The Australian government will begin imposing a tax on carbon emissions in mid-2012. But large giveaways to industry mean Australia’s scheme doesn’t go nearly far enough in reducing the nation’s CO2 emissions or providing economic stimulus.

Another global climate conference has come and gone with little action to reduce carbon dioxide emissions, which makes efforts to combat climate change at the national or local level all the more important. After years of bitter debate and haggling, we in Australia last month finally decided to follow Europe in putting a price on carbon. Unfortunately, Australia’s plan, like Europe’s, gave away far too much to major emitters of CO2 and does far too little to reduce emissions, aiming for a 5 percent cut in carbon by 2020, with uncertainty as to how deep the cuts may be beyond then.

Countries that wish to use market-based mechanisms to tackle climate change can learn much from Australia’s example. Unfortunately, most of the lessons relate to what not to do. The final incarnation of Australia’s scheme could have been both economically and environmentally superior had the politics not been so poorly handled. A review of the blunders and miscalculations is instructive.

The price on carbon is too low to transform the way Australia produces or consumes energy.

While the Labor government was initially highly ambitious about the scope of its scheme and the depth of the emission reductions, the longer the debate dragged on, the more watered-down the scheme became. In the end, entire sectors of business, industry, or agriculture were either largely or entirely exempted from needing CO2 emissions permits in the coming eight years. The plan — a hybrid between a carbon tax and an emissions trading scheme — sets the price of CO2 emissions at a fixed level of $23 Australian per ton for the first three years, too low to drive substantial transformation of the way that Australia produces and consumes energy. Prime Minister Julia Gillard says CO2 emissions will be cut by 160 million tons over the next eight years, but that remains to be seen.

After the three-year fixed-price period ends in 2015, market forces will set the cost of pollution permits. However, price caps and ceilings will exist for an additional five years to provide some degree of ongoing price stability. Only about 500 big polluters — those responsible for releasing more than 25,000 tons of carbon dioxide equivalent per year — will be required to purchase pollution permits under the scheme. That sounds fair enough, until you realize that many major CO2 polluters were largely let off the hook for the near future.

For example, agricultural emissions were exempted entirely from the scheme. Big sectors like passenger transport were effectively removed. And Australian exporters were given a huge break, after fervently arguing that the introduction of a carbon price would make them uncompetitive and result in jobs being transferred offshore. Despite the evidence that these concerns were largely exaggerated, the so-called “emissions-intensive trade-exposed” industries succeeded in winning their demands that they be largely exempted from the carbon price. Indeed, these big polluters will not have to pay the carbon price on 94.5 percent of their emissions for the first three years. While the carbon price legislation includes provisions for future review of these generous entitlements to free permits, in practice it will take at least five years to make any real reductions.

This highlights a key lesson from the Australian debate. The giveaway of so many CO2 emissions permits should have been presented to the public for what it is: lost revenue and a gift to the biggest polluters. Instead, export industries framed the debate as an essential step to protect domestic industry. The tens of billions of dollars in lost revenue associated with the provision of large amounts of free permits is money that the government could have been spent on investing in renewable energy, giving tax cuts to employees, funding targeted cuts in corporate taxes, or providing investment allowances to targeted industries. Such use of carbon tax revenues would have helped create stronger support among segments of business.

As it was, most businesses that were not big polluters were relatively silent about both the desirability of introducing a carbon price and the enormous cost of providing the free emissions permits. Unfortunately, the consequences of providing so many free permits were not usually discussed in such terms — a major mistake.

While there is an economic argument for providing some compensation for some industries, there were no strong economic arguments for providing anything like the level of free permits given to the biggest polluters in Australia. The generosity of the assistance appears to be wildly out of step with the meager compromises made by the polluters. Put simply, if compensation is the price you are willing to pay to get what you want, the Australian taxpayer was willing to pay a lot to achieve very little.

