Australian Government Innovative Climate Change Policy - Essay Example

? GOVERNMENT AND THE ECONOMY by GOVERNMENT AND THE ECONOMY This paper examines the Federal Government’s Clean Energy Bill, 2011 which was enacted by Australia government in November 2011.Australia adopted an innovative and comprehensive climate change policy which embeds carbon pricing mechanism designed to improve environmental and economic efficiency. In addition the energy bill contains innovative mechanisms to shield it from political and administrative cycles. Climate change won’t just damage the natural environment. Left unchecked, it also poses risks to Australia’s economic prosperity. Climate change will impose economic costs on our society. These costs can be reduced and managed if the world takes action to reduce carbon pollution. But the longer action is delayed, the more it will cost and the worse the impacts will be. INDRODUCTION Australia has more to lose from climate change than any other developed country since it is a hot and dry continent. A clear scientific consensus showed that human activity which releases carbon pollution into the atmosphere, mainly the use of fossil fuels, is risking dangerous climate change. This is why the Government has adopted a plan for a clean energy future for Australia. This plan will reduce pollution and drive investment helping to ensure Australia’s prosperity in the low pollution world of the future. This was done by introduction of a carbon price where by a price tag was placed on every tone of carbon pollution released into the atmosphere. All businesses will be required to pay for their pollution under this price mechanism. The carbon price will be beneficial to the economy since it will create a financial incentive that will flow throughout the economy. Households will benefit from tax cuts, higher family payments and increases in pensions. The carbon price will also change Australia’s electricity generation by encouraging investment in renewable energy like wind and solar power and the use of cleaner fuels like natural gas. The government will be committed supporting jobs throughout manufacturing, food processing industries and coal mining since The Government’s Renewable Energy Target, combined with the carbon price, will deliver around $20 billion of investment in renewable energy by 2020 in today’s dollars. It will mean that the equivalent of 20 per cent of Australia’s electricity will come from renewable sources by 2020 is transformed. The world is moving forward and economies which do not start cleaning up now will fall behind. Australia has spent the last decade working out on how to put a price on carbon pollution is the cheapest way to tackle climate change. The Government’s plan for a clean energy future has been negotiated by the Multi-Party Climate Change Committee. The Committee has agreed to a comprehensive set of measures to help fight climate change. The Government is separately investing in further measures to ease the economic transition to a carbon price, as well as taking additional steps to reduce carbon pollution. BACKGROUND AND ESSENTIAL IDEAS The Government has developed a comprehensive plan for a clean energy future. The need for this plan is clear, from both an environmental and an economic perspective. This plan has been devised in response to clear scientific advice that the world is warming, that carbon pollution from human activity creates. Significant risks and those we can avoid the worst potential impacts by reducing carbon pollution. Taking action on climate change is in our national interest. Australia faces acute risks from climate change. Faced with the serious negative consequences for our natural systems (including national icons like the Great Barrier Reef and Kakadu), our economy and our way of life, it would be irresponsible not to play our part in international action on climate change. Taking action sooner means that the transition to a clean energy future can be more gradual, manageable and affordable. Treasury modeling shows that, for economies like Australia, deferring action will only lead to higher long-term costs If we do not reduce carbon pollution, the world risks serious effects from climate change. Global average temperatures could increase by up to 6.4 degrees Celsius above 1990 temperatures by 2100. Sea levels are estimated to rise by between 0.5 and 1 metre by 2100 from 2000 levels and the acidity of the world’s oceans will increase significantly. Cyclones, storms, floods and other extreme weather events are likely to change in severity or frequency. Rainfall patterns around the world will change, making some places drier and other places wetter Climate change won’t just damage the natural environment. Left unchecked, it also poses risks to Australia’s economic prosperity. Climate change will impose economic costs on our society. These costs can be reduced and managed if the world takes action to reduce carbon pollution. But the longer action is delayed, the more it will cost and the worse the impacts will be. Studies in Australia and around the world have demonstrated that, with known technologies, pollution can be reduced while