tag:theconversation.com,2011:/africa/topics/ets-2477/articlesETS – The Conversation2022-01-19T15:32:08Ztag:theconversation.com,2011:article/1748212022-01-19T15:32:08Z2022-01-19T15:32:08ZThere’s a massive bubble in the price of carbon – and yet it won’t bring down emissions any faster<figure><img src="https://images.theconversation.com/files/441527/original/file-20220119-15-1q7hozd.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Too many industries have been exempted from carbon rules. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/distant-view-yorkshire-wolds-uk-power-1691651902">Coatesy</a></span></figcaption></figure><p>Carbon trading was supposed to encourage companies to reduce their emissions. Yet for many years, the carbon price was trading well below €20 (£17) per tonne on the EU Emissions Trading System (ETS), which is by far the most established market for trading carbon in the world. Most agreed that this did not send any financial signals to carbon-intensive industries to invest in green technologies. </p>
<p>But since the onset of the pandemic in 2020, the carbon price has rocketed to close to €90, taking everyone by surprise, including EU climate policymakers. So why has this happened, what are the likely consequences – and what can we expect to happen to the price in the coming months?</p>
<p><strong>The price of carbon (€ per tonne)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=302&fit=crop&dpr=1 600w, https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=302&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=302&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=380&fit=crop&dpr=1 754w, https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=380&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/441250/original/file-20220118-23-1qezqrp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=380&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Based on the price of ICE EUA Dec 22 futures.</span>
<span class="attribution"><span class="source">Trading View</span></span>
</figcaption>
</figure>
<h2>The changing market</h2>
<p>The carbon price is based on demand <a href="https://www.offsetguide.org/understanding-carbon-offsets/">for carbon credits</a>. These are awarded to organisations which have removed a quantity of carbon dioxide from the atmosphere, through, say, tree planting or building a wind farm, by the EU or other authorities with newer ETSs such as <a href="https://www.offsetguide.org/understanding-carbon-offsets/other-instruments-for-claiming-emission-reductions/allowances/">the US</a> and <a href="https://www.nature.com/articles/d41586-021-01989-7">China</a>. Some people and companies buy offsets voluntarily, such as travellers paying a premium to offset carbon emissions in an air ticket. </p>
<p>Large polluters, on the other hand, are required to buy <a href="https://www.offsetguide.org/understanding-carbon-offsets/other-instruments-for-claiming-emission-reductions/allowances/">carbon allowances</a> when they exceed a so-called cap. The EU ETS was badly undermined for years because <a href="https://www.ieta.org/resources/Resources/Case_Studies_Worlds_Carbon_Markets/euets_case_study_may2015.pdf">many industries were exempted</a>, free allowances to polluters <a href="https://carbonmarketwatch.org/2021/12/17/eu-must-stop-subsidising-polluters-with-hundreds-of-billions-in-free-emissions-allowances-green-groups-demand/">were issued</a>, and the market was flooded by <a href="https://www.theguardian.com/sustainable-business/blog/why-are-carbon-markets-failing">cheap (and dubious) offsets</a>. The EU’s new “<a href="https://www.cleanenergywire.org/factsheets/understanding-european-unions-emissions-trading-system">Fit for 55</a>” package aims to reset the EU ETS. It is a step in the right direction but it’s not clear whether it will bring about the rapid decarbonisation we urgently need.</p>
<p>There were three main reasons for the rapid increase of the price of carbon in 2021: political pressure, high energy prices and a flood of speculation from traders. </p>
<p><strong>1. Political pressure</strong></p>
<p>The political pressure to act on climate change has increased immensely since 2018, when <a href="https://extinctionrebellion.uk/">Extinction Rebellion</a> launched and Greta Thunberg’s <a href="https://www.theguardian.com/world/2019/mar/11/greta-thunberg-schoolgirl-climate-change-warrior-some-people-can-let-things-go-i-cant">School Strike for the Climate</a> got underway. Both actions have erupted into global movements, buoyed by big names like David Attenborough also <a href="https://www.bbc.co.uk/news/science-environment-59039485">calling for</a> more urgent climate action. Weather events such as the intense rainfalls and subsequent flooding <a href="https://www.jbarisk.com/flood-services/event-response/summer-floods-in-europe-2021/">in Germany</a> in July 2021 further drove climate change to the top of the political agenda.</p>
<p>In <a href="https://www.cleanenergywire.org/factsheets/polls-reveal-citizens-support-energiewende">various opinion polls</a>, European citizens now express increasing concern over climate change, prompting politicians to make greater commitments to take action. Members of the business community, too, have been falling over each other in declaring <a href="https://www.gov.uk/government/news/third-of-uks-biggest-companies-commit-to-net-zero">“net zero”</a> targets. This means more demand for voluntary offsets and the prospect of tougher ETS cap rules that will lead to more mandatory offsets in the near future, all of which has encouraged traders to bid up carbon prices. </p>
<p><strong>2. ESG speculation</strong></p>
<p>There has generally been huge investor interest in what the financial community calls ESG (environmental, social and governance), which is broadly about ethical business. There has been high demand in the past two years for companies that score well on ESG, and investment funds that focus on such companies.</p>
<p>For example, Tesla is <a href="https://docs.google.com/spreadsheets/u/1/d/1HflVng6sYIb6Gs4pOKiDGtqU5YJ2-hgdM4pRNaT62gs/htmlview">worth more than</a> the next nine global car manufacturers combined. This reflects the financial community’s view that electrified greener transport is here to stay – and probably also the billions of dollars <a href="https://www.autocar.co.uk/car-news/industry/inside-industry-how-selling-emissions-credits-helps-tesla-grow#:%7E:text=Hidden%20in%20what%20you%20might,7%25%20of%20the%20company's%20revenue.">Tesla receives</a> from more polluting automakers needing to buy carbon permits from greener rivals. This shows the carbon market in action, pushing carbon prices higher. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="white Tesla model X on display with its doors open" src="https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/441529/original/file-20220119-27-hoe92z.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tesla is doing very well out of carbon trading.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/berlin-october-2-2017-photo-image-729205330">franz12</a></span>
</figcaption>
</figure>
<p>Yet at the same time, there is clearly a lot of speculation at play. The Financial Times <a href="https://www.ft.com/content/c6346a90-6c3c-48f9-bec3-5ae5057e1ed7">cautioned recently</a> that a bubble might have formed in ESG, and it’s easy to make the same argument about carbon prices. </p>
<p><strong>3. High energy prices</strong></p>
<p>Natural gas has been in <a href="https://theconversation.com/energy-prices-are-unlikely-to-fall-in-2022-or-beyond-not-until-major-importers-get-serious-about-green-transition-174437">short supply worldwide</a>, triggering <a href="https://www.iea.org/news/coal-power-s-sharp-rebound-is-taking-it-to-a-new-record-in-2021-threatening-net-zero-goals">more use</a> of coal. Coal has <a href="https://group.met.com/fyouture/natural-gas-vs-coal/66#:%7E:text=According%20to%20the%20U.S.%20Energy,amounts%20of%20CO2%20while%20burning.&text=Natural%20gas%20also%20emits%20less%20carbon%20dioxide%20when%20combusted%20than%20fuel.">much higher</a> carbon emissions than gas, requiring power generators to buy more carbon allowances, pushing the carbon price higher. </p>
<h2>The bad news</h2>
<p>There are reasons to doubt that the surge in carbon prices will achieve the stated aim of ETSs, namely a faster decarbonisation of the economy. A <a href="https://www.openbookpublishers.com/product/1488">lot of evidence</a> suggests that many carbon credits are not worth the paper they are written on. There is a lot of <a href="https://theconversation.com/double-counting-of-emissions-cuts-may-undermine-paris-climate-deal-125019">double-counting</a> going on, in which those buying and selling offsets both count them as reducing carbon emissions, and there are other <a href="https://www.vox.com/2020/2/27/20994118/carbon-offset-climate-change-net-zero-neutral-emissions">loopholes</a>, particularly in <a href="https://energypost.eu/can-carbon-offset-loopholes-be-fixed-with-better-evaluation-and-rules/">questionable carbon offsets</a>. What happens, for example, if – in a warming climate – a <a href="https://www.ft.com/content/3f89c759-eb9a-4dfb-b768-d4af1ec5aa23">forest burns down</a> whose carbon-saving potential was sold to companies?</p>
<p><a href="https://www.theguardian.com/business/2021/nov/20/polluters-face-price-pain-as-global-carbon-trading-system-moves-forward">The integrity</a> of these markets will be even further challenged as the various regional ETSs seek to link up to create more global carbon trading. To achieve this, new global rules were agreed at the <a href="https://ukcop26.org/delivering-high-integrity-inclusive-voluntary-carbon-markets-for-1-5c/">recent negotiations</a> at the COP26 climate conference in Glasgow. These have been welcomed <a href="https://www.woodmac.com/news/the-edge/carbon-markets-cop26-breakthrough/">by industry</a>, but <a href="https://carbonmarketwatch.org/2021/12/10/faq-deciphering-article-6-of-the-paris-agreement/">critics say</a> the agreement opens the door to sub-standard carbon offsetting schemes that will make the system unreliable.</p>
<p>At a time when higher energy prices are squeezing businesses, they have an added incentive to push for a global carbon-trading system that goes easy on them. Higher energy costs are also creating a lot of <a href="https://lordslibrary.parliament.uk/rising-energy-costs-the-impact-on-households-pensioners-and-those-on-low-incomes/">energy poverty</a> among consumers (and higher carbon prices are a contributing factor because it means that power providers have to pay more for offsets). This conflicts with consumers’ desire for more urgent climate change action, creating political pressure to slow the climate transition. </p>
<p>As for the price of carbon, I expect speculators to keep pushing up carbon prices as long as there is enough liquidity in the market – meaning credit they can borrow to make trades. This liquidity has been partially driven by all the money being created by central banks’ <a href="https://theconversation.com/will-the-bank-of-englands-reliance-on-quantitative-easing-work-for-the-uk-economy-149581">quantitative easing</a> (QE) programmes. When it disappears, the bubble will burst.</p>
<p>In other words, the price is not higher because ETSs are functioning well yet. To quote a recent comment from <a href="https://www.cnbc.com/2021/05/18/why-europes-carbon-market-is-experiencing-a-boom-like-never-before.html">one market analyst</a>:
“I’d say that industry by-and-large for the last 16 years since the [EU] carbon scheme had been up and running in 2005 have really done pretty much nothing in terms of carbon emission reductions.” </p>
<p>If just a fraction of all the <a href="https://www.wri.org/insights/quantitative-easing-economic-recovery-must-consider-climate-change">QE money</a> would have been spent on climate goals, we would have made a lot more progress with climate mitigation over the past decade. The ETS system is only going to work if loopholes are removed so that many more companies have to pay for the carbon they emit. In the end, it’s all about political will and process.</p><img src="https://counter.theconversation.com/content/174821/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steffen Böhm has received funding from the British Academy, UKRI and the Swedish Energy Agency. </span></em></p>Emissions trading systems are supposed to speed up decarbonisation, but they are not yet capable of doing so in practice.Steffen Böhm, Professor in Organisation & Sustainability, University of ExeterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1614632021-05-25T13:37:38Z2021-05-25T13:37:38ZNew EU carbon tax: wrong rate could wreck net-zero goals – but right rate can help world’s poor<figure><img src="https://images.theconversation.com/files/402581/original/file-20210525-21-1cvu5ka.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Factories like this one in Serbia will have to pay carbon duties to export to EU in future. </span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/DqF_3g6lZak">Árpád Kiss</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The European Commission is holding <a href="https://www.ft.com/content/17e157b2-21ea-4e22-9278-35f157046e85">a meeting</a> in June that is, on the face of it, very boring. The EU’s senior bureaucrats will be considering at what level to set a tax on carbon emissions for goods imported into the bloc. </p>
<p>Yet the consequences will be pivotal – both to the future of the EU’s world-leading system for managing corporate carbon emissions, and for how this market develops around the world. It’s therefore an absolutely vital part of the battle for net zero global emissions. </p>
<p>Let’s first understand what has prompted the tax. Within the EU, carbon emissions are governed by a cap-and-trade system: a cap is set on the total amount of carbon emissions that can be emitted, and power providers and other firms each get an allowance for how much they can emit themselves. </p>