Australia’s carbon scheme will also provide generous compensation to low- and middle- income households; the lowest income earners will receive more than 100 percent compensation for the likely impact of higher energy prices on their household budgets. That said, despite the enormous political outcry about putting a price on carbon, the price impact is likely to be less than one percent, or $9.00 per week, for an average household. Only the highest-income earners will miss out on compensation, but again the price impact is likely to be modest; a household earning $100,000 is likely to experience energy and other price rises of less than $1,000 per year.

Never underestimate the ease with which opponents can attack the details in any scheme.

Critics derided the idea of taking money away from Australian households with one hand, in the form of a price on carbon, and giving it back to them with another, labeling it a “great big money-go-round.” But this is one aspect of the carbon legislation that makes sense. With a price on carbon, those who can change their behavior and use fewer fossil fuels will be better off when they receive compensation from the government. Those who can’t change their behavior need be no worse off.

Another valuable lesson from Australia is to never underestimate the ease with which opponents can attack the details of any scheme — the more complex, the harder it is to sell. When proponents start putting effort into explaining a specific scheme, then by definition they must put less energy into talking about the gravity of the problem it is designed to solve.

Both the Australian government and the Australian environmental movement spent nearly four years talking about the details of an incredibly complex piece of policy, and in so doing virtually stopped talking about the scientific and economic cases for tackling climate change. The abandonment of this terrain enabled the climate and economic skeptics to promote a wide range of entirely misleading — but highly effective — messages, many focused on overstated claims of economic disaster. (A similar tactic was used to kill climate legislation in the U.S. Senate.) Opponents also frequently shifted ground, at first denying there was evidence of global warming, then accepting that there might be warming but repudiating the link to human activity. Some finally accepted that humans might be causing the planet to heat up, but then maintained that Australia is too small to make a difference.

To other countries contemplating a carbon tax or a cap-and-trade scheme, I would offer the following advice: Be less ambitious at the beginning of the project and more determined at the end. Don’t try to take on all the polluters simultaneously, but approach different sectors in different ways at different times. They should be played off against each other on specific issues, rather than united in their hostility toward a general principle.

So where do things stand? The design of the legislation and the determination of the government to provide certainty to industry means it is highly unlikely that there will be any chance to broaden the scope of the scheme — and give it real teeth — before 2020. The debate about the scientific need to tackle climate change has been removed from the political agenda, replaced with economic arguments about whether the compensation is adequate or not.

Meanwhile, as Australia moves ahead with a watered-down plan that ignores scientific evidence about the depth of cuts required to help prevent global warming, the nation’s coal industry — the world’s largest exporter of coal — is experiencing a boom. Australia’s coal exports are expected to double in the coming decade, much of it heading to China, where the emissions will further foul the air of Beijing and Shanghai and add to the heat-trapping gases rapidly accumulating in the Earth’s atmosphere.

Article by Richard Denniss, appearing courtesy Yale Environment 360.

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Climate talks began in Durban, South Africa on Monday amid downplayed expectations for any meaningful agreements on cutting greenhouse gas emissions or progress on finding a successor to the Kyoto Protocol.

With the Kyoto Protocol’s mandatory carbon targets now covering less than a third of the world’s carbon emissions, some observers say that a global, top-down approach may increasingly be replaced by local, incremental climate policies, from Australia’s new carbon tax to Colombian initiatives to replace polluting truck fleets and promote renewable energy.

“The situation has never been weaker for [a global] vision,” said James L. Connaughton, who chaired the Council on Environmental Quality under President George W. Bush.

In 1997, nearly 200 industrialized nations agreed to the Kyoto Protocol, pledging a 5.2 percent reduction in carbon emissions compared with 1990 levels by 2012. But the U.S. never ratified the protocol, and the targets did not apply to emerging countries like China and India.

The European Union is the only Kyoto signatory willing to sign on for a second five-year commitment period, but will only do so if other nations — including the U.S., China, and India — begin negotiations on a global deal that can be implemented by 2020.