maintaining economic growth. Indeed, the retooling of our economy will deliver new technologies, new jobs and new opportunities. The Government’s plan for a clean energy future is a comprehensive plan designed to translate these opportunities into reality. ECONOMIC IMPACTS OF CARBON PRICING Treasury modeling estimates that under a carbon price incomes will grow. Gross National Income per person will increases from today’s levels (around $56,000) by around $9,000 per person to 2019-20. By 2050, the increase is expected to be more than $30,000 per person in today’s dollars. There will be creation of jobs, national employment will increases by 1.6 million jobs by 2020.In addition Large-scale renewable energy is projected to be 18 times its current size by 2050. Total renewable generation will comprise around 40 per cent of electricity generation in 2050 AUSTRALIA’S ENERGY SECTOR Australia needs to transform its energy sector from its current high-pollution mix towards a greater reliance on clean energy sources. This is achievable. Treasury modeling shows that a carbon price together with the Government’s other clean energy support measures will reshape the future development of our electricity sector. The Government will supplement these policies with measures to underpin a successful energy market transition and maintain Australia’s enviable record of secure energy supplies. Reflecting the historical availability of low-cost coal in Australia, coal-fired generation currently accounts for around 75 per cent of Australia’s electricity. However, burning coal puts large amounts of carbon pollution into the atmosphere. For every unit of electricity produced, conventional coal-fired generation releases around twice as much carbon pollution as generating electricity by burning natural gas. Yet gas-fired generation currently only accounts for around 16 per cent of Australia’s electricity. Generating electricity from renewable resources like wind or solar power puts no carbon pollution into the atmosphere. Renewable electricity currently accounts for around 8 per cent of Australia’s power supplies. VIEWS FROM EXPERTS Several experts have discussed about the Clean Energy Bill. Robert Rapier a technology officer in a renewable energy company says that developing countries should clean up its acts. He also states that carbon emissions are being increasingly driven by developing countries globally meaning that carbon pricing will be successful if adopted globally. He adds most developing countries in the past decade has witnessed their carbon emissions grow by double digits because they are industrializing hence they have to increased their consumption of fossil fuels such as coal and oil. Margaret Walls, a research director and senior fellow at Resources for the Future, an independent nonprofit research organization in Washington, D.C argues that carbon tax is the best approach since it will encourage conservation, development of low carbon alternatives and fuel switching. Todd Myers an environmental director at the Washington Policy Center in Seattle and author of "Eco-Fads: How the Rise of Trendy Environmentalism is Harming the Environment" agrees with the adoption of carbon tax. He lists three elements which should be considered when setting an appropriate carbon pricing model; it must be revenue neutral, should replace wasteful regulations and must commensurate to the impact. Climate policy has increasingly been a good source of revenue to the economy either through taxation of carbon emissions of auction of allowances. USES OF REVENUE FROM CARBON PRICING Government has established a process for which the revenue generated will be used. Money gets into the national treasury, and its spending is determined through the annual Budget process. The $10 billion Clean Energy Finance Corporation will invest in businesses seeking funds to get innovative clean energy proposals and technologies off the ground. These government-backed investments will deliver the financial capital needed to transform the economy. The Corporation will be independent from the Government. The Government will appoint an independent Chair who will have appropriate banking or investment management experience. In setting up the Corporation, the Government will draw on the knowledge and experience of the Chair, who will recommend a detailed investment mandate, risk management policies and governance arrangements. The Chair will preside over an independent board, comprising experts in banking, investment management, renewable energy and low-pollution technologies. The board will have responsibility for setting the investment strategy and managing the Corporation’s investments consistent with an investment mandate set by the Government. A PLAN OF ACTION To maintain living standards and international economic competitiveness, changes have to be made in a measured and practical manner. It will be critical to use the most environmentally effective and economically efficient policies that can be devised. All of this is required to reduce the risks to our environment, our economy and our international competitiveness that a ‘wait and see’ approach would bring. Australian