<p>If their pollution exceeds their permit allowance, they must buy more permits on an open market. Crucially, if they pollute less than their permit allowance, they can sell their unused permits to other firms. The upshot is that firms earn more if they pollute less – a win-win. </p>
<p>Economists love the <a href="https://ec.europa.eu/clima/policies/ets_en">European Trading System (ETS)</a> for this reason. Increasingly the market does too. <a href="https://www.ft.com/content/2b965427-4fbc-4f2a-a14f-3be6019f0a7c">With speculators betting</a> that the days of unrestricted carbon emissions are coming to end, ETS permit prices have doubled since the start of the pandemic. </p>
<p><strong>ETS carbon price</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="EU carbon price chart" src="https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=346&fit=crop&dpr=1 600w, https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=346&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=346&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=434&fit=crop&dpr=1 754w, https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=434&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/402363/original/file-20210524-19-lh3she.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=434&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://uk.tradingview.com/chart/UajHAaVc/">Trading View</a></span>
</figcaption>
</figure>
<p>To a large extent, this price hike has been a good thing. It makes it more costly for firms to pollute and so ramps up their incentive to green their production processes. The only problem is that producers outside the EU are not required to pay for their pollution with permits. As permit prices rise, these competitors are becoming relatively less expensive and taking market share from their EU rivals. </p>
<p>To level the playing field, EU industries are in the <a href="https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.ft.com%2Fcontent%2F17e157b2-21ea-4e22-9278-35f157046e85&data=04%7C01%7Cdavid.comerford%40stir.ac.uk%7C244449b343694067fc9608d911655ad3%7C4e8d09f7cc794ccb9149a4238dd17422%7C0%7C0%7C637559950343987939%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=Jeonuem6swuGlLc2N3tU8A6sy1S8PhIFV%2F7L8F7FjEk%3D&reserved=0">unusual position</a> of lobbying Brussels to impose a new tax – in this case on the carbon emissions of goods being imported into the bloc. Yet in the teeth of this high-stakes negotiation, several possible outcomes could actually make the situation with carbon emissions much worse than it is already. </p>
<h2>Scenario #1: ETS implosion</h2>
<p>The worst-case scenario is that the EU sets the tax too low. This could happen because the best outcome for any given EU country is to protect its own industry while not damaging its preferred trading partners outside of the EU. Because each EU member state has different industries and different preferred trading partners, horse-trading is likely to bid the border tax lower. In this case, pollution-intensive industries within the EU would continue to face higher costs relative to their overseas competitors.</p>
<p>This could lead to the ETS being undermined in one of several ways. EU industries might use their political clout to lobby for the ETS rules to be relaxed, for example by creating exemptions. Or firms might simply breach their emissions allowances. The European Commission has a <a href="https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Flink.springer.com%2Farticle%2F10.1057%2Fcep.2015.8&data=04%7C01%7Cdavid.comerford%40stir.ac.uk%7C244449b343694067fc9608d911655ad3%7C4e8d09f7cc794ccb9149a4238dd17422%7C0%7C0%7C637559950343997957%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=d%2BE90Fex4XNjQM91IKKAUeDpNlf2gWyPzlSFqbzFSNs%3D&reserved=0">patchy track record</a> for collecting on fines and, again for reasons of political clout, national governments might side with industry against the EU (<a href="https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.independent.co.uk%2Fnews%2Fbusiness%2Fnews%2Feu-takes-ireland-court-15-billion-dollars-fine-apple-back-taxes-latest-european-court-justice-a7982211.html&data=04%7C01%7Cdavid.comerford%40stir.ac.uk%7C244449b343694067fc9608d911655ad3%7C4e8d09f7cc794ccb9149a4238dd17422%7C0%7C0%7C637559950343997957%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=PnDWMJTjZi%2BtEJbqDefbXoksCPSFMXs6DmFgGUO%2BVXM%3D&reserved=0">which happens</a> from <a href="https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-03/cp200029en.pdf">time to time</a>). If both these things happen, it could effectively dismantle the ETS, returning us to a world of rising carbon emissions and global climate disaster. </p>
<p>Thankfully, a couple of factors make these outcomes unlikely. One is that Europe’s biggest trading partners are sympathetic to the cause. China already has its own <a href="https://www.forbes.com/sites/scottcarpenter/2021/03/02/toothless-at-first-chinas-carbon-market-could-be-fearsome/#:%7E:text=China%20has%20no%20carbon%20tax,buildout%20of%20renewable%20energy%20infrastructure.&text=Under%20the%20scheme's%20initial%20rollout,period%20from%202019%20to%202020.">carbon emissions scheme</a> and the Biden administration has signalled a commitment to <a href="https://www.politico.com/news/2021/04/22/biden-climate-goal-congress-484141">making deep cuts</a> to US carbon emissions. </p>
<p>But more importantly, the ETS has an in-built release valve. If the scheme makes it too expensive for a firm to produce within the EU, it can shift production overseas. It then ceases to need ETS permits and releases it stock of permits on to the market. Demand reduces, supply increases and the price of permits falls. This might help keep the system intact, but emissions would rise in the meantime. </p>
<h2>Scenario #2: widening global inequality</h2>
<p>A way to get around the horse-trading is for the EU to pre-commit that no external country will get special treatment. That entails a higher tax rate that reduces the risk of the ETS imploding, but there is a cost that would reveal itself over decades: the tax would disproportionately hit economies that rely on heavy industry. </p>
<p>Countries like Canada that have plenty of (clean) white-collar jobs would be hit less hard than middle-income countries like India, for instance. And more worrisome than the initial hit would be the consequences for business opportunities: a high tax would create opportunities for innovators in green energy. </p>
<p>This might sound like a great thing, but these people – and the tools they require to do their research – are disproportionately located in the developed world. This points to a dystopian future of increasing north/south and white collar/blue collar divergence.</p>
<h2>Scenario #3: a better world for all</h2>
<p>The European Commission therefore faces two risks here: climate disaster from setting the tax too low, and greater global inequality if the rate is too high. The sweet spot is to set a border tax rate such that the worst-off countries get a break and the best-off countries fully pay their dues. So what would that look like?</p>
<p>One opportunity open to the European Commission is to tax imports in proportion to some reliable metric of development. So imports from countries like New Zealand would be taxed as though they were produced in the EU whereas concessions would be made for those coming from countries with, say, low life expectancy or high levels of poverty. That outcome would build on the promise of the ETS as a means to reduce global carbon emissions and would also rebalance global development.</p><img src="https://counter.theconversation.com/content/161463/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Comerford receives funding from UKRI for survey research in relation to the Covid-19 pandemic. </span></em></p>In setting new tax on the carbon emissions of goods being imported into the bloc, there are two potential disasters for EU to avoid.David Comerford, Senior Lecturer of Economics and Behavioural Science, University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1515762020-12-31T20:19:58Z2020-12-31T20:19:58ZCabinet papers 2000: the Coalition before climate denialism, but on the path to offshore detention<figure><img src="https://images.theconversation.com/files/376059/original/file-20201220-15-jsysuy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>Australian Cabinet papers from 2000, released today, reflect a relatively quiescent Australia where Islamic militancy and offshore detention were barely glimpses on the horizon, and climate science denialism was not a factor in cabinet considerations at all. </p>
<p>It was the year before the “<a href="https://insidestory.org.au/the-year-of-living-anxiously/">year that changed everything</a>”: 2001, when <a href="https://www.reuters.com/news/picture/defining-images-from-the-9-11-attacks-idUSRTS2Q0UX">Al-Qaeda attacked the United States on September 11</a>, and the Howard government created its “<a href="https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/pubs/bn/2012-2013/pacificsolution">Pacific Solution</a>” asylum-seeker deterrent. They would both become prisms through which Australian politics would be refracted for many years to come.</p>
<p>In contrast, in 2000, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=ZD4">John Howard</a> (prime minister 1996-2007) later mused, “we had no conception of the challenges which would engulf the world in the next few years”.</p>
<p>The government’s concerns half-way through its second term, with a 14-seat majority, were overwhelmingly domestic. The approach to global issues mostly prioritised local implications over international obligations. </p>
<h2>Minchin throws a stick in the wheel of an ETS</h2>
<p>On climate change, the papers reveal a working consensus among cabinet ministers, with one exception, that an emissions trading scheme (ETS) was not only a possible but a likely route by which Australia would eventually fulfil its international environmental obligations.</p>
<p>The market-based nature and sectoral neutrality of an ETS made it the quality choice, cabinet submissions and departmental co-ordination comments make clear. The papers show early work being done on an ETS within the government. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=513&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=513&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=513&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=645&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=645&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=645&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Senator Nick Minchin stood alone in his objection to an ETS to tackle climate change.</span>
<span class="attribution"><span class="source">Alan Porritt/AAP</span></span>
</figcaption>
</figure>
<p>Industry and Resources Minister Nick Minchin stood out against the ETS consensus. Advocating a massive expansion of the gas industry, Minchin pushed for compensation for carbon-intensive industries so large and across so many sectors that it would have massively blunted an ETS’s impact. This drew sharp adverse comments from across the key departments. </p>
<p>Treasurer Peter Costello and his department supported expansion of the gas industry, but drew the line at Minchin’s proposed emasculation of a future ETS. Costello would unsuccessfully bring an ETS proposal to cabinet three years later, in 2003. Howard announced one in the lead-up the 2007 election. </p>
<p>So the 2000 papers contain foundational documents at the heart of this policy arc. They show Minchin as central in swerving cabinet from its consensus ETS support in 2000, to hostility by the time he helped install Tony Abbott as Liberal opposition leader in 2009.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bushfires-wont-change-climate-policy-overnight-but-morrison-can-shift-the-coalition-without-losing-face-129354">Bushfires won't change climate policy overnight. But Morrison can shift the Coalition without losing face</a>
</strong>
</em>
</p>
<hr>
<h2>The GST takes flight</h2>
<p>Costello’s implementation of the <a href="https://treasury.gov.au/sites/default/files/2019-03/Whitepaper.pdf">goods and services tax (GST)</a> was the centre of heavy cabinet deliberations ahead of its implementation on July 1 2000.</p>
<p>It was the culmination of a textbook exercise in conceiving, publicly advocating for and then successfully implementing a major, complex public policy – an object lesson for governments today. </p>
<p>It begs the question whether, had the Coalition won the 2007 election, an ETS might now be an unremarked-upon aspect of public finance in Australia too, just like the once controversial GST.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/S-DrA4gnuFA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Rural and regional Australia was a major focus, with cabinet submissions generally including rural impact statements. </p>
<p>Howard benefited from a congenial relationship with the National Party leader and deputy prime minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=4K4">John Anderson</a>. </p>
<p>Anderson was the best-educated Nationals leader since <a href="http://adb.anu.edu.au/biography/page-sir-earle-christmas-7941">Earle Page</a>. He was aligned with the National Farmers Federation (NFF) push for market-oriented policy over the old Country Party “deal-making” policy style, to which the Nationals later reverted. </p>
<p>Howard could count on Anderson’s support in cabinet. In exchange, Anderson ran a massive infrastructure program bringing concrete benefits to the bush and regions and kept its voters welded to the Coalition.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Howard had a strong relationship with Nationals leader John Anderson (right), which offered advantages to both men.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cabinet-papers-1998-99-how-the-gst-became-unstoppable-128844">Cabinet papers 1998-99: how the GST became unstoppable</a>
