

    The issue with solar panels and RECs is a bizarre perversion of the MRET target. Letting micro-solar generate 5 x RECs is just plain illogical, it corrupts the idea that 1 REC = 1 MWh of renewably generated electricity.

    In the medium-term prices will be set by the international equivalent price set by CER and other offsets. If the domestic price is low, but future strong targets are likely, then player with foresight (and cash) will start hoarding permits.

    I’m not sure why residential voluntary action should be considered a special case (other than emotional reasons). The goal is to reduce national emissions, where that happens is irrelevant in the big picture view.

  5. michaelwel

    Energy Pedant

    Buying GreenPower won’t help an individual or entity reduce their footprint. Under the NGERS Determination 2008, the use and greenhouse benefits are assigned across all grid users, not the paying customer. The actions do add renewable energy to the nation’s renewable energy generation capacity but it is important to understand that the legally assigned use and lower emissions benefits don’t go to GreenPower customers as suggested on the GreenPower Website in the statement “Make the switch and cut your greenhouse gasses today”. Whenever an emissions value of zero is printed on a GreenPower Customer’s renewable electricity bill, this is actually a non-legal double count. (see Page 307 of the NGERS Technical Guidelines 2008 – “All emissions attributable to a state territory or grid’s electricity consumption are allocated amongst individual consumers in proportion to their relative level of consumption”)

    With regards to household solar systems most people are never fully informed that when they sign across their RECs this displaces other renewable energy already required by law under MRET, or what they sell is turned into GreenPower and sold again creating 2 MWh claims for every deemed MWh.

    The interesting thing about voluntary action under the CPRS is that whilst the Minister wishes us to believe that our voluntary efforts to reduce our emissions by improving Australia’s capacity to reduce emissions, lowering permit scarcity and permit prices so Government can lower the cap, the Voluntary CPRS retirement mechanisms proposed would actually increase permit scarcity, lift permit prices, do nothing to help Australia’s capacity to lower emissions and would lessen the ability for the Government to lower the cap.

    So in its proposed National Offsets Standard, the Government is proposing two opposite and contradictory voluntary options at once. The Voluntary CPRS removal option would probably work as well as buying up imaginary water from the River Murray, whilst it ties the cost of abatement to an increasing cost of pollution.

  6. Mitchell Porter

    E.P., by “industrial-process emissions” I meant everything *but* those arising from electricity generation, e.g. those arising from the heating of limestone in cement manufacture. With respect to achieving emission reductions or carbon neutrality, the use of electricity in industry is not a different problem from the use of electricity elsewhere (though there may sometimes be unique opportunities for a solution, if there’s a way to piggyback local generation of power on some other part of the industrial process). Whereas, unless one is simply capturing them, emissions arising from general manufacturing processes will present a set of sui-generis problems, whether one proposes to modify the process or to substitute another, carbon-neutral process or product for it outright. But fortunately they are only a small part of the problem, both in Australia and globally.

  7. EnergyPedant

    Mitchell,

    What percentage of stationary energy goes into industrial processes??

    Aluminum smelters use an incredible amount of electricity. Close to 25% of all consumption in Tasmania is at the refinery there. 28% or so in Victoria between Portland and Point Henry. The smelter at Gladstone in Queensland is the biggest in Australia. The electricity and gas usage gets counted under stationary energy, not industrial process. Our prime minister doesn’t want to be a country that doesn’t make stuff anymore.

    Carbon capture being developed for the coal power stations should be applicable to most industrial processes. We’re going to need the technology sometime within the next 30 or so years.

    Currently I think the main game with carbon is going to get played out in the electricity sector. If our electricity supply can get de-carbonised then it can be used more extensively for heating (instead of gas) or transport (instead of petrol/diesel).

    My argument against small scale residential solar panels is that they are incredibly expensive compared to the alternatives. At least $10,000 per kW, compared with about $3,000 for large scale wind. Putting money into solar panels is a mis-direction of resources. The impact per $ is too low for it to be justified at the moment.

