Carbon tax a fairer way to reach 2030 carbon target

Even the Australian Competition and Consumer Commission on Tuesday parked its new tough line against mergers to approve Brookfield’s takeover of Origin Energy, on the public-benefit grounds that the Canadian asset manager giant was better placed to speed up the decarbonisation of the nation’s biggest electricity producer.

Yet, the disproportionate burden on the electricity system also exposes the policy failure to spread the responsibility for reducing carbon emissions fairly across the whole economy.

Decarbonisation of an electricity grid responsible for a third of the nation’s carbon pollution – which is running into real-world cost and complexity challenges – is being asked to do all the heavy lifting to meet a 2030 target on the journey to net zero emissions by 2050.

Emissions from the transport and agriculture sectors are forecast to increase by 2030. Emissions from stationary energy – burning fossil fuels to power mining, manufacturing, building and other processes – are forecast to remain steady. Industrial emissions are projected to decline 13 per cent.

These sectors are among the so-called “hard to abate” ones that involve high levels of emissions that are costly to reduce. Climate Change and Energy Minister Chris Bowen has announced that the next step to the interim target is to develop sectoral decarbonisation plans, including for electricity and energy, industry, the built environment, agriculture and land, transport, and resources.

There is no plan B as ageing coal plants deteriorate.

That follows Labor’s needed strengthening of the “safeguard mechanism” that requires Australia’s 215 biggest emitters to abate their emissions below a baseline.

Some question the “loopholes” that allow businesses to buy carbon credit offsets rather than actually reduce emissions, amid the debate about the potential for carbon leakage offshore if so-called trade-exposed Australian industries such as cement, steel and aluminium producers are subject to climate obligations that international competitors are not.

Yet what this piecemeal implicit price on carbon and emissions trading truly reveals is the economy-wide revenue-neutral carbon tax sized-hole in Australia’s climate plans.

The carbon tax was the policy that cut a swath through a generation of Australian prime ministers.

But above all it meant that during the lost decade of carbon culture wars in Canberra, there was no clear price signal and market mechanism to drive the most efficient, cheapest solutions, while fairly sharing the burden across all carbon-belching businesses.

The consensus across the spectrum of opinion on day two of the Summit was that the energy transition that Labor is counting on to make an outsized contribution to cutting emissions is in trouble.

From different perspectives, former Snowy Hydro chief executive Paul Broad and climate advisory group Pollination’s Zoe Whitton both warned of blackouts this coming El Nino summer.

While questioning whether running an overwhelmingly renewables grid is even technically possible, energy expert Matthew Warren said there was no plan B as ageing coal plants deteriorated and the Victorian Labor government ruled out gas peaking back-ups.

The reliability risks are likely to encourage more ad hoc government interventions – such as taxpayer-subsidised deals to keep coal generators running – as opposed to relying on an overall market-based framework.

Doing whatever is possible to move back towards a broad-based carbon tax – along with removing political opposition to gas, nuclear and carbon capture and storage – would help take pressure off the daunting decarbonisation challenge while retaining the economy’s energy competitiveness and keeping the lights on.