</strong>
</em>
</p>
<hr>
<h2>On many issues, little has changed in 20 years</h2>
<p>Women are barely mentioned in the papers and were almost non-existent in Howard government decision-making. There was only one woman in the 17 strong cabinet: the family and community services minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=BE4">Senator Jocelyn Newman</a>. </p>
<p>In the outer ministry, the aged care minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=SE4">Bronwyn Bishop</a>, came under pressure when it emerged <a href="https://www.theage.com.au/national/kerosene-bath-nurses-banned-20020329-gdu35d.html">residents at Riverside Home in Melbourne were being subjected to kerosene baths</a>, with lethal consequences. Problems in other aged care homes quickly emerged.</p>
<p>Bishop’s cabinet submission in the wake of the crisis trumpeted the government’s Aged Care Act 1997 as “the basis for a sound and sustainable aged care system” and “the most significant change for the industry in its history”.</p>
<p>There was no need to restore nursing ratios, she argued. A “return to ratios would return the industry to detailed input regulation and reduce its efficiency” the submission, which cabinet backed, said.</p>
<p>Indigenous Australians are little mentioned other than in relation to workforce disadvantage and the Northern Territory’s move to mandatory detention for minors.</p>
<p>Cabinet supported only a fraction of the assistance requested by Aboriginal and Torres Strait Islander Affairs Minister <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=VW4">John Herron</a> to address deep and worsening Indigenous unemployment.</p>
<p>The government decided not to override the NT government’s mandatory detention move. Instead, it asked Attorney-General <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=7V5">Daryl Williams</a> to write to his NT counterpart about its concerns. A week later, cabinet was outraged when it found a United Nations committee investigating potential human rights breaches in Australia against Indigenous citizens, without consultation.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Indigenous Australians receive little mention in the 2000 cabinet papers.</span>
<span class="attribution"><span class="source">AAP/Marianna Massey</span></span>
</figcaption>
</figure>
<p>What the 2000 cabinet papers reveal concerning the growing issue of unauthorised boat arrivals in Australia, and in particular the “deterrent” approach Immigration and Multicultural Affairs Minister <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=0J4">Philip Ruddock</a> recommended, and cabinet adopted, is historically significant. </p>
<p>They show a government under increasing pressure and moving quickly down a particular path. Departmental comments show this rang increasingly loud alarm bells in the major departments, even as they broadly supported the “deterrent” approach. </p>
<p>There are, and likely always will be, different opinions about the deterrent strategy, and public discussion usually turns on the binary question of whether it was right or wrong.</p>
<p>The 2000 papers are important, not least because they open up critical additional questions, even for its supporters, about whether this strategy could have been implemented differently and better.</p>
<p>Anglosphere politics had begun to make a particular kind of shift to the right, and the Howard government was in the vanguard. It was still relatively early days in that shift, as the fact the government had a cabinet position that included “multicultural affairs” in its title attests.</p>
<p>To put this shift into international context, media mogul Rupert Murdoch would not appoint Roger Ailes CEO of his Fox News channel in the United States until the following year.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1019&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1019&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1019&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1280&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1280&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1280&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pauline Hanson’s arrival in Canberra in 1996 marked a shift to explicitly nativist politics in Australia.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>Australia’s insurgency of explicitly nativist politics was marked by the arrival in Canberra in 1996 of One Nation’s <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=BK6">Pauline Hanson</a> as the member for Oxley. Internationally, this wave may have peaked in the election of another nativist redhead, US President Donald Trump, 20 years later. </p>
<p>The fierce conduct of the “<a href="https://www.evatt.org.au/post/the-history-wars">history wars</a>” in Australia from the 1990s, the prominent role of <a href="https://theconversation.com/with-friends-like-these-just-how-close-are-the-liberal-party-and-ipa-60442">conservative think tanks</a> in it, and the early challenge and ongoing political consequences of unauthorised boat arrivals in Australia – which has only relatively recently emerged as an issue in Europe – make Australia an early example of a phenomenon that shifted mainstream conservative politics to a distinctly different place from that occupied before.</p>
<p>In 2000, elements of it were evident but not yet fully activated. The following year, from September 11, they would be supercharged.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/pauline-hanson-built-a-political-career-on-white-victimhood-and-brought-far-right-rhetoric-to-the-mainstream-134661">Pauline Hanson built a political career on white victimhood and brought far-right rhetoric to the mainstream</a>
</strong>
</em>
</p>
<hr>
<p><em>Chris Wallace is the official historian for the 2000-2001 cabinet papers release from the National Archives of Australia. You can read her full essay on the 2000 papers <a href="https://www.naa.gov.au/explore-collection/cabinet/latest-cabinet-release">here</a>.</em></p><img src="https://counter.theconversation.com/content/151576/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Wallace has received funding from the Australian Research Council. </span></em></p>In the Howard government, there was near-consensus in Cabinet that an ETS was eventually likely. A spike in asylum-seeker arrivals stimulated the hard “deterrent’ strategy” that would morph into the “Pacific Solution” in 2001.Chris Wallace, Associate Professor, 50/50 By 2030 Foundation, Faculty of Business Government & Law, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669442016-10-24T08:21:02Z2016-10-24T08:21:02ZHow to reverse the dangerous decline in low-carbon innovation<figure><img src="https://images.theconversation.com/files/142521/original/image-20161020-8828-15oeesq.jpg?ixlib=rb-1.1.0&rect=72%2C134%2C912%2C499&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/bciccotelli/5582235986/in/photolist-9vhqh3-sg2T25-qZniPx-62LB1J-667YEk-nE9D5W-223ywm-5t5L5w-nWsPYq-agMffm-83A3A9-4R3Qnr-HYu7G-57PnPw-5LJ72q-57PojL-4XS2Lm-aNUZ8X-612ve4-9mf6P-tMzw-wK439-4Evdwx-CYMQE-4Rmdjo-2e48X8-3X5rTs-zaaX9-dqGrp-wu5dG-4kJ4km-4pnqx1-3bNFEK-aL9h2t-dNAYQ4-5DXTaX-8X8hi-5rFTuS-47cdVE-4x33j5-7y8s8T-dCRWyV-67raEh-aVHcxi-nPA5bv-4HCpLz-3bNGc4-Bi4Zf-Hf1cyd-7C8igp">Brett Ciccotelli/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>The <a href="https://theconversation.com/the-paris-climate-agreement-the-real-work-starts-now-52264">Paris Agreement goal</a> to limit global warming to less than 2°C at the end of the 21st century demands that we sharply reduce global greenhouse gas emissions, reaching <a href="http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_summary-for-policymakers.pdf">near zero in less than 100 years</a>. Achieving this long-term decarbonisation while sustaining economic growth requires massive investment in innovation across existing and potential low-carbon technologies. So why is activity slowing down just when we need it most?</p>
<p>We can measure the pace and progress of low-carbon innovation by looking at global <a href="https://worldwide.espacenet.com/classification?locale=en_EP#!/CPC=Y02">patenting activity in related technologies</a>. Growth here could reflect general growth of patenting in all technologies, and so the chart below indicates low-carbon inventions as a share of inventions in all technology areas.</p>
<p>We can see rapid growth in the number of green patents filed over the last 30 years and particularly since 2005. Between 2000 and 2013, the number of new climate-mitigation inventions patented globally grew at an annual rate of almost 10%, more than double the rate of innovation in all technologies. However, low-carbon innovation efforts have started to slow since 2013.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=459&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=459&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=459&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142174/original/image-20161018-16145-b1ibfz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Author's calculations from the European Patent Office's Global Patent Statistical Database.</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Priced out?</h2>
<p>One of the main drivers of low-carbon innovation is the price of energy. It is clear from our chart above that innovation efforts in low-carbon technologies go hand-in-hand with the price of oil, which is strongly correlated with the price of coal and gas, the two other major fossil fuels. Correlation, of course, is not necessarily causation, but there <a href="http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2016/01/Dechezlepretre-et-al-policy-brief-Jan-2016.pdf">is ample evidence</a> that inventors react to higher energy prices by developing energy-saving (and hence carbon-saving) technologies. </p>
<p>We suspect, therefore, that the recent decline in low-carbon innovation is a direct consequence of the <a href="http://www.macrotrends.net/1369/crude-oil-price-history-chart">collapse in oil prices</a> from US$110 a barrel in August 2013 to US$51 this month, which makes the value of future energy savings smaller.</p>
<p>Low-carbon innovation also responds to the price that carbon emitters pay on their carbon emissions. When carbon can be emitted without cost – despite the damage created through increased climate change – companies and consumers lack incentives to invest in emissions‐reducing technologies. Without appropriate policy interventions, the market for technologies that reduce emissions will then be limited. </p>
<h2>Ebb and flow</h2>
<p>By making carbon emissions costly, climate policies such as carbon taxes or emissions allowances encourage the development of new low-carbon technologies. Research and development is motivated by profit, after all. </p>
<p><a href="http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00470#.WAieAZOLTOZ">A recent paper</a> demonstrates this very clearly. The <a href="http://ec.europa.eu/clima/policies/ets/index_en.htm">European Union carbon market</a>) (EU ETS) obliges 12,000 industrial facilities to purchase allowances to cover carbon emissions. The chart below shows how this has increased innovation activity in low-carbon technologies among regulated companies. The chart plots the low-carbon patenting activity of firms regulated under the EU ETS against that of a carefully selected control group of unregulated but similar firms.</p>
<p>Both groups showed similar innovation activity before the introduction of the EU ETS, but companies facing a price on their carbon emissions from 2005 reacted by filing 30% more patents in low-carbon technologies, particularly in renewable energy, energy storage, energy efficiency and carbon sequestration.</p>
<p>Interestingly, the effect on innovation occurred when the price of carbon on the market was about €30/tonne CO<sub>2</sub> and when firms expected prices to remain at a high level in the foreseeable future. Since expectations over future prices are what determine innovation, long-term regulatory consistency is crucial. <a href="https://www.mcc-berlin.net/en/media/press-information/press-release-detail/article/carbon-price-drop-recession-innocent.html">Recent evidence suggests</a> that up to 90% of the recent fall in EU ETS carbon prices <a href="https://www.eex.com/en/market-data/environmental-markets/spot-market/european-emission-allowances">to about €6 a tonne</a> could be explained by the uncertainty about the level of ambition around long-term climate targets. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=427&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=427&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=427&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=537&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=537&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142185/original/image-20161018-15096-1jcbsg5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=537&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Calel & Dechezleprêtre 2016</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>So a sufficiently high and stable carbon price encourages the development of low-carbon technologies. However, recent <a href="http://dx.doi.org/10.1787/9789264260115-en">analysis by the OECD</a> shows that the price of carbon emissions globally is still extremely low. Among the 41 OECD and G20 countries surveyed (accounting for 80% of all energy use and carbon emissions worldwide), some 70% of emissions are not priced at all and only 4% are subject to a carbon price above €30, a conservative <a href="http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/06/Working-Paper-159-Dietz-and-Stern-20141.pdf">estimate of the damage</a> that results from emitting one tonne of carbon dioxide. </p>