Negotiators hope to make some progress in Durban on establishing financing mechanisms to help developing nations deal with the impacts of global warming.

Article appearing courtesy Yale Environment 360.

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A majority of Americans across the political spectrum support policies that reduce carbon emissions, including a revenue-neutral carbon tax, according to a new survey by the Yale Project on Climate Change Communication.

In a survey conducted between Oct. 20 and Nov. 6, 65 percent of respondents said they would support a revenue-neutral carbon tax to help “create jobs and decrease pollution” — including 51 percent of those identifying themselves as Republicans, 69 percent of independents, and 77 percent of Democrats.

Sixty percent said they would support a $10-per-ton carbon tax if the money was spent reducing federal income taxes. That support continued even when respondents were told the carbon tax would “slightly increase the cost of many things you buy, including food, clothing, and electricity.”

Support for the tax dipped to 49 percent if the revenue was instead returned to each family as an annual check, and to just 44 percent if it was spent paying down the national debt.

Sixty-nine percent said they oppose federal subsidies for the fossil fuel industry, while 54 percent opposed ethanol subsidies. Since May, there has been a 9 percent decline among those expressing “strong support” for renewable energy research.

Article appearing courtesy Yale Environment 360.

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Australia has just enacted a carbon tax law that it will implement mid-2012. Is a carbon tax a better policy than a cap and trade policy? Better minds than mine disagree over the answer to that question and the primary reason for disagreement is that they are both susceptible to misuse when in place even though both have the ability to effect the right kind of change – which is to say, to reduce carbon emissions while mitigating the cost of doing so.

I’m going to sidestep that argument and I’m going to concentrate on the Power Sector to the exclusion of all others for this article. And now I will suggest that a “Carbon Price” has three goals to achieve in order to use to realize the ultimate objective of reducing the carbon emissions of the power sector of any given jurisdiction without jacking the price of energy and killing the economy:

1. Reduce Demand for Electricity
2. Re-dispatch (using different generators as first call)
3. Lowering the emission profile of new generation to be brought on-stream

And now I’m going to further suggest that the way to do any of this is to RECYCLE the revenue of a carbon price, not to remit them to a government treasury but to the goal of reducing emissions and mitigating the cost of doing so. How do you ensure that the revenue stream doesn’t end up in the government coffers? Put the revenue stream in the hands of a Trustee charged with the goal of reducing emissions and the cost of electricity where possible.

Will a Carbon Price achieve these three goals? What are the Problems?

Reducing Electricity Demand: The problem here is that the elasticity of price for electricity is actually even smaller than that of gasoline. And as everyone knows, as the price of gasoline goes up so does the grumbling; but not the reduction in use.

Re-dispatch: There is a base demand for electricity that is fulfilled by hydroelectric, nuclear and wind facilities because they have the lowest marginal cost to produce that electricity. They are also low carbon emitting sources. As demand runs above base, other generators are called on-stream such as Coal, Fuel Oil and/or Natural Gas, probably in that order. So how high does a carbon price need to be to turn off coal and run renewable energy generation? To make a broad statement, you could double the price of electricity to consumers and reduce emissions by about 5%.

From a consumers point of view, it is the clearing price of power that matters in a wholesale power market. Without a really high carbon price you can’t displace coal and a really high carbon price ain’t going to fly, politically. So, with, say, a $25 carbon price, if demand runs to a level that requires fossil fueled generators to run then that higher price of electricity is paid for every single MWhr of electricity produced at that time. The result is a windfall in gains for generators with a lower marginal cost of production and that windfall is paid for by consumers. (residential, commercial and industrial). Basically, the carbon price is passed on to consumers in a magnified form because even non-emitting generators get the higher clearing price.

