Carbon Pollution Reduction Scheme - Quick facts

Below are some brief and essential points about the CPRS legislation:

1) The title is misleading - the scheme is about carbon dioxide, and carbon dioxide is not "pollution."  It is a greenhouse gas that is essential to all plant life on the planet.  Just like water vapour - it's a greenhouse gas that's essential to all life - but we don't call water vapour "pollution", do we?

2) The scheme is designed to put a price on carbon dioxide emissions, and for the price of emissions permits to be decided by the INTERNATIONAL TRADING of such permits.*

3) Nobody knows what these permits will cost after 2012, so we have little idea what financial impact the system will have on Australian families or businesses in the medium and long-term.*  We do know that the government is forecasting that it will recieve income of about $12.5 billion in 2012 from the sale of permits - that's equivalent to a 25% increase in the GST.

4) The government's modelling suggests the scheme WILL NOT affect emissions by our power-stations - which are currently the biggest emitters of CO2 in Australia.  This suggests the scheme may be of questionable effectiveness.

5) The scheme currently has a target of a 5% reduction (as a minimum) by 2020 - we currently contribute about 1.5% to world emissions.  So the scheme has a target of reducing world emissions by only 0.075% over the next 10 years.


*technical note: according the Department of Climate Change website, the export of emissions permits will not be allowed initially.  However, it is not clear that the scheme will make it illegal for a company to buy Australian emissions and sell international emissions at the same time, or use derivative products linked to emissions permits (or employ some other similar strategy) - if any of these strategies are allowed, then the price of emissions permits in Australia IS likely to rise to meet the international price (in the event that the international price is higher).

The ineffective CPRS

A report released yesterday by the Australia Institute points out that, contrary to what we have been led to believe, the CPRS will not actually reduce the emissions of our coal-fired power stations in a meaningful way.

Some excerpts:

Coal-fired power stations comprise the largest source of greenhouse gas emissions in Australia, accounting for 36 per cent of total emissions in 2008.  Any determined effort to tackle what Prime Minister Rudd has referred to as the ‘moral challenge’ of climate change would presumably seek to reduce emissions from that source significantly. The proposed Carbon Pollution Reduction Scheme (CPRS), however, does not. (p 1)

[T]he CPRS is complex, expensive and ineffective. The government’s strategy appears to be to suggest to voters that it is taking significant action on climate change while simultaneously assuring industry that no such transformation is occurring. (p 4, emphasis added)

The Rudd government's biggest mistake

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THE first and most important thing to note about Kevin Rudd's emissions trading scheme is that it is a tax.

It's not called a tax, but if it waddles like one, quacks like one, and most pointedly raises money like one, it's a tax. And not just any old tax -- it's a huge and continually growing tax.
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I am convinced that the Rudd government's plan to introduce an ETS, using its current CPRS legislation, is an enormous mistake. Much worse than anything it has done so far, or is ever likely to do in the future.

The government is determined to introduce a massively complicated scheme to make emitters of CO2 pay extra for the right to emit, compensate some parties at different rates for different lengths of time, and increase the costs of many industries in our economy. And it's going to leave the price of CO2 emissions to commodity traders and merchant banks to decide. It's going to cost our economy a fortune - budget papers estimate that it will bring in the same amount, in 2012, as a 25% increase in the GST.

And, the government is intent on introducing its scheme as quickly as possible. It's in a rush for two reasons. First, because people haven't really caught on to the full ramifications of the policy yet, and second, because Kevin Rudd really really wants to be able to show up at the Copenhagen conference with the CPRS feather in his cap.

People haven't really caught on to the full ramifications of the policy yet, because it has such a clever name. It's called a Carbon Pollution Reduction Scheme. It sure sounds like a reasonable enough idea. The only problem is that the title is a lie - both in terms of the words it includes and the words it excludes. The most problematic inclusion in title is "Pollution" - because it's just not true. Carbon Dioxide (we'll assume that "Carbon" is just an innocent abbreviation for Carbon Dioxide) is not a pollutant. Check it out for yourself. Click here to go to the official list of pollutants in Australia, as produced by the government. You'll find CO2's cousin - Carbon Monoxide on the list. But CO2 doesn't make the list. Because it's not a pollutant. It's a gas that's essential for all plant life. Calling CO2 pollution would be like calling Oxygen pollution. But the Rudd government likes to use the word pollution, no matter how misleading.

The thing the title leaves out is the word "tax". The scheme is effectively a tax. If it was actually called a tax, people would be a lot more concerned about it. They would ask questions like - "how much more expensive are my groceries going to be when the scheme comes into effect in a few years?" These are questions the Rudd government doesn't want to answer, and can't really answer - because they are going to leave the pricing of Carbon Dioxide to the market to determine. That means they actually don't know how much more expensive they will be making things. It's kind of convenient too, because when things do become a lot more expensive they can simply blame the very market they empowered to decide the price.

The Carbon Pollution Reduction Scheme is effectively a sociopathic GST on steroids with a personality disorder. But of course the government is very happy to rush it through as a "Carbon Pollution Reduction Scheme". That way Kevin Rudd can show up at Copenhagen and impress all the world leaders with his quick action and visionary plans.

Result: world leaders impressed, Australian people shafted.

Government's climate plan: costly and ineffective

It turns out that treasury modelling indicates that the Rudd governments ETS (in the form of the CPRS) won't actually reduce the emissions of our coal-fired power stations - the largest single contributor to Australia's total emissions:

The bottom-line charge is that while Wong has been relentlessly sounding the alarm about the dramatic action needed now to cut carbon pollution, Treasury modelling buttressing the CPRS shows it will in fact have little or no impact on one of the key offenders -- the coal-fired electricity generation industry -- in our lifetime.
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What she (Wong) doesn't tell us is that her CPRS, complex and
impenetrable as it is, does not actually result in the reduction of greenhouse
gas emissions from our coal-fired power stations.

Using graphs taken from Treasury spreadsheets of the CPRS modelling, Denniss argues that when the CPRS comes in there is a slight reduction in the amount of electricity generated from
black coal between 2010 and 2020 and virtually no reduction in brown coal electricity -- the dirtiest form of electricity generation -- over the same period.

After 2020... emissions from black coal-fired power stations are actually forecast to rise slightly before stabilising until about 2033. Brown coal emissions are also stable between 2020 and 2033. It's only after 2033 -- that is, in 24 years -- that emissions from black and brown coal both begin to fall rapidly. Not only that. The decline in electricity generation from black coal is actually driven solely by the introduction of the government's 20per cent renewable energy arget, an entirely different policy instrument from the CPRS. It is the projected increase in the supply of renewable electricity -- unrelated to the introduction of the CPRS -- that will slightly reduce the amount of electricity generated by black coal power stations. The bigger polluting brown coal power stations will be virtually unaffected.
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And the reason emissions from black and brown coal-fired power stations plummet in 2033 also has nothing to do with the CPRS... Treasury has simply assumed that in 2033 we will invent clean coal and that, having invented it, it will turn out to be cheap. Further, it assumes that between 2033 and 2043 we can replace or retrofit every coal-fired power station in Australia. Despite the fact that it takes five years to plan and build a normal one, Treasury seems to think we can replace them all in 10 years.