<p>A consequence of our analysis is that higher and more stable carbon prices than observed today are a necessary condition to restart the <a href="http://bruegel.org/2009/11/cold-start-for-the-green-innovation-machine/">low-carbon innovation machine</a>. This is particularly important given that the other major driver of low-carbon technology development – the price of fossil fuels – is both at a historical low and volatile. Agreeing on a single internationally <a href="http://www.journals.uchicago.edu/doi/abs/10.1086/676039">binding minimum carbon price</a>, or establishing a price band <a href="http://energypost.eu/eu-emissions-trading-scheme-can-saved-price-band/">for CO<sub>2</sub> emission rights</a> in existing carbon markets would offer the kind of stability that innovators are currently lacking.</p>
<h2>Funding</h2>
<p>As with all innovation, it is usually impossible for inventors of low-carbon products to capture all the benefits of their innovations. Smartphone makers were all able to copy Apple’s iPhone idea even if they couldn’t copy the device itself. This low appropriation of the returns from innovation leads to under-investment in R&D. This is particularly <a href="http://www.lse.ac.uk/GranthamInstitute/publication/knowledge-spillovers-from-clean-and-dirty-technologies-a-patent-citation-analysis-working-paper-135/">the case in clean technologies</a>.</p>
<p>Overcoming this requires innovation policies such as public funding for basic research, subsidies for private R&D, better access to finance, funding for demonstration projects, technology accelerators and incubators, and support for commercial deployment of early-stage technologies, for example feed-in tariffs that subsidise electricity produced from renewables. </p>
<p>During the Paris talks, 20 countries from across the developed and developing world promised to <a href="http://mission-innovation.net/">double their clean energy R&D investment</a> over five years. This is welcome, and now needs to materialise. </p>
<p>However, technology support policies on their own are irrelevant. If no carbon pricing is in place to create a market demand for things like carbon capture and storage (CCS), then no R&D will be conducted even with large subsidies in place. In 2009 the European Commission implemented a programme which dedicated €1 billion <a href="http://ec.europa.eu/energy/eepr/projects/">to co-finance projects</a> in CCS, but all publicly supported projects have <a href="http://www.cam.ac.uk/research/news/global-learning-is-needed-to-save-carbon-capture-and-storage-from-being-abandoned">since been abandoned</a> because of the low carbon price on the market. </p>
<p>Meeting the commitment made in the Paris Agreement will require all countries to adopt low-carbon alternative technologies in all their sectors. Greater public funding for low-carbon R&D and higher and stable carbon pricing mechanisms are essential to achieve this. With <a href="http://sdg.iisd.org/events/unfccc-cop-22/">all eyes now on COP22</a>, it is to be hoped that events in Marrakesh can offer a greater commitment to low-carbon innovation as a central part of the way forward.</p>
<p><em>This piece is co-published with the World Economic Forum as part of its Final Frontier series. <a href="https://www.weforum.org/focus/agenda-in-focus-the-final-frontier?delete_local=36">You can read more here</a>.</em></p><img src="https://counter.theconversation.com/content/66944/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Antoine Dechezleprêtre acknowledges funding from the Grantham Foundation for the Protection of the Environment, and from the UK Economic and Social Research Council through the Centre for Climate Change Economics and Policy. He has previously received funding from the European Investment Bank, the Swiss National Science Foundation, the Global Green Growth Institute, the French Ministry of Environment, the European Commission (FP7), INPI (Institut National de la Propriété Intellectuelle), and
ADEME (France’s Environmental Protection Agency).</span></em></p>New technologies that can help us to meet climate change targets are struggling to see the light of day. Incentives need to be fixed, and carbon pricing is at the heart of the matter.Antoine Dechezleprêtre, Associate Professorial Research Fellow, London School of Economics and Political ScienceLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/584962016-04-29T04:06:49Z2016-04-29T04:06:49ZPolicyCheck: Labor’s phased emissions trading scheme<p><em>Welcome to PolicyCheck, a new form of political coverage that aims to make better sense of policies launched by the major parties in the lead up to the 2016 election. Here, The Conversation’s academic experts look at the history of policies, whether they have been tried in Australia before, and how likely they are to succeed.</em></p>
<hr>
<p>Labor has announced a <a href="http://www.laborsclimatechangeactionplan.org.au/">six point climate change strategy</a>, aimed at increasing renewable energy use, improving energy efficiency and transitioning away from old and inefficient coal power stations. </p>
<p>The policy includes a plan to reintroduce an <a href="https://theconversation.com/labor-unveils-phased-emissions-trading-scheme-58458">emissions trading scheme</a> for large emitters (over 25,000 tonnes annually), introduced over two phases.</p>
<h2>How would it work?</h2>
<p>Labor’s policy documents says that:</p>
<blockquote>
<p>Phase one of the ETS will operate for two years, from 1 July 2018 until 30 June 2020 to align with the second (and final) commitment period of the Kyoto Protocol;</p>
<p>Phase two of the ETS will operate from 1 July 2020. Pollution levels will be capped and reduced over the course of the decade in line with Australia’s international commitments under the Paris agreement;</p>
<p>The broader ETS does not apply to the electricity sector (see separate <a href="http://www.laborsclimatechangeactionplan.org.au/#policy-point-2">fact sheet on Cleaner Power Generation</a>); and</p>
<p>The scheme will allow business to work out the cheapest and most effective way to operate and will not involve taxpayers handing over billions of dollars to Australia’s large polluters.</p>
</blockquote>
<p>Fairfax <a href="http://www.smh.com.au/environment/climate-change/labor-would-introduce-carbon-market-pledge-deeper-carbon-cuts-if-elected-20160426-gofaxb.html#ixzz470Gdu9qL">reported</a> that </p>
<blockquote>
<p>The cost up until 2020 would be about 3 cents per tonne of carbon for those industries exposed to foreign competition. For other firms, that cost will be about 30 cents a tonne.</p>
</blockquote>
<p>The scheme design beyond 2020 would be worked out in the future, but would focus on meeting Australia’s international commitments.</p>
<p>A <a href="https://theconversation.com/labor-unveils-phased-emissions-trading-scheme-58458">separate scheme</a> for energy generators would start from 2018. </p>
<h2>What’s the history behind the proposed scheme?</h2>
<p>Climate policy has been a hot topic in Australian politics for over 25 years.</p>
<p>The <a href="https://theconversation.com/from-hawke-to-shorten-the-alps-vexed-history-with-the-carbon-tax-19654">Hawke government made a conditional commitment</a> in 1992 to cut carbon emissions. In the mid-1990s, industry staved off a carbon pricing scheme under the Keating government by committing to a voluntary <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Completed_inquiries/1999-02/gobalwarm/report/c08a">Greenhouse Challenge</a> program.</p>
<p>John Howard’s 1997 pre-Kyoto Protocol statement, <a href="http://pmtranscripts.dpmc.gov.au/release/transcript-10595">Safeguarding the Future</a>, mapped out a number of response measures, intended to underpin Australia’s efforts to gain an easy target under the Kyoto Protocol. </p>
<p>Indeed, Australia got a Kyoto target of 8% above its 1990 emissions level, while the overall developed country goal was a 5% cut.</p>
<p>The <a href="http://www.eldis.org/go/home&id=7953&type=Organisation#.VyBhFiN94sl">Australian Greenhouse Office,</a> set up after the Kyoto meeting, produced numerous reports and discussion papers exploring climate policy options, including various options for pricing emissions. </p>
<p>Former Prime Minister John Howard grudgingly <a href="http://www.abc.net.au/lateline/content/2007/s1940472.htm">proposed a cap and trade plan in 2007</a> on advice from senior bureaucrat Peter Shergold.</p>
<p>That scheme was meant to be up and running by about 2011, but plans were cut short by election of Labor’s Kevin Rudd as prime minister in 2007.</p>
<p>Rudd promised a strong commitment to climate action, and under his leadership, the Carbon Pollution Reduction Scheme was developed (it was basically an ETS). In 2010, today’s prime minister Malcolm Turnbull also preferred an ETS, even <a href="http://www.smh.com.au/environment/climate-change/turnbull-crosses-floor-to-vote-with-labor-20100211-nts2.html">crossing the floor</a> to support it. </p>
<p>This scheme was eventually rejected by the parliament because the Greens and many others considered it was too compromised to be effective. This was the <a href="https://theconversation.com/the-latest-turn-in-the-twisty-history-of-labors-climate-policies-44764">beginning of the shambles</a> that has surrounded Australian climate policy in recent years.</p>
<p>Julia Gillard replaced Rudd as Labor leader in the mid-2010 and worked closely with the Greens and other cross-benchers to develop the <a href="https://theconversation.com/a-clean-energy-future-whats-in-it-for-the-land-2278">Clean Energy Future</a> package. Part of that package was a plan to put a price on carbon.</p>
<p>The <a href="https://theconversation.com/the-carbon-tax-the-experts-respond-2254">plan</a> was to transition into a market-based emissions trading scheme in 2015, but the so-called carbon tax was axed by the Abbott government in 2014 (despite <a href="https://theconversation.com/one-year-on-from-the-carbon-price-experiment-the-rebound-in-emissions-is-clear-44782">evidence</a> it was effective in reducing emissions).</p>
<p>Australia’s present <a href="https://theconversation.com/au/topics/direct-action-plan">Direct Action</a> policy has as its centrepiece the Emission Reduction Fund, which uses taxpayer funds to support a very limited number of emission reduction actions through an auction process.</p>
<p>The associated “safeguards” mechanism is yet to be finalised, but provides a <a href="https://theconversation.com/direct-action-could-deliver-a-useful-outcome-carbon-trading-33736">possible basis</a> for a future emissions trading scheme.</p>
<h2>How is Labor’s “phased” ETS different to what they previously proposed?</h2>
<p>Separating the electricity industry from the broader ETS allows transition to be managed more delicately, and reduces risk of criticism over the impact on electricity prices.</p>
<p>It will involve much lower carbon prices that will be more closely linked to international carbon prices. This leaves Labor open to criticism from many economists and advocates, who take the view that a much higher carbon price is an essential element of an effective climate response. </p>
<p>The low carbon price expected, and the heavy reliance on international permits will severely limit the amount of revenue from carbon pricing for some years. This denies the government a potential revenue source to fund other climate action. </p>
<h2>Why has this issue been so fraught in the past?</h2>
<p>Climate policy has been <a href="https://theconversation.com/direct-action-vs-carbon-pricing-we-can-have-it-all-20095">controversial</a> in Australia since the early 1990s. Powerful industry groups have lobbied since then to limit climate action, and the issue has been framed as the economy versus a future, uncertain environmental impact. </p>
<p>This conflict was amplified by the Coalition under Tony Abbott, both in opposition and in government. </p>
<p>The government has warned that Labor’s proposed plan will drastically increase electricity prices. However, such dire warnings rely on old modelling that has not factored in recent reductions in renewable electricity prices and improvements in energy efficiency.</p>
<p>The end of the resources boom has led many to realise that we need to diversify our economy. Conflicts over coal mining and coal seam gas, as well as big increases in electricity prices, have also challenged past acceptance of the benefits of fossil fuel industries.</p>
<p>Meanwhile, more frequent extreme climate events, coral bleaching and unusual weather patterns have reinforced concerns that climate is actually changing faster than expected.</p>
<h2>What will happen to Labor’s policy?</h2>
<p>The Labor proposal seems to address many of the political vulnerabilities of its previous policy. At the same time, it captures some of the present government’s agenda. </p>
<p>However, it will be seen as weak by many climate response advocates.</p>
<p>After the anti carbon tax campaign that helped bring Tony Abbott to power in 2013, it remains to be seen whether or not voters are ready to rein in emissions by making pollution a costly business. </p>
<p><em>Is there a policy you want us to check? Contact us at <a href="mailto:checkit@theconversation.edu.au">checkit@theconversation.edu.au</a>.</em></p><img src="https://counter.theconversation.com/content/58496/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Pears AM has carried out consulting work for many sustainable energy organisations and provides policy advice to a variety of organisations. At present he has no paid roles for such organisations. He is an honorary adviser to the Energy Efficiency Council, Climate Alliance and Alternative Technology Association</span></em></p>Labor has said it would introduce an emissions trading scheme for large emitters. PolicyCheck unpacks the detail and provenance of this proposed plan.Alan Pears, Senior Industry Fellow, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/522112015-12-14T02:15:21Z2015-12-14T02:15:21ZHow will carbon markets help the Paris climate agreement?<p>The <a href="http://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf">Paris Agreement</a> marks a historic turning point for global co-operation to address climate change.</p>