Government has developed a comprehensive plan to move to a clean energy future. These include the following: Substantial industry assistance which will be provided to support jobs and competitiveness as the country move to a clean energy future for emissions-intensive, trade-exposed industries, manufacturing, food processing, metal forgers and foundries, electricity generators and small business, as agreed by the Multi-Party Climate Change Committee. The Government is also separately investing in protecting jobs in the steel and coal industries The Government will seek to negotiate the closure of around 2000 megawatts of highly polluting electricity generation capacity by 2020 tonnes. A price on carbon pollution will create incentives to reduce pollution and invest in clean energy. A carbon price will ensure that pollution is reduced at the lowest cost to the economy. Under the carbon price, around 500 of the biggest polluters in Australia will need to buy and surrender to the Government a permit for every tonne of carbon pollution they produce. For the first three years, the carbon price will be fixed like a tax, before moving to an emissions trading scheme in 2015. In the fixed price stage, starting on 1 July 2012, the carbon price will start at $23 a tonne, rising at 2.5 per cent a year in real terms. From 1 July 2015, the carbon price will be set by the market. The carbon price will be accompanied by assistance supporting households, jobs, businesses and communities, to help them adjust, lower their carbon pollution and to protect our international competitiveness reduce pollution and facilitate a smooth energy market transition A $10 billion new commercially oriented Clean Energy Finance Corporation will invest in renewable energy, low pollution and energy efficiency technologies. The Government is providing additional support to promote energy efficiency. Low Carbon Communities will help local councils and communities improve energy efficiency in community facilities, including a new Low Income Energy Efficiency Program. The Government will expedite the development of a national energy savings initiative. CLEAN TECHNOLOGY PROGRAM The government of Australia will allocate $800 million Clean Technology for Investment Program to provide grants to manufacturers to support investments in energy-efficient capital equipment and low-pollution technologies, processes and products. These grants will provide practical assistance and support the incentives created by the carbon price to improve energy efficiency or use energy from cleaner sources. This investment will help modernize parts of the Australian manufacturing sector and help manufacturers compete in a low-carbon world, with benefits for the job security of manufacturing workers. The Government will also provide an additional $200 million over five years for grants to support business investment in research and development (R&D) in the areas of renewable energy, low pollution technology and energy efficiency. Providing funding will help educational institutions and industry develop the materials and expertise needed to promote clean energy skills. Tradespersons and professionals will develop the skills needed to deliver energy efficiency services, clean energy projects and low pollution products to Australian households, communities and businesses. This will help transition workers of all types to a low-carbon economy by providing them with the skills that will become increasingly important as businesses adapt to a clean energy future. SUPPORT FOR SMALL BUSINESSES Small business makes a vital contribution to economic activity. Small businesses will not have to directly pay a carbon price. They will not be required to undertake any compliance activity or fill out any forms due to the carbon price. When it comes to indirect impacts, most small businesses will not be materially affected. Nevertheless, many small businesses may wish to make a contribution towards the move to a clean energy future. In response to Australia’s Future Tax System Review, the small business instant asset write-off threshold is already being increased from $1,000 to $5,000 from 2012-13, subject to the passage of the Minerals Resource Rent Tax legislation. The Government will now further increase the threshold from $5,000 to $6,500. This applies to small businesses with an aggregate turnover of less than $2 million a year from 2012-13.The instant asset write-off provides businesses with increased cash flow by providing an immediate income tax deduction for depreciable assets costing less than the threshold level. Increasing the threshold to $6,500 will allow small businesses to immediately write-off more expensive assets and provide more cash flow benefits. This will increase the capacity for small businesses to invest in new assets. For example, Jane runs a small cafe and buys a new storage freezer for $6,000 for use in the business. It is much more energy efficient than her old freezer, which will help control Jane’s power bills. She will be able to immediately write-off the value of the freezer as it costs less than $6,500.This immediate deduction of $6,000 means that a tax benefit of $1,800 