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A Layman’s View of Carbon Reduction Policies A Layman’s View of Carbon Reduction Policies A Layman’s View of Carbon Reduction Policies Overview • History of climate change policy debate • Projected impacts • Australian Government’s response • Opposition proposal • Implications for agricultural sector A Layman’s View of Carbon Reduction Policies The Development of Australia’s Climate Change Policy A Layman’s View of Carbon Reduction Policies Intergovernmental Panel on Climate Change • The IPCC is acknowledged by Governments around