<p>For the first time, 195 countries committed to take action to limit the global temperature rise to “well below 2C”. Through the final tense hours of the negotiations, it was doubtful whether the provisions on carbon markets would survive, given the staunch opposition to them by certain Latin American countries.</p>
<p>To the contrary, the agreement clearly establishes a new international carbon market mechanism, despite there being no reference to the words “market mechanism” or “carbon market” in the agreement. </p>
<p>So what does the Paris agreement say on carbon markets? </p>
<h2>A new market mechanism</h2>
<p>While the agreement doesn’t mention “carbon markets”, it allows parties to pursue “co-operative approaches” and voluntarily use “international transferred mitigation outcomes” to help meet their reduction targets, while ensuring that transparency and the environmental integrity of the regime is maintained. </p>
<p><a href="http://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf">Article 6</a> of the agreement establishes a new mechanism to “contribute to the mitigation of greenhouse gas emissions and support sustainable development”. The mechanism allows for the participation of both the public and private sectors, and, significantly, it aims to deliver an overall reduction in global emissions. </p>
<p>It will operate under the “authority and guidance” of a body to be designated by countries who have signed the agreement, and the rules governing its operation will be developed by the technical group under the UN climate body (the UNFCCC), with the view to being adopted in the first meeting of the Parties, after the agreement enters into force.</p>
<p>Countries must agree to robust accounting rules and must not double count emissions reductions. This means emissions reductions achieved in a country through the mechanism cannot be counted by that country towards their own emission reduction target if another country has bought those emissions reductions.</p>
<h2>Learning from the past</h2>
<p>This is not the first time a climate agreement has created a new mechanism. The 1997 Kyoto Protocol established the <a href="http://unfccc.int/essential_background/kyoto_protocol/items/1678.php">Clean Development Mechanism</a> (CDM). </p>
<p>There are key differences between the CDM and the new mechanism. Notably, the new mechanism doesn’t contain any geographic restrictions. Emissions can be reduced in a developed or developing country and be bought by any other country.</p>
<p>This reflects the new dynamic in the Paris Agreement. There is no longer a formal distinction between the responsibility of developed and developing countries to cut. Indeed many developing countries have now made emissions reductions commitments. </p>
<p>The new mechanism is intended to go beyond a purely individual project-based offset mechanism like the CDM, and instead support new policies, activities and programs such as financial support to improve energy efficiency in the building sector of a country or to introduce and implement a renewable energy policy. It is also broad enough to support the linking of emissions trading schemes between parties. </p>
<p>Significantly, the new mechanism requires that it must result in an overall reduction in global emissions, rather than simply offsetting emissions. This was a contentious issue in the negotiations. There is no such requirement in the CDM. Time will tell how countries will implement the mechanism to ensure that this requirement is met. </p>
<h2>What now for international carbon markets?</h2>
<p>The call for a global carbon price was a central theme in the sidelines of the meeting, with business making loud calls for countries to introduce a carbon price and World Bank group president Jim Yong Kim <a href="http://www.climateactionprogramme.org/news/united_world_leaders_call_for_global_carbon_pricing">declaring</a> it was important to get momentum behind carbon pricing.</p>
<p>While much of the detail of the new mechanism is yet to be fleshed out, the framework sends a long-term signal to investors that all countries support the emergence of a global carbon market. It is inevitable that post 2020, we will see a range of inter-linked carbon markets develop.</p>
<p>International units or offsets are an increasingly controversial issue in the global fight against climate change. There is a risk that by using foreign emissions reductions countries could delay the task of decarbonising their own economies. </p>
<p>It is clear that to meet the 2°C or better goal, all major economies will need to make serious domestic emissions reduction cuts by implementing strong domestic policies that will transition away from reliance on fossil fuels. Offsets can play an important role in scaling up ambition and allowing businesses to meet their commitments at the least cost. But the country using them must simultaneously bring down their own domestic emissions.</p>
<p>Public finance alone cannot transition developing countries away from fossil fuels. The mobilisation of private sector finance through carbon markets could play an essential role in scaling up low emissions development, provided that clear accounting and monitoring, reporting and verification rules are established. </p>
<p>This is particularly the case if the new mechanism goes beyond single projects and supports the implementation of new policies and programs. </p>
<p>One of the key risks is that that supply of credits might initially outstrip demand, as only a handful of the countries that support using markets to meet their climate pledges are likely to be buyers, such as Canada, Japan, New Zealand, South Korea, Switzerland, Norway. Australia has until now ruled out using international credits, but after the conference environment minister Greg Hunt <a href="http://www.abc.net.au/radionational/programs/breakfast/greg-hunt-on-the-paris-climate-deal/7025102">stated</a> that Australia “probably will” use international credits to meet emissions reduction targets.</p>
<h2>Carbon markets in Australia</h2>
<p>As the Paris summit progressed, Australia softened its position on carbon markets.</p>
<p>In the second week, it signed a <a href="http://www.smh.com.au/environment/un-climate-conference/paris-un-climate-conference-2015-australian-government-suddenly-backs-carbon-markets-20151209-gljue4.html">declaration</a> developed by New Zealand to bolster support for carbon markets and commit to develop rules to govern a post-2020 carbon market. </p>
<p>Foreign Affairs Minister Julie Bishop <a href="http://www.smh.com.au/environment/un-climate-conference/paris-un-climate-conference-2015-australian-government-suddenly-backs-carbon-markets-20151209-gljue4.html">recognised</a> the importance of carbon markets. And at the conference, Greg Hunt reportedly referred to the <a href="https://www.environment.gov.au/climate-change/emissions-reduction-fund/about/safeguard-mechanism">Safeguard Mechanism</a> as a “baseline and credit” scheme. </p>
<p>Under the agreement national emissions reductions targets will be reviewed and ramped up, beginning in 2018. Australia should now consider how carbon markets could assist it to increase its existing 2030 target, in order to make a responsible contribution to stabilising temperatures at 2°C or below.</p><img src="https://counter.theconversation.com/content/52211/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katherine Lake does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite there being no reference to the words “market mechanism” or “carbon market” in the agreement, the agreement clearly establishes a new international carbon market mechanism.Katherine Lake, Research Associate at the Centre for Resources, Energy and Environmental Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442322015-06-27T14:00:00Z2015-06-27T14:00:00ZPolitics podcast: Mark Butler on climate change<p>Labor environment spokesman and new ALP federal president Mark Butler joins Michelle Grattan to talk about climate change, an ETS, the possibility of an early election, the ALP national conference and much more.</p><img src="https://counter.theconversation.com/content/44232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan talks to Labor environment spokesman Mark Butler about climate change, an ETS, the possibility of an early election, the ALP national conference and much more.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/337352014-11-06T19:26:02Z2014-11-06T19:26:02ZNo quick fix for overpopulation — let’s focus on climate<figure><img src="https://images.theconversation.com/files/63846/original/rq8zckfz-1415251041.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">By 2100 there could be 11 billion people on Earth, but there's no quick way to slow growth. </span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jamescridland/613445810">James Cridland/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The rise in population since 1900 has been so rapid that up to 14% of all humans that have ever lived are still alive today, according to recent <a href="http://www.pnas.org/content/early/2014/10/23/1410465111.abstract">research</a>. </p>
<p>Other research <a href="http://www.pnas.org/content/107/41/17521.short">shows</a> that slowing population growth could provide between 16% and 29% of emissions reductions necessary by 2050 to avoid the effects of dangerous climate change, concluding “reduced population growth could make a significant contribution to global emissions reductions”.</p>
<p>In a <a href="https://theconversation.com/how-family-planning-could-be-part-of-the-answer-to-climate-change-32667">previous article</a>, we argued that a decision to have children or not could be a vital part of climate policy, perhaps through a market-based mechanism similar to emissions trading. </p>
<p>But a new paper casts doubt on our ability to make any meaningful dent in population growth. </p>
<p><a href="https://theconversation.com/profiles/corey-bradshaw-9183">Corey Bradshaw </a> and <a href="https://theconversation.com/profiles/barry-w-brook-5743">Barry Brook</a> at the University of Adelaide argue in <em>Proceedings of the National Academy of Sciences</em> that the even a global one-child policy, or the catastrophic death of billions of people, would not slow population growth enough to reduce carbon emissions and resource use.</p>
<p>So, is it time to put market-based population control to bed? </p>
<h2>More kids, more carbon</h2>
<p>The UN <a href="http://blogs.ei.columbia.edu/2013/07/15/world-population-projected-to-cross-11-billion-threshold-in-2100/">forecasts</a> that by 2100 there may be 10.9 billion people on Earth. If families, on average, have half a child more than the UN projects, population could reach 16 billion by 2100.</p>
<p>If you have two children, your carbon legacy could be <a href="http://blog.oregonlive.com/environment_impact/2009/07/carbon%20legacy.pdf">forty times higher</a> than any savings you make. </p>
<p>Market-based mechanisms — emissions trading schemes — are ubiquitous around the world at the national, state or region and local levels to address the climate change problem, to mitigate the effects of climate change. </p>
<p>So it’s no surprise that some experts have drawn on them to solve the population problem.</p>
<h2>Emissions trading the policy of choice</h2>
<p>When it comes to mitigating the effects of climate change, the question is whether to rely on quantity-based or price-based instruments. </p>
<p>A quantity-based instrument is an ETS, the most common example of which is a cap-and-trade scheme — what the former Australian Carbon Pricing Mechanism would have become this year, for instance. A price-based instrument is a carbon tax. </p>
<p>An ETS is the instrument of choice around the world — for developed and developing states — to address the climate change problem. It is a market-based instrument under which limits are placed on the quantity of carbon that can be emitted. </p>
<p>There are two broad, alternative types of emissions trading schemes, “cap and trade” and “baseline and credit”. The latter model is not widely used.</p>
<p>Under the cap and trade model, the scheme sets a maximum quantity of emissions for a compliance period (a year, for example), across the whole sector to which the scheme applies. </p>
<p>Permits are issued by the scheme administrator totalling that cap. An emitter must obtain and surrender to the scheme administrator at the end of the compliance period a permit for each unit of its emissions during the compliance period. The initial issue of permits may be allocated free of charge or auctioned. </p>
<p>Cap and trade schemes <a href="http://www.ieta.org/worldscarbonmarkets">exist</a>, in one form or another, and in various stages in the European Union, India, China, Kazakhstan, South Korea (next year), New Zealand, California, Quebec (which links with the California ETS) nine US northeastern and mid-Atlantic states (the Regional Greenhouse Gas Initiative), and Tokyo.</p>
<p>An emissions trading scheme is the global climate change policy of choice.</p>
<h2>Procreation permits?</h2>
<p>There’s not much these days that money can’t buy. We live in a time when almost everything can be bought and sold. </p>
<p>As Michael Sandel, a professor of politics at Harvard University, <a href="http://www.theatlantic.com/magazine/archive/2012/04/what-isnt-for-sale/308902/">notes</a>: “the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life”. </p>
<p>You could argue that we live in a society where everything is up for sale.</p>