could arise in the first income year she uses the freezer or installs it ready for use. She can now use her tax saving to grow her business and invest in other assets. THE NEED FOR INNOVATION To tackle climate change, Australia needs to transform its energy sector. There are world-class scientists and researchers. There is a dynamic and competitive business and private sector. And we have abundant resources of renewable energy, ranging from sunshine and wind power to the geothermal energy harnessed by tapping into hot rocks underground and the wave and tidal power of the oceans surrounding our continent. By finding better ways of producing energy from existing sources, and by tapping into new energy sources, Australia can lower its carbon pollution substantially. This is why renewable energy is one of the four elements in the Australian Government’s plan for a clean energy future, along with a carbon price, energy efficiency and action on the land. NATIONAL ENERGY SAVING INITIATIVE The Government of Australia published the report of the Prime Minister’s Task Group on Energy Efficiency. The Task Group examined the most economically and environmentally effective ways of delivering a step change in Australia’s energy efficiency performance. A national energy savings initiative would place obligations for deploying energy savings measures on energy retailers who have considerable information about their customers’ needs and how to manage energy demand. A national energy savings initiative would replace existing state energy efficiency schemes in NSW, Victoria and South Australia. This would reduce complexity and duplication and allow energy consumers in states without existing schemes to benefit. In European countries and several US states, energy efficiency schemes operate alongside, and complement, a carbon price. India has introduced a white certificate trading scheme and a number of Chinese provinces are also finalizing the design of such schemes. CONCLUSION Under the Government’s clean energy plan, the carbon pricing mechanism will establish a clear price path into the future for carbon pollution. Just as businesses currently take account of the likely future costs of labour, transport and materials when making decisions, they will now factor in the costs of carbon pollution when weighing up alternative investment decisions. Greater certainty about carbon pricing will lower business and financial risk. This, in turn, will make it easier for the corporate sector to give the green light to key business decisions for a clean energy future, such as whether to spend funds cleaning up production facilities, improving energy efficiency or adopting new low-pollution technologies. The Government’s clean energy plan also includes significant new measures to encourage business innovation, especially in the energy sector. Climate change won’t just damage the natural environment. Left unchecked, it also poses risks to Australia’s economic prosperity. Climate change will impose economic costs on our society. These costs can be reduced and managed if we take action to reduce carbon pollution. But the longer we delay action, the more it will cost and the worse the impacts will be. Sound governance will ensure that the carbon pricing mechanism is efficient and effective. The roles of making, administering and reviewing the rules have been carefully allocated to ensure that appropriate accountabilities are in place. After the carbon price is introduced, households can continue to consume the same things, but the carbon price means that they will have a financial incentive to consider alternatives. This is because the change in the prices of goods and services which are produced with relatively lower levels of carbon pollution will be less than the change in the prices of high-pollution goods and services. These price differences mean consumers will take carbon pollution into account when they make everyday decisions about what they buy. A product made in a more energy efficient factory will cost less than the same product from a less energy-efficient factory. Households choosing the first product will be rewarding cleaner production. In this way households will be supporting Australia’s move to a clean energy future and household assistance will not blunt these price signals Reference list Hourcade, J.-C., et al. (2010), “Carbon Tax and Equity: The Importance of Policy Design”, in D. Soares et al. (eds), Critical Issues in Environmental Taxation, Oxford: Oxford University Press. Whitesell, W. (2011), Climate Policy Foundations: Science and Economics with Lessons from Monetary Regulation, Cambridge: Cambridge University Press Garnaut, R. (2011), The Garnaut Review 2011: Australia in the Global Response to Climate Change, Cambridge: Cambridge University Press. See in particular Chapter 6 “Better Climate, Better Tax.” The Climate Institute (2012), “Climate of the Nation 2012 Australian Attitudes on Climate Change.” Harrison, K. and Sundstrom, L.M. (2010), Global Commons, Domestic Decisions: The Comparative Politics of Climate Chang, Cambridge, MA: MIT Press. Hourcade, J.-C., et al. 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