New Generating Capacity: There is a better argument here. A Renewable Portfolio Standard, or a Feed-in Tariff or other proactive government policy allows a market operator to insert renewable generation at the bottom of the bid stack so that the (at this time) higher price of renewables is paid for renewable generation without influencing the clearing price of all other generators.

Now for the Good News

McKinsey & Company have a rather famous carbon abatement curve, as shown below. What it shows is that Energy Efficiency programs can reduce emissions at an incredibly inexpensive rate. Follow the curve, as the cost of abatement climbs steeply (from deeply negative cost) and then less so from left to right. You can find this curve here.

So what is the message here? If you take the carbon revenue stream and apply it to energy efficiency programs to ‘buy’ energy efficiencies the cost has been worked out by Robert Cowart of the Regulatory Assistance Program (RAP) to be about $0.03 per kWhr. Not bad, eh? Take revenue, buy efficiency and reduce demand. Reduce demand and reduce the amount of time that fossil fuel is used to generate electricity and thereby reduce carbon emissions. Better still, there are economies of scale in the purchase of energy efficiency programs.

Conclusions
Putting a price on carbon is a great idea, but it is incomplete. The bottom line is that utilizing energy efficiency programs, renewable portfolio standards, Feed-in-Tariffs and other policies greatly accelerate the reduction in GHG emissions. Putting the carbon revenue stream in the hands of a Trustee with a mandate to reduce GHG emissions ensures that the overarching ambition is achieved.

Need an example? The Regional Greenhouse Gas Initiative of the Northeast and Mid-Atlantic states of the U.S.A. Read’em and weep.

Article by Miles McDonald.

References
Richard Cowart, Regulatory Assistance Project www.raponline.org

Per-Anders Enkvist et al, McKinsey & Company www.mckinsey.com
Regional Greenhouse Gas Initiative, www.rggi.org

Wikipedia, http://en.wikipedia.org/wiki/Ontario_electricity_policy#Central_planning_and_traditional_regulation_versus_competitive_markets

Christian Hewicker et al, Power Perspectives 2030, European Climate Foundation

Putting a Price on Carbon, Yale university http://e360.yale.edu/content/feature.msp?id=2148

Carbon Tax Passes Senate, Jeremy Thompson, ABC News http://www.abc.net.au/news/

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Parliament OKs plan to cut carbon to 5 percent below 2000 levels by 2020

Under a controversial plan passed today in the Australian parliament, Australia’s 500 biggest greenhouse gas emitters will pay $23* for every ton of carbon they emit. The carbon pricing scheme, which will go into effect next July after the Senate’s likely nod in November, has been a political hot button for the Australian government and for prime minister Julia Gillard.

Even though packed with “sweeteners” that pull in political support but dampen its likely effect, the bill is considered by many as a huge step for Australia, the world’s largest exporter of coal and a top leader in greenhouse gas emissions per capita.

The Government estimates the carbon price will cost Australian households an additional $10 per week. But the bill passed today will also return more than half of the revenue raised to people via tax credits and direct payments, producing payments to individuals and households that should be more than enough to cover rising commodity and energy prices.

By making burning fossil fuels more expensive and thereby encouraging efficiency, efficient technologies and renewables, the bill, according to Labor estimates, will reduce Australia’s carbon emissions by 159 million tons by 2020, cutting at least 5 percent from the country’s emissions by 2020. By directly investing millions of dollars in renewable energy and energy efficiency research and development, the Government hopes those cuts could run even deeper as the clean tech sector develops and matures — a possibility that pleased environmentalists, industrialists and labor unions alike.

The legislation will “unleash $14.8 billion of opportunity,” said Australian Manufacturing Workers Union national secretary Dave Oliver.

A narrow margin
The issue of taxing carbon certainly has been a divisive and contentious one among the public and Australian politicians, as was exemplified by today’s 74-72 narrow passage of the 18-bill package. The bills are expected to pass in the Australian Senate next month, but not without the help of independent senators and the Australian Greens.