<p>Recently, <em>New York Times</em> reporter Andrew Revkin <a href="http://www.wilsoncenter.org/event/covering-climate-whats-population-got-to-do-it">asked</a> if it is far fetched for individuals to be compensated for having fewer or no children. </p>
<p>At a Wilson Center discussion in 2009, Revkin wondered whether the next step, in a world enamoured with carbon markets, would be carbon credits for avoided children:</p>
<blockquote>
<p>Should you get credit — if we’re going to become carbon-centric — for having a one-child family when you could have had two or three? And obviously it’s just a thought experiment, but… </p>
</blockquote>
<h2>A thought experiment</h2>
<p>Market-based population control is a thought experiment with its origins with the economist Kenneth Boulding in 1964. </p>
<p>Boulding <a href="http://www.worldcat.org/title/meaning-of-the-twentieth-century-the-great-transition/oclc/220724">proposed</a> a system of marketable procreation licenses as a way of dealing with overpopulation:</p>
<blockquote>
<p>I think … that a system of marketable licenses to have children is the only one which will combine the minimum of social control necessary to the solution to this problem with a maximum of individual liberty and ethical choice. Each girl on approaching maturity would be presented with a certificate which will entitle its owner to have a certain number of children.</p>
</blockquote>
<p>Boulding <a href="http://www.worldcat.org/title/meaning-of-the-twentieth-century-the-great-transition/oclc/220724">suggested</a> that a market would then be set up in these units “in which the rich … would purchase them from the poor, the mums, the maiden aunts, and so on”. Others <a href="http://books.google.com.au/books?id=acCzh69H1pIC&pg=PA208&lpg=PA208&dq=boulding+1970+tobin&source=bl&ots=0tK-1eAEpU&sig=x9uwqo6qmVPwRGLrsumCKiPFv2I&hl=en&sa=X&ei=8gZaVN6WN8a2mgX2h4KICA&ved=0CCkQ6AEwAg#v=onepage&q=boulding%201970%20tobin&f=false">assessed</a> Boulding’s proposal and proposed amendments. </p>
<p>The Boulding proposal was <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970294">revived</a> by two Belgian academics in 2006. They <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970294">pointed out</a> that, since the rich would likely buy procreation licenses from the poor, their scheme would have the further advantage of reducing inequality by giving the poor a new source of income. </p>
<p>And in 2007, Perth-based medical academic Barry Walters <a href="https://www.mja.com.au/journal/2007/187/11/personal-carbon-trading-potential-stealth-intervention-obesity-reduction">proposed</a> a “baby levy” in the form of a carbon tax in line with the “polluter pays” principle. Every family choosing to have more than a defined number of children should be charged a carbon tax that would fund the planting of enough trees to offset the carbon cost generated by a new human being. </p>
<p>Sandel <a href="http://www.amazon.com/What-Money-Cant-Buy-Markets/dp/0374533652/ref=sr_1_1?s=books&ie=UTF8&qid=1415186662&sr=1-1&keywords=sandel+what+money+can%27t+buy">argued</a>, however, in light of such proposals, that notwithstanding an argument that a market in children (or in the right to have them) might be efficient, “trafficking in the right to procreate promotes a mercenary attitude toward children that corrupts parenthood”. </p>
<h2>Is population control the solution?</h2>
<p>But all of this may be irrelevant in light of the <a href="http://www.pnas.org/content/early/2014/10/23/1410465111.abstract">important research</a> conducted by Bradshaw and Brook. Their research shows that: </p>
<blockquote>
<p>No matter what levers you pull, we have such a huge demographic momentum, there’s no way we can rein in the human population fast enough to address sustainability issues in the next century.</p>
</blockquote>
<p>Population growth trends for the rest of the 21<sup>st</sup> Century are “virtually locked-in” unless there are “extreme and rapid reductions in female fertility”.</p>
<p>Even a global one-child policy and the catastrophic death of several billion people, they argued, would not materially affect CO<sub>2</sub> emissions and resource use; the result would still be 5 to 10 billion people by 2100.</p>
<p>The authors of the research ultimately conclude that “there are no easy ways to change the broad trends of human population size this century”.</p>
<p>So, while market-based population control might encourage people to have fewer children, when it comes to addressing the twin problems of climate change and overpopulation it may be better to simply concentrate our trading schemes on climate change.</p><img src="https://counter.theconversation.com/content/33735/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Hodgkinson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The rise in population since 1900 has been so rapid that up to 14% of all humans that have ever lived are still alive today, according to recent research. Other research shows that slowing population growth…David Hodgkinson, Associate Professor, Law School, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/192902013-11-03T19:22:18Z2013-11-03T19:22:18ZCarbon tax showdown: the rocky road ahead for Abbott<figure><img src="https://images.theconversation.com/files/33894/original/cq99zqfx-1382924269.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Environment minister Greg Hunt and prime minister Tiny Abbott are keen to repeal the carbon tax as soon as parliament sits - but it may prove harder than they thought.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>The Coalition will introduce its <a href="http://www.environment.gov.au/carbon-tax-repeal/consultation.html">draft bill</a> to repeal the Clean Energy Act into parliament next week. The bill would effectively remove the current carbon tax and its planned replacement, an emissions trading scheme. </p>
<p>For prime minister Tony Abbott, this is a deliberately symbolic first act of parliament to set the direction for the years to come - much like Kevin Rudd’s symbolic gesture almost exactly six years earlier, when his first act as prime minister was to <a href="http://www.abc.net.au/news/2007-12-03/rudd-signs-kyoto-ratification-document/976234">ratify the Kyoto Protocol</a>. </p>
<p>Included in the repeal is <a href="http://www.afr.com/p/national/hunt_gives_orders_to_close_the_climate_CgtxRm0FxrV4O3ZD5K5H9L">the abolition</a> of the <a href="http://climatechangeauthority.gov.au/">Climate Change Authority</a>, which was the “outside of government” agency set up to advise on carbon pricing and climate change policy options, including <a href="http://www.abc.net.au/news/2013-10-30/climate-change-authority-emissions-trading-scheme/5057258">emissions reduction targets</a>.</p>
<p>In addition to the repeal, Abbott has also stated that within the first sitting fortnight of parliament, he will direct the finance department to prepare legislation to <a href="http://www.liberal.org.au/our-plan-abolish-carbon-tax">shut down</a> the Clean Energy Finance Corporation, the fund dedicated to <a href="http://www.abc.net.au/news/2013-11-01/labor-negative-political-climate-carbon-policy/5063658">investing A$10 billion</a> over five years in almost market-ready clean energy technologies. Set up under Labor, <a href="http://www.abc.net.au/news/2013-11-01/labor-negative-political-climate-carbon-policy/5063658">the fund has said it will continue working</a> on new investments, despite repeated requests from the Coalition, saying it is required by law to keep doing so.</p>
<p>Taking away the bluff and bother, what’s actually likely to happen? Are we likely to see a deal done on the carbon tax repeal in coming weeks, or are we headed for a <a href="https://theconversation.com/explainer-what-are-double-dissolutions-and-how-do-they-work-19236">double dissolution election</a>?</p>
<h2>No deal with Labor</h2>
<p>After putting out mixed messages about its position for most of last week, it now looks like Labor will stick to its pre-election position on carbon pricing.</p>
<p>Opposition leader Bill Shorten <a href="http://www.abc.net.au/news/2013-11-01/bill-shorten-says-labor-wants-carbon-tax-replaced-by-ets/5064352">announced</a> his frontbench had unanimously voted to oppose the government’s carbon tax repeal, unless it included a move to an emissions trading scheme as quickly as legally possible - on July 1, 2014. </p>
<p>Only with this amendment, along with an amendment not to abolish the Climate Change Authority - both of which run counter to the Abbott government’s policies - Labor said it would support the repeal. </p>
<p>With those conditions, Labor has hit the ball back into the Coalition’s court.</p>
<h2>Facing a new pup in the Senate</h2>
<p>Significantly, securing an amended repeal with Labor prior to July 1 next year - when the <a href="http://blogs.abc.net.au/antonygreen/2013/10/the-changing-party-composition-of-the-senate.html">new Senate</a> is sworn-in - could be of enormous benefit to Abbott. This would avoid an early showdown with Clive Palmer’s Palmer United Party (PUP). </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/33892/original/dtdsfxm4-1382924037.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The carbon tax repeal may be the first test for the Abbott government in dealing with Clive Palmer’s PUP.</span>
<span class="attribution"><span class="source">AAP/Paul Miller</span></span>
</figcaption>
</figure>
<p>Abbott knows Palmer holds the cards in the new Senate - something Palmer has gleefully stated that he <a href="https://theconversation.com/palmer-set-to-be-in-the-new-senates-driving-seat-19055">plans to exploit</a> for all it is worth. </p>
<p>For example, Palmer’s current position is an insistence on <a href="http://www.theaustralian.com.au/national-affairs/policy/pup-carbon-tax-support-to-cost-10bn/story-e6frg6xf-1226739247826">retrospective</a> carbon tax refunds for past years’ payments – such a request setting an impossible precedent that it could not be conceded.</p>
<h2>Deal or double dissolution?</h2>
<p>If Abbott wants to try and get more political mileage out of his “axe the tax” agenda by refusing to accept Labor’s amendments, he does have options. </p>
<p>Between now and July 1 next year, Labor and the Greens control the Senate, and neither of them plans to make it easy for the government to scrap a carbon price.</p>
<p>As reported last month, the carbon tax repeal legislation has been <a href="http://www.brw.com.au/p/business/carbon_tax_killer_legislation_contains_9NzxMQEBi0Gql4L7i524GK">deliberately designed</a> to give the Abbott government a trigger for a double dissolution election within 12 months. For that to happen, the same bill must be rejected by the Senate twice, with three months in between each rejection. </p>
<p>A double dissolution could backfire as a political stunt. If the Coalition manages to trigger one, they may win the carbon tax battle, but they could easily lose on a number of other fronts. </p>
<p><a href="https://theconversation.com/micro-parties-win-on-the-big-boys-rules-18027">Microparties</a> are likely to be the main winners from a double dissolution due to the lower quota required for election to the Senate - and increases in microparties are most likely to <a href="http://www.smh.com.au/comment/micro-parties-could-party-on-if-abbott-dissolves-the-problem-20130909-2tg4d.html#ixzz2jN9mhO4h">encroach into Coalition territory</a>. It would also be deeply unpopular with the Australian public, and legally it is likely to be challenged by the incoming senators.</p>
<p>Abbott, of course, is wise to this. However, there is another mire he needs to traverse. </p>
<p>If he decides to wait until the new, more Coalition-friendly Senate is sworn in from next July, it would force him to take on a whole other set of risks.</p>
<p>Without a repeal before a new financial year starts, savvy industries that are due for free <a href="http://www.sbs.com.au/news/article/2013/10/17/july-deadline-looms-carbon-tax-repeal">“permits to pollute”</a> will have traded them in for cash after just a few months. In one assessment, the price for straying into the new compliance year could cost the government around $3 billion.</p>
<p>Environment minister Greg Hunt <a href="http://www.smh.com.au/federal-politics/political-news/greg-hunts-plan-bypasses-senate-20131021-2vx6c.html">has alluded</a> to using his powers to change regulations in order to avoid that situation occurring. Given regulatory change doesn’t need to pass the Senate - it just needs not to be vetoed - it would be a brave senator who would allow their name to be associated with blocking legislation to permit large corporations to gain windfall profits.</p>
<p>All these areas of regulation are extremely complicated, unclear and untested. In reality, it seems that Abbott will have to make a deal with the devil in the form of either Labor or Palmer - so it looks like a case of who is prepared to blink first.</p><img src="https://counter.theconversation.com/content/19290/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Donna Green does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Coalition will introduce its draft bill to repeal the Clean Energy Act into parliament next week. The bill would effectively remove the current carbon tax and its planned replacement, an emissions…Donna Green, Senior lecturer and researcher at the Climate Change Research Centre (CCRC), UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/156212013-06-28T05:28:30Z2013-06-28T05:28:30ZSwitching carbon from fixed price to ETS: should Rudd do it?<figure><img src="https://images.theconversation.com/files/26414/original/3rnv8qsv-1372396798.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Reducing carbon pollution has bi-partisan support. It wouldn't hurt to re-open debate on the method.</span> <span class="attribution"><span class="source">takver/flickr</span></span></figcaption></figure><p>Carbon pricing has helped to destroy three political leaders - Malcolm Turnbull, Kevin Rudd and Julia Gillard - since 2009. Why would a re-minted Prime Minister Rudd want to touch such a poisoned chalice in the short time he has to recapture the hearts and minds of the Australian electorate? What are the economic and political risks of doing so?</p>
