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Repealing the carbon tax: hidden costs and unanswered questions

There’s a reason we have a price on carbon. Repealing it may save taxpayers a little money, but it will cause long-term problems. Roxy Chen

There are reasons Australia has a price on carbon. Let’s recap.

The IPCC has released its Fifth Assessment Report stating that the increase in atmospheric concentrations of CO2, methane, and nitrous oxide is unprecedented in the last 800,000 years.

Data sets show a globally averaged combined land and ocean surface warming of 0.85C between 1880–2012. There’s a 95-100% probability that more than half of the observed increase in global average surface temperature from 1951 to 2010 is human induced.

By 2081-2100, under the IPCC’s best case emissions scenario, temperatures could rise by as much as 1.7C and in the worst case scenario by 4.8C. Our last summer broke 123 extreme weather records in 90 days. Last month was Australia’s hottest ever September on record.

So what are our current emissions?

Australia’s December 2012 National Greenhouse Gas Accounts show that since 1990, emissions from the electricity sector grew 47.3%, the stationary energy sector 44.5%, transport 47.5%, fugitive emissions (including from coal mining) 30.5% and industrial processes 30.8%.

These sectors are all covered by the carbon price mechanism (CPM).

Let’s recap the Abbott government’s agenda to reduce our emissions. The Climate Commission has been abolished. The Clean Energy Finance Corporation will be abolished. We no longer have a Department of Climate Change. Yesterday, the draft legislation to repeal the carbon price mechanism, to be the first item of business for the 44th Parliament, was revealed.

This means, briefly, that if the legislation passes the following will occur.

There will be no annual cap on Australia’s escalating emissions.

Financial year 2013-14 will be the last year that the carbon price mechanism applies and all charges for non-compliance will be repealed. The government will not extend what it calls the “carbon tax” even if the Parliament does not pass the repeal bills until after 1 July 2014. If the bills are not repealed at all, the government will be in breach of the law if it refuses to apply the carbon price mechanism and other carbon price legislation. Calling a double dissolution is a possibility.

Until then liable entities must comply with the carbon pricing mechanism and reporting obligations, but can use Carbon Farming Initiative (CFI) carbon credit units to offset their liability. February 2, 2015 is the final date for compliance before unit shortfall charges apply. An entity has to pay shortfall charges if it does not have enough carbon credit units to surrender to meet its liability.

All carbon levies applying to aviation fuels and synthetic greenhouse gases under separate legislation are abolished but 2013-2014 liabilities must be paid.

Once final commitments are met, refunds will be provided for any auctioned units, existing carbon units will be cancelled and over-surrendered carbon farming carbon credits will be re-credited.

The government denies that the repeal of the carbon price mechanism amounts to an “acquisition of property” other than on just terms under the Constitution. If it does, legislative provisions are included to pay a reasonable amount of compensation.

Industry assistance provided under the Jobs & Competitiveness Program (JCP) for Emissions Intense Trade Exposed Industries, under the Energy Security Fund and all assistance to electricity generators, will continue in 2013-14 but will cease thereafter. Any under-allocation of free units, which is expected, will be rectified while over-allocated units must be relinquished, or a levy will apply as well as a late payment penalty. The Steel Transformation Plan will also cease on 1 July 2014.

The Australian Competition & Consumer Commission will monitor prices and prohibit corporations from making false or misleading claims about the effect of the repeal on prices.

The independent Climate Change Authority will be abolished. Instead, the performance of the Renewable Energy Target, the Carbon Farming Initiative and the National Greenhouse & Energy Reporting Scheme will be reviewed by the government’s own Department of the Environment.

Legislation such as the National Greenhouse and Energy Reporting Act 2007 will be retained to support the Coalitions’ direct action policy.

Consequential changes are made to the current regulation of carbon permits as financial instruments and to tax treatment of various charges.

The income tax cuts scheduled for 2015-2016 to compensate Australians for the shift to an emissions trading scheme on July 1 2015 will be abolished.

All this, according to Mr Abbott, just to “save Australians A$550 a year”, or A$45.8 a month.

Yet, the Abbott government conceals so much.

What will the refunds, rectifications and potential compensation payments arising out of repeal cost taxpayers?

What will it cost taxpayers to deal with extreme weather events? So far extreme weather events influenced by climate change have cost Australia billions of dollars. Insurance premiums are rising and areas becoming uninsurable. Before the 2013 floods, Munich Re reported that financial losses from extreme weather events in Australia rose four-fold over the past 30 years

How will Direct Action work? We haven’t even seen independent modelling indicating whether it can deliver our Kyoto Protocol second commitment period obligations. Australia’s emissions reduction targets are likely to increase under a new international agreement expected in 2015.

What we have been told is that if the money for emissions reduction runs out there won’t be any more forthcoming.

At this point, one can only speculate on what the legacy of the Abbott government on climate change will look like when that government is voted out.

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