The plan is a political gamble for Gillard, whose popularity in public opinion polls fell precipitously after introducing the carbon tax in July. An ambitious carbon tax was previously considered in Australia under the Labor-led government of Kevin Rudd. But it never went anywhere. The biggest difference between the Rudd plan and the Gillard plan is that Rudd never brought his plan up for a vote, a move that infuriated many party loyalists and ultimately, many believe, led to his stepping down.

In the new plan, the Gillard government recognized the need to balance ambition with political practicality, including in it exemptions for agriculture, tax credits and direct payments to Australian households, and financial support to the tune of $9 billion to the heavy-polluting steel and aluminum industries, as well as the country’s booming liquified natural gas industry.

Conservatives vow repeal
Federal Opposition leader, Tony Abbott, has promised to ditch the tax if he wins office. “We can repeal the tax, we will repeal the tax, we must repeal the tax,” Abbott said after Wednesday’s final vote. “I am giving you the most definite commitment any politician can give that this tax will go,” Abbott promised, calling his words “a pledge in blood.”

After the first three years of the program—if Abbot and conservatives haven’t wrestled control of the government from Labor by then—the carbon tax will evolve into an emissions trading scheme: a policy mechanism once known in the U.S. as “cap and trade.”

*All $ figures are quoted in Australian dollars which are roughly equivalent to US dollars (AUS$1=US$0.99)

Article by Timothy Hurst, appearing courtesy ecopolitology.

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America is much better in technology than governance. That’s the sentence that leapt out at me and remained prominent throughout my reading of economist Robert Repetto’s book America’s Climate Problem: The Way Forward. I sought the book for review because, although its focus is on the US, what happens there will crucially affect the rest of us, in terms of both the level of greenhouse gas concentrations in the atmosphere and the likelihood of international agreement to limit them. The book doesn’t exactly inspire hope on either count, but it is constructive in the path it suggests for the US to follow and puts the ball squarely in the court of the policy makers.

It’s always good to read an economist who gets the full seriousness of climate change and Repetto certainly does that. In his opening outline of the problem he stands with the unequivocal statements of the National Academy of Science and uncompromisingly sets out the risks both globally and within the US, emphasizing the scariness of reinforcing feedback mechanisms, some of which are already under way. America’s response must be to reduce greenhouse gas emissions by more than 80 per cent over the next forty years. Some measures are under way, he notes, but they are far from adequate to the task.

The challenge is to transition to clean energy and dramatically increased energy efficiency. It can happen, and like earlier energy transitions it will stimulate economic growth. Indeed the shift is already under way and needs only to be supported and accelerated. He spells out the wide range of technologies available and the innovations in energy management which will enable them to be put to full use. Those already at hand are sufficient for the task, let alone those which are still to come. They require only institutional change and political commitment. Governance, in a word. And that’s the sticking point. There is a legacy of poor governance in many areas which needs to be overcome, and he patiently details how it can be, from structuring utilities to encourage efficiency, to interstate transmission lines, to ill-directed energy subsidies and much more.

At the heart of the book is the author’s exposition of how to put a price on carbon to encourage the most cost-effective ways of reducing emissions. An ‘upstream’ cap and trade system is the best way of proceeding. Permits would be issued, preferably by auction, to firms that sell fossil fuels. Permits would be required of first sellers and enforced at the refinery gate for petroleum, the first distribution point for natural gas, the mine shipping terminus for coal and the port in the case of imports. Reductions in emissions would be imposed through gradual year-by-year reductions in the permits available. He goes into some detail to explain the finer points of design which would make the system most effective. He also indicates why cap and trade is preferred to a carbon tax. It’s not that a carbon tax would harm the economy; the problem is that there is no way of knowing what the tax rate should be to achieve the desired end of emissions reduction. It is also likely that the yearly increases needed would cause political controversy. His treatment of cap and trade faces up to thorny questions such as international competitiveness and impacts on low income households. The best ways to help the latter are by financial compensation. The worst way would be to prevent retail energy prices in the residential sector from rising.