<p>Ratification of the Kyoto Protocol and the “Sorry” speech marked the high points of the Rudd Prime Ministership. When he baulked at taking the carbon pricing scheme through Parliament in 2010, Rudd lost many of the faithful who voted in the Labor Government in 2007. Having labelled climate change the “greatest moral, economic and environmental challenge of our time”, his fall was so much more damaging.</p>
<p>Many would say that Prime Minister Gillard’s tenure was doomed when she allowed the Opposition and the media to frame the fixed price of the emissions trading scheme as a carbon “tax”. What may have been a simple attempt to avoid being seen as pedantic over a definition proved to be a fatal own goal.</p>
<h2>The problems with a fixed price</h2>
<p>There have been three killer problems with the initial fixed price arrangement. One, it could be so easily labelled a tax – a problem at any time but worse when Gillard had ruled out a tax during the 2010 election campaign.</p>
<p>Two, in compensating low-income households by adjusting the tax system, the Government locked in the cost side of the ledger. Yet the revenue side is determined by the combination of the price and the volume of emissions. This is fine while the price is fixed, which it is for the first three years. It is not fine when the price is set by the emissions cap and by currently low international prices. Current expectations of the price for 2015-16 suggest there will be a hole in the budget worth many billions of dollars.</p>
<p>The third reason is that the current price of above $23 has never looked like being in line with international prices, most notably the European price. If it had turned out to be much lower, the Greens and others on the environmental advocacy side would have protested. Much higher, as it has turned out for now, and the business lobby and those opposed to emissions reduction in any form would have done the same.</p>
<h2>Reasons to switch quickly…</h2>
<p>There are three main arguments in 2013 for moving quickly from a fixed price to a market-priced mechanism with a fixed emissions cap. First, it would distinguish Rudd 13 from both old Rudd and the failures of the Gillard regime. Second, it would take the fight up to the Opposition by neutralising the “carbon tax” argument.</p>
<p>The members of the Government’s emerging leadership group are already consistently emphasising the use of carbon price rather than tax. It might even make climate change an election issue again. There is bipartisan support for reducing our greenhouse gas emissions by 5% below 2000 levels by 2020. What does not have bipartisan support is the path to that objective. A real debate on the merits of an emissions trading scheme against the Opposition’s Direct Action policy has been sadly lacking to date.</p>
<p>Third, the change would open a constructive dialogue with business. Individual companies and their industry associations such as the Business Council of Australia and the Australian Industry Group have vigorously lobbied for a move away from the current fixed price. Ironically, if tight caps more aligned with tougher global climate change commitments become a reality, business groups may just as quickly turn back to fixed - in that scenario, low - prices.</p>
<h2>…and reasons to keep things the way they are</h2>
<p>Why might a move from a fixed to a floating price be a bad idea? The original rationale for the fixed price, remember, was largely to provide price certainty. The business lobby wanted a fixed low price, the Greens a fixed high price. The resulting compromise, also based on forecasts of international prices, was wrong and was always going to be so.</p>
<p>Assuming the market-based price would be well below $20 - perhaps as low as $10 a tonne - the revenue shortfall against the fixed compensation would be revealed. Compensation might need to be adjusted, at some political cost. A low price would be likely to trigger a major disagreement with the Greens, particularly since they already see the current fixed price as too low. Also, moving from a fixed price earlier than the scheduled date of July 2015 would require the setting of emissions caps, which is both politically difficult and hard work.</p>
<p>On balance, there are strong arguments for committing to an early move to a market-based emissions trading scheme as the core climate change policy. The arguments against are most likely manageable. Yet such a move will force Prime Minister Rudd to create a narrative that explains how he got it wrong the first time, connects with international action now taking place in countries such as China and the US and rekindles the climate change flame of Kevin 07.</p><img src="https://counter.theconversation.com/content/15621/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Wood owns shares in Origin Energy, BHPBilliton and other ASX200 companies.</span></em></p>Carbon pricing has helped to destroy three political leaders - Malcolm Turnbull, Kevin Rudd and Julia Gillard - since 2009. Why would a re-minted Prime Minister Rudd want to touch such a poisoned chalice…Tony Wood, Program Director, Energy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/138912013-06-26T03:45:43Z2013-06-26T03:45:43ZEmissions trading in China: risky, difficult, but necessary<figure><img src="https://images.theconversation.com/files/26068/original/6zpf2wrj-1372053234.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Government energy efficiency regulation has made China a leader in clean technology. Do they really need an ETS?</span> <span class="attribution"><span class="source">Yuek Hahn</span></span></figcaption></figure><p>China’s pilot emissions trading scheme <a href="http://minister.innovation.gov.au/gregcombet/mediareleases/pages/chinalaunchesffirstemissionstradingscheme.aspx">was launched</a> on June 18 in Shenzhen. Five other pilots - Beijing, Tianjin, Shanghai, Hubei and Guangdong - are also expected to be launched this year. Only Chongqing is yet to finalise an opening date. All face great problems: they are market systems in a non-market economy. But can those challenges be overcome?</p>
<h2>Government advance, market retreat</h2>
<p>Previously, China has relied primarily on government regulations or interventions to control its carbon emissions. There were bad memories of such interventions: towards the end of the 11th Five Year Plan, some local governments took the extreme measure of cutting off power supply to fulfil their emissions reduction targets. But these are isolated cases and are unlikely to happen again after the government openly apologised for the wrong doing.</p>
<p>The broader picture is that the government’s major carbon-saving campaigns - including renewable energy subsidies and the “large substitute small (LSS)” program that intends to improve power generation efficiency - have helped China become a <a href="http://www.forbes.com/sites/jackperkowski/2012/07/27/china-leads-the-world-in-renewable-energy-investment/">frontrunner</a> in clean energy investment. In fact, <a href="http://www.pc.gov.au/projects/study/carbon-prices/report">research</a> done by The Productivity Commission found China’s renewable energy subsidies are much more cost-effective in reducing carbon emissions than similar subsidies in seven other advanced economies; namely, the US, UK, Germany, Australia, New Zealand, Japan and South Korea.</p>
<p>As China’s government-led carbon policies advance, some of the major existing emissions trading systems have to battle for survival. Earlier this year, a Bloomberg <a href="http://about.bnef.com/white-papers/will-australias-carbon-price-last-a-2013-update/">report</a> speculated there is a 32% chance Australia will lose its hard-fought carbon pricing scheme at the election in September. Meanwhile, the European Parliament has just recently <a href="http://www.economist.com/news/finance-and-economics/21576388-failure-reform-europes-carbon-market-will-reverberate-round-world-ets">voted against</a> a bill to reduce the number of permits floating on the EU-ETS, dropping the continent’s carbon price to a new low.</p>
<p>It seems a risky step for China to move from government-led mitigation mechanisms to a market-based one, especially considering the technical challenges ahead.</p>
<h2>Technical challenges with Chinese characteristics</h2>
<p>One of the defining challenges is minimising the risk of permit oversupply. Issuing more permits than there are emissions will render the permits worthless. The government needs to resist industrial pressure to oversupply, and get its emission projections right. Resisting industrial pressure can be achieved with discipline and skill, but predicting the future cannot be achieved without luck. China’s lower-than-expected growth rate in the first quarter of 2013 also signals the danger of over-optimistic permit allocation.</p>
<p>In fact, permit oversupply seems destined to trouble Shenzhen. Thomas Reuters Point Carbon, a specialised consultancy in climate policies, <a href="http://www.pointcarbon.com/aboutus/pressroom/pressreleases/1.2423330">estimates</a> Shenzhen’s issued permits are likely to exceed forecasted emissions by 10 million tonnes over the three years between 2013 and 2015. Shenzhen’s plan is to adjust permit allocation after companies’ performances are observed – something the EU-ETS has so far failed to deliver.</p>
<p>Another defining challenge is to overcome some institutional barriers so price signals are felt. The country’s electricity sector, which accounts for around 12.5% of global carbon emissions, operates under strict government command. In general, governments of various levels decide the quantities generators sell and the prices they receive. In addition, power dispatching policies generally disregard the fuel type or the efficiency of the power suppliers. Such institutional settings limit passed-on costs and nullify the impact of the carbon price on the demand side.</p>
<p>Shenzhen plans to circumvent this barrier by covering both direct and indirect emissions, letting producers and consumers each pay a share of the total carbon price. Careful monitoring and calculations are needed to avoid levying the carbon price twice or charging the producers or the consumers unfairly.</p>
<p>The ETS pilots are there to design and test different solutions to these technical challenges. But given the difficulties involved, is setting up an ETS really worth the efforts?</p>
<h2>The necessity of an ETS in China</h2>
<p>China has to pursue an ETS for at least the following three reasons.</p>
<p>First and foremost, an ETS holds the promise of delivering the same level of emissions at least cost. The Australian Productivity Commission report found China’s renewable energy subsidies are more cost-effective than its rich-world equivalents. But it also found that carbon pricing is still by far the most cost-effective way of reducing carbon emissions. </p>
<p>Given China’s high emissions level, a small increase in abatement efficiency can lead to large savings economically. This is particularly important considering China is still a developing country.</p>
<p>Second, the low hanging fruits are soon to be picked out. A <a href="http://monash.edu/policy/chinacereport.htm">study</a> I performed with Yinhua Mai of Monash University found China’s “large substitutes small” program will not lead to the same rate of efficiency improvement in the coming 10 years as it did over the past 10. This is due to the shrinking share of small and inefficient power plants and the closing efficiency gap between China’s and the world’s most efficient generators.</p>
<p>Renewable energy sources, on the other hand, possess huge potential for energy-saving. The price effect is important because a rising cost for carbon encourages people to improve coal-use efficiency, switch to renewable energy sources and adopt energy saving measures.</p>
<p>Third, ETS building could signify the need for further deregulation in the energy market. For example, instead of covering both direct and indirect emissions, a better way to make sure price signals can get through is to grant more autonomy to companies, allowing them to make investment, production and buying and selling decisions basing on market signals. Such reforms could not only enhance the efficiency of the ETS, but also the efficiency of the whole energy market.</p>
<p>However, price mechanism alone may not be sufficient either. Thus both market tools and mandatory commands are being developed. Finding the right mix and complementarity are important. One thing is clear: China is determined to deal with environmental concerns because they have clearly become hard constraints for future economic growth. </p>
<p><em>This article is based on a research paper which you can read <a href="http://monash.edu/policy/chinacereport.htm">here</a>.</em></p><img src="https://counter.theconversation.com/content/13891/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shenghao Feng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s pilot emissions trading scheme was launched on June 18 in Shenzhen. Five other pilots - Beijing, Tianjin, Shanghai, Hubei and Guangdong - are also expected to be launched this year. Only Chongqing…Shenghao Feng, PhD candidate (economics, climate change), Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/137432013-05-15T23:08:11Z2013-05-15T23:08:11ZIs this the end of carbon trading, or just a hiccup?<figure><img src="https://images.theconversation.com/files/23529/original/x2wk94kv-1368295381.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ratcliffe-on-Soar power station: carbon markets are supposed to be effective, not just hot air.</span> <span class="attribution"><span class="source">PA/David Davies</span></span></figcaption></figure><p>Just as scientists almost universally agree greenhouse gases contribute to the planet’s changing climate, economists almost universally agree the problem is made worse because polluters don’t pay for the mess they make.</p>