    The argument in favour of distributed generation because it saves transmission costs is tenuous. The transmission grid is built to supply peak demand, not based on volume. The intermittent nature of micro-solar and micro-wind mean that the same capacity gets built anyway so the lights stay on. Remember that the winter heating peak demand is only a few % lower than the summer air-con peak in most states and that during the winter peak the sun ain’t shining.

  8. Mitchell Porter

    I like EnergyPedant’s final list. Let’s hear the bad news about just how difficult this is going to be! But let’s first get things in perspective. Australia’s current emissions profile can be seen on page 3 here. Industrial processes – i.e. “steel, aluminum, cement, glass” – are just 5% of the problem for Australia. I am not sure how difficult it would be to render them genuinely carbon-neutral. There’s lots of talk about carbon-negative cement. If carbon capture could work for power stations, it should be able to work for factories too. And in general it would be interesting to know about the variety of possible industrial processes, and the extent to which greenhouse gas production is just a natural side-effect of industrial chemistry as presently practiced. This is sometimes described as the century of biology, and we will surely see new industrial paradigms modelled on the closed-loop qualities of ecological systems. But in any case, let’s remember the actual degree to which the various sectors contribute to the problem: “stationary energy, transport, and fugitive emissions” are 70%, agriculture 15%, other forms of land use 7%.

    Energy therefore remains the center of the problem. By the way, installing a solar panel *does* have an impact on the mix of energy generation – it’s part of the increase in distributed generation of power. So purchasing Green Power is a way to encourage investment in large, centralized renewables, but the rise of distributed small renewables also necessarily has an impact. It will take a more sophisticated argument to show that purchase of Green Power, rather than generating your own power, is the optimal contribution for the individual household or enterprise to make.

    I will admit that, while industrial-process emissions may not be a major problem for Australia, they are for the world at large, and especially for those countries where all the industrial production is now located. And so the need to think about a zero-emissions world with carbon-neutral steel, aluminum, glass, etc., or with carbon-neutral substitutes for all the carbon-intensive substances and products, still remains.

  9. EnergyPedant

    The trouble with this debate is that individual think they matter and that carbon emissions is a moral matter. The policy is implemented at the company level, with the biggest companies being the ones who have to reduce their emissions. You can’t use a moral argument with corporations, so you have to use an economic one.

    Regardless of the semantics the reason individual action has been neglected in the proposal is because individual action by well meaning individuals will achieve next to no change (a few % at most) and is very hard to monitor or measure. The government won’t say that publicly because of inner-city seats under threat from the greens. Most energy consumption is done by large industries (not residential consumers). Also most residential users have limited flexibility in how much they can reduce their emissions (other than getting rid of the fridge and using no heating/cooling or lights).

    If you want to reduce your foot-print, don’t install a solar panel, buy 100% green power. This does have a direct effect on the mix of power generation and does increase the amount of renewable generation required above the government target. It doesn’t change the carbon cap, ultimately that will be set by an international deal.

    5% is a negotiating position for Copenhagen. Rudd + co can be easily forced to 15% by international pressure (while wringing concessions as a great statesman). If a real deal is included such that or export industries are on an equal footing, 25% isn’t out of the question. Cutting emissions is sort of like sending troops to a war, you get praised for doing more than your share, but praise is all you get. Everyone starts with a low-ball offer and only move up when everyone else will as well.

    The real issues to focus on are:

    1. When the government undertakes a direct intervention or subsidy with my money to do something (e.g. Insulation or solar hot water rebate) are those carbon savings taken off the cap explicitly??

    2. Are we prepared to close the aluminum and steel industries? Do we understand the consequences of living with no steel, aluminum, cement, glass, paper, petrol, cattle, sheep, etc…. That’s what a 90% emissions cut will take. That’s what is coming sometime in the second half of this century.