Repetto is insistent that in serious economic analysis there is simply no support for claims that a comprehensive cap and trade regime would impose excessive or unsustainable costs on the economy or households. All reputable economic analysis agree on this basic finding. On the question of employment opportunities he concludes that climate policy can be neither justified nor condemned because of its employment effects. “The justification for climate policy has to be the need to stabilize the climate.” In discussing the implications for industrial competitiveness he points to the tendency of mature industrial economies to protect sunset industries and emphasizes the need for US industrial policy to move to provide strong stimulus to emerging sunrise industries. If it fails to do this it risks being shut out of the world market in fast-growing sectors such as the wind and solar energy industries.

Repetto recognizes that, given the US stance, international agreement on post-Kyoto climate change measures are currently stymied by the respective negotiating positions of the developed countries and the developing. But within that constraint he suggests a way forward that will still allow for significant progress in the decade post 2012. Ambitious binding commitments to reduce emissions made by the developed Annex 1 countries can be accompanied by a focus on policies and measures which take advantage of ‘win-win’ opportunities in developing countries. Those are opportunities which are financially beneficial in themselves and at the same time climate-friendly. Energy efficiency improvements and public transport investment are two examples. Such cost-saving mitigation efforts represent low-hanging fruit, and Repetto points out that one of the most attractive characteristics of such fruit is that it grows back as new opportunities emerge. Finally he urges that a reformed Clean Development Mechanism and other offset programmes find a place in the framework for ongoing international cooperation. Incidentally this chapter of his book includes an eye-opening box listing what China has already done in already adopting “more effective policies to reduce emissions than the US has”.

Why has the US response been so inadequate? Repetto ascribes the failure to the broader failure of America’s political system. “At the root of it all is money.” Enormous sums are needed for campaigns, far too large to come from small donations by ordinary citizens. They come from interest groups, including corporations, who expect returns for their investment. Campaigning support leads to lobbying access. Industry also provides money for extensive public relations and disinformation campaigns and bankrolls right-wing and libertarian think tanks to advance arguments against policies to curb emissions. As Repetto elaborates on all this and describes the decline of bipartisanship in Congress the reader is not surprised by his declaration that a truly transformative climate law would be uncharacteristic of the American political system. Breakthroughs are possible, but they normally need circumstances not present today – room on the political agenda, and a strong public demand for action. It’s not a promising scene. Repetto doesn’t think oblique approaches like a clean energy message are sufficient to carry the day. The climate challenge must be faced directly, not danced around with secondary messages. Obama should use his bully pulpit to say bluntly that this is by far the greatest environmental challenge in American history. The way forward runs uphill. The more people get behind and push the better.

A final chapter examines America’s very inadequate adaptation measures in some detail and urges ways in which better preparation can be made to protect the country from the worst effects of climate change, concluding with the warning, however, that future adaptation cannot take the place of strong immediate measures to reduce emissions.

The book is thoughtful and measured and carries a quiet authority. Repetto hasn’t given up on his country being able to rise to the challenge of climate change, and he understands how it can be done, but he’s sober about the prospect. “Failure is an option,” he writes, “but by no means a necessity.”

Article by Bryan Walker, appearing courtesy Celsias.

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The debt deal reached by the White House and Congress will likely trigger deep spending cuts for many energy and environmental programs for years to come, a shift many fear could have long-term repercussions on public health and the emergence of new energy technologies.

With Congress poised to make spending reductions in exchange for raising the debt ceiling by $2.4 trillion — including $917 billion in discretionary cuts over the next decade — experts predict environmental agencies at the federal and state levels and grant-funded programs should brace for significantly reduced budgets.

While it remains unclear where cuts will occur, one former Republican congressman told Politico he expects the U.S. Department of Energy could see less funding for programs dealing with fuel cells, biofuels, wind and nuclear energy.