<p>A carbon tax is one way to force companies to pay for their pollution. A carbon market is another, established by a “cap and trade” system where a limited number of permits (or “allowances”) are sold or given away each year. Every company must surrender one permit for every tonne of carbon produced. The capped limit is lowered over time to reflect the aim of steadily lowering emissions. The resulting carbon price ensures total emissions do not exceed the limit. Market logic suggests that if permits become more scarce relative to demand, then the cost of the permits, the effective “carbon price”, will rise (and vice versa).</p>
<p>Carbon markets have been set up around the world, in Australia and California, Kazakhstan and China. In the UK, companies are covered by the <a href="http://ec.europa.eu/clima/policies/ets/index_en.htm">European Union Emissions Trading Scheme</a> (EU ETS). Each system is designed slightly differently, and the resulting carbon prices vary widely. Some policy-makers hope that these systems will one day join to form a <a href="http://streitcouncil.org/uploads/GlobalCarbonTradingaframeworkforreducingemissions.pdf">global carbon market</a>, so that polluters everywhere pay the same price for their pollution and cannot simply move operations to somewhere cheaper to pollute. But despite a recent <a href="http://www.guardian.co.uk/environment/2012/aug/28/australia-eu-carbon-markets">agreement on a link</a> between the Australian and EU markets, a global market remains a distant prospect.</p>
<p>A really distant prospect, perhaps, given recent headlines that pronounced the EU ETS <a href="http://www.economist.com/news/finance-and-economics/21576388-failure-reform-europes-carbon-market-will-reverberate-round-world-ets">dead in the water</a> – carbon prices previously above €30 per tonne (which some economists considered too low) have tumbled to below €5 where they have languished for months. In April the European Parliament considered a plan to increase short-term carbon prices by delaying the issue of 900 million permits; <a href="http://www.bbc.co.uk/news/science-environment-22167675">MEPs rejected the move</a> and the EU carbon price fell to €2.7 per tonne.</p>
<h2>Dead, or just sleeping?</h2>
<p>How has the carbon price fallen so low that it needs “rescuing”? A low carbon price would be a sign of the scheme’s success if it meant companies had developed clean technologies to reduce pollution cheaply over the long-term, lowering demand for permits whose price would fall. Instead, carbon prices are low because the recession has dented economic output, and consequently emissions are lower. Low carbon prices present no incentive for companies to make long-term investments in clean energy, arguably the aim of the EU ETS.</p>
<p>When the carbon price rises or falls to extremes, politicians are tempted to interfere with the supply of permits. This means carbon prices can <a href="http://www.businessgreen.com/bg/news/2266118/merkel-raises-hopes-for-eu-carbon-fix">move significantly</a> depending on political developments, as well as factors such as economic output and the weather (cold weather means more carbon is generated as the heating is turned up). </p>
<p>This has led some economists to argue that carbon taxes are a more suitable tool for a problem like climate change. A stable carbon tax would give companies a predictable incentive to reduce emissions, year after year. It would avoid the wild price swings of a market. True, taxes don’t guarantee that a set limit on emissions will be achieved - carbon markets have been preferred because they provide this guarantee. But the EU ETS only limits emissions for the five to ten years; what really matters is that emissions fall considerably over the next few decades. A tax that was set to increase gradually over time, with the plan for review after ten years, could meet the overall objective of reducing emissions and send a much clearer message.</p>
<p>But supporters argue that carbon markets work well if <a href="http://www.cameronhepburn.com/research/publications/academic-papers/designing-carbon-markets-part-i-carbon-markets-in-time/">designed well</a>; they just need some additional features to keep a lid on wild price fluctuations. For instance, prices might be stabilised by transparent rules that define how many permits are released onto the market as carbon prices rise or fall. Fewer permits would be released onto the market when prices are low, and more when prices are high.</p>
<p>The UK has unilaterally implemented something similar, introducing a domestic “<a href="http://www.hmrc.gov.uk/climate-change-levy/carbon-pf.htm">carbon price floor</a>” in April. This ensures that most UK companies (there are various exemptions) have to pay a carbon price of at least £16 per tonne this year, rising to £30 by 2020. In an EU-wide market, however, the effect is simply to <a href="http://www.ft.com/cms/s/0/652c2932-a77d-11e2-9fbe-00144feabdc0.html#axzz2TGujDRow">shift emissions</a> out of Britain and into Europe, possibly driving energy-intensive industries abroad in the process. An EU-wide price floor would sensibly prevent the risk of price crashes, leaving only the problem of price spikes to be addressed.</p>
<p>In the short term, efforts to “save” the EU carbon market continue. German Chancellor Angela Merkel said recently that she favours <a href="http://econews.com.au/news-to-sustain-our-world/merkel-closer-to-support-for-eu-ets-reform/">systematic changes</a> that would solve these problems once and for all, rather than a temporary fix of withholding permits. But her finance minister opposes intervention. The politics are messy, but the stakes are high. If carbon prices do not provide an incentive for companies to move to cleaner production now, the transition will be forced on them later, with greater urgency, and at much greater cost - to us and them.</p><img src="https://counter.theconversation.com/content/13743/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Hepburn works for and owns shares in Vivid Economics, an independent employee-owned economics consultancy that provides advice on environmental and resource economics. Clients of Vivid Economics include governments, international institutions, oil and gas companies, green NGOs and financial sector firms. He receives funding from the UK Economic and Social Research Council and the Grantham Research Institute at the London School of Economics. He was also a co-founder of Climate Bridge Ltd. which develops projects to reduce emissions in China. A full list of affiliations and interests can be found at <a href="http://www.cameronhepburn.com">http://www.cameronhepburn.com</a></span></em></p>Just as scientists almost universally agree greenhouse gases contribute to the planet’s changing climate, economists almost universally agree the problem is made worse because polluters don’t pay for the…Cameron Hepburn, Professor of Environmental Economics, London School of Economics and Political ScienceLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/56812012-03-07T02:44:01Z2012-03-07T02:44:01ZWhy compensating households affected by the carbon tax is bad economic policy<figure><img src="https://images.theconversation.com/files/8339/original/jff89s7m-1330923127.jpg?ixlib=rb-1.1.0&rect=31%2C11%2C946%2C640&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The one feature of the government's carbon price framework which has received little analysis is compensation to households.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>There are many features of the design of the Gillard government’s controversial and complex carbon legislation that can be questioned.
For example, Australia’s unilateral action; the two-phase carbon tax and emissions trading scheme; the carving out of many emission-intensive trade-exposed industries; and the $10 billion subsidies for clean energy technologies. </p>
<p>But there is one feature that has been treated as axiomatic by the government and has received no substantial analysis - namely, the compensation of Australian households adversely affected by the impact of carbon pricing on goods and services consumed by these households. </p>
<p>They are to be compensated, in full, by a combination of an increase in the tax-free thresholds for households paying personal income tax and increases in social security payments for those dependent on welfare payments. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=500&fit=crop&dpr=1 754w, https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=500&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/8337/original/2qrnty8h-1330922900.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=500&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The carbon tax weakens the incentives to reduce greenhouse gas emissions.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>My contention is that this is bad policy. There are two reasons for this view. </p>
<p>The first is that these households do not deserve to be compensated. The rationale for carbon pricing is that the production of emission-intensive products and services, and most particularly electricity, as this is the most important single item in household budgets affected by these measures, is associated with a by-product that is harmful to residents of Australia and the rest of the world. This by-product is greenhouse gases (GHGs). </p>
<p>GHGs are responsible for some of the increases in global air and water temperatures that are expected to have severe consequences on climate patterns, water levels, agricultural production and many other activities. This is what economists call an externality because this effect is not included in the prices of products and services. The carbon price corrects this situation by pricing this externality. </p>
<p>A carbon price sends a price signal. Producers responding to this signal can reduce the GHG-intensity of the their outputs (for example, the amount of electricity generated). Consumers can switch to less GHG-generating alternatives, such as hybrid and electric cars and even diesel-powered cars. </p>
<p>GHGs are a “bad”, much like the bad by-products produced by consumption of cigarettes and tobacco products (the negative heath effects on active and passive smokers); alcohol (the negative health effects on drinkers and the harm imposed on other family members and members of society hurt by drunk drivers and other drunken behaviours); and gamblers (the harm imposed on both the gambler and other family members). Taxes on these products are designed to reduce this harmful behaviour. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/8329/original/bcbjqtnt-1330919193.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Compensation weakens the incentive for households to decrease their carbon emissions.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>The government has not compensated drinkers, smokers and gamblers for the taxes imposed on them. They are the agents who cause the problems to society. Neither should it do so for consumers of products that generate GHGs.</p>
<p>The compensation was a bribe to voters to get them to accept the carbon pricing package. Without this, it was feared that the general public would strongly oppose the legislation. This is probably an accurate political judgement. If true, what this indicates is that voters are not prepared to collectively pay the price to correct the present market failures associated with economic activities that generate GHGs. </p>
<p>The second reason why this is bad policy is that it weakens the incentives to reduce GHG emissions. The government has argued that the prices of products and services that embody a carbon price will increase relative to the prices of other goods. This may not be true in some cases. Prices of goods such as electricity are subject to direct price regulation in states by statutory authorities. Some of these may choose not to approve the costs increases in full or to allow electricity retailers to increase the base components rather than the kilowatt-hour (KWH) components of the pricing formulae used by retailers. </p>
<p>Even if carbon price-induced cost increases are passed on in full, the price incentives to economise on these products and services are weakened. Economic theory shows that a rise in the price of a commodity affects the quantity consumed in two ways. One is the increase in the relative price of the product. The other is the “real income” effect. Consumers’ real incomes are reduced and this causes them to consume less of the commodity. Compensating households eliminates this second effect.</p>
<p>Of course, government revenues collected by a new tax must be disbursed in some way. There are many alternatives. For example, there are many unmet demands for increased education and health services. In the present difficult macroeconomic environment revenue could be used to reduce the deficit in the public sector. Now is not the time to be generous with tax reductions. </p>
<p><em>This piece is based on Peter’s article, “Designing a carbon price policy” published in the February edition of the Australian Economic Review.</em></p><img src="https://counter.theconversation.com/content/5681/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Lloyd does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There are many features of the design of the Gillard government’s controversial and complex carbon legislation that can be questioned. For example, Australia’s unilateral action; the two-phase carbon tax…Peter Lloyd, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.