In addition, Environmental Protection Agency grants for critical programs, including drinking water and pollution monitoring efforts, could see dramatic cuts, while the EPA’s regulatory authority could also “take a whack,” said James Walsh, a former congressman who chaired the subcommittee that handled the EPA’s budget.

Some climate advocates fear the Democrats’ concession on tax increases as part of the compromise will further dim prospects for a new carbon tax.

Article appearing courtesy Yale Environment 360.

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In the summer of 2009, U.S. and Australian climate politics had a similar look and feel. The lower houses of legislature in each country had passed carbon trading schemes and were waiting on their respective senates to act. While the U.S. House’s wide-ranging cap-and-trade bill didn’t stand much of a chance in the Senate, many believed at the time that conservatives in the Australian Senate were on the verge of giving the go-ahead to an equally ambitious carbon plan. But after an internal leadership challenge in the opposition Liberal Party, conservatives reversed their official position on the climate plan, changing the course of climate legislation in Australia and putting it back on track with what was happening in Washington. After twice failing on votes in the Senate, in 2010, Prime Minister Rudd backed away from the Carbon Pollution Reduction Scheme, which had been a core component of the Labor Party policy agenda. Many cite the move as leading to his demise as prime minister.

But a climate bill is again on the table in Australia after Prime Minister Julia Gillard Sunday outlined a plan to reduce the country’s annual carbon emissions by 159 million tons 2020. “We are moving from the days of words to deeds,” Gillard said, in a subtle reference to her former boss Kevin Rudd’s failure to stick with the carbon reduction scheme in 2010.

As prime ministers go in Australia, Gillard is not exactly popular. And bringing forward an ambitious and controversial bill is politically daring to say the least. But Gillard and her Labor Party colleagues learned a few lessons the last time they pushed a climate bill and have this time brought forward a plan that emphasizes simplicity, certainty and viability. And while the Obama administration has no intention of moving on a carbon cap any time soon, U.S. lawmakers who hope to revisit the climate issue one day might consider taking a page from their Australian colleagues’ playbooks

What the U.S. can learn from Australia: Lessons in simplicity, certainty and viability

The nearly fifteen hundred-page Waxman-Markey bill was anything but simple. Economists love the idea of simplicity in taxation because it can have a more direct impact on behavior. Want people to smoke less? Tax cigarettes. Want companies to emit less carbon? Tax carbon. But too many taxes and too confusing a code can muck up a well-intentioned bill. Although it is officially being referred to as a fixed-price carbon trading scheme, for the first three years of the plan, it will operate basically like a simple carbon tax. Under the plan, starting in 2012, facilities generating 25,000 tons of carbon dioxide equivalent per year, provided they are not in the excluded agricultural or forestry sectors, will pay a fixed price of roughly $25 per ton of carbon emitted. Simple.

And what carbon taxes have been lauded for by liberals and libertarians alike is their financial certainty. Businesses like knowing how much taxes are going to be and what regulations they must follow so they can plan and budget for the future. Talk to any industry likely to be hit hard by climate legislation in the U.S., the one thing they all clamor for is certainty. The fixed price will rise 2.5 percent over the two following years before switching to a market-based pricing system in 2015. Companies will still be able to trade pollution permits in the first phase of the program, but the real trading and market opportunities won’t really take root until the government releases control of the carbon price. The fixed price at the outset of the Australian plan provides the kind of financial certainty that business interests are always asking for. Putting all your eggs into a marketbasket with a free-floating price from the outset can be dangerous. Just ask the Europeans, or Matt Taibbi.

Recognizing that they have no chance of passing a bill in Australia without helping the constituencies likely to be hit hardest by it, the Labor Party made several changes to the plan to boost its political viability. First of all, it made the plan smaller. Some 500 companies are estimated to fall under the Gillard carbon reduction plan, roughly half the number of companies that would have been covered by the even more ambitious Rudd plan.

And what did Labor do to deal with the powerful agricultural interests that certainly killed the bill last time in the Australian Senate? It exempted agriculture from the new plan. And to score some support from the general public, more than half of the revenue raised by the scheme will be returned to lower and middle income Australians via tax credits and direct payments as a buffer against rising cost of energy and other commodities. Another $9 billion in funds will also be directed to help heavy polluting steel and aluminum industries and help the country’s booming liquified natural gas industry adjust to the price increases. The danger, of course, is that sweetening the bill with so much viability can make it ineffective as policy. It can also backfire and turn off the very constituencies who supported the bill in the first place.

But good policy sometimes requires good politics.

Article by Timothy Hurst, appearing courtesy ecopolitology.

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The Australian government has unveiled a proposal to tax its heaviest carbon dioxide emitters as of July 2012, a plan that would make Australia the first nation to put a price on carbon.

The plan, which is expected to pass both houses of parliament before the end of the year, would require the nation’s 500 biggest CO2 emitters to pay $24.60 (AU$23) per ton of carbon dioxide, with that price increasing by 2.5 percent annually until July, 2015.

At that point, an emissions trading scheme will be introduced. By 2020, government officials say, the carbon tax would reduce Australia’s carbon emissions 5 percent below 2000 levels; by 2050, the plan will reduce emissions by 80 percent, officials said.

About AU$10 billion of the anticipated revenue will be funneled into energy efficiency and renewable energy projects.

“Failing to do so means that we would be passing on lower living standards to our children and grandchildren,” said Prime Minister Julia Gillard.

With a population of about 22.6 million, Australia produces about 1.3 percent of the world’s carbon emissions.

Article appearing courtesy Yale Environment 360.

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The results of political compromise — maybe by definition — are seldom satisfactory to anyone. But hasn’t this whole process recently gotten worse than ever before? The ultimate version of the healthcare reform that the Obama administration put through was the product of a hammer and tongs fight from the insurance companies, the pharmaceutical industry, the enormous money and power that they and their partners brought to the battle. Supported by a political machine that benefited from convincing voters that the whole idea of reform was tantamount to socialism, the bill that was ultimately passed is an utter disappointment — and may ultimately fall apart for any number of reasons, one of which is as basic as a successful constitutional challenge.

Closer to my home in the energy sector, I have to say that cap and trade legislation is a similar sort of disaster in the making. Anyone sincerely wanting to use the public sector to lead the way to a sustainable approach to energy has extremely clearcut tools at his disposal. How about the simplicity of a carbon tax? A feed-in tariff? What’s the matter with just pulling the subsidies on oil? If you really want clean energy, there are abundant and crystal clear ways to do it — instantly.

The solutions are all around us — and yet we’re headed in a direction that really couldn’t possibly work. Cap and trade will certainly make a few rich people even richer by creating yet another sandbox in which our *great* investment bankers can play. But the notion that the efficiencies of a free market will move in such a way to place a natural limit on carbon is so ridiculous that it could have only come from a process in which there is fundamentally no genuine concern for solving the problem at hand — one that is just anxiously looking for another opportunity to bilk a clueless electorate.

Think I’m exaggerating about the laughable ineffectiveness of our current political compromise? Ask yourself how it’s possible that a country of the stature of the United States with its (albeit waning) importance on the world stage still does not have an energy policy. It’s not that we have a bad one; our political environment is so contentious and corrupt that we don’t have one at all.

I hereby join the tens of millions of other garden-variety Americans who would give President Obama a piece of advice.

Sir, if you have any chance of re-election, look for counsel outside the Wall Streeters you have brought to your side. Knock off the compromises that result in the garbage legislation that will otherwise be your legacy. Do what you promised your supporters who brought you to office, and do what’s right by your own wits and the intent of the majority the the people who elected you. What do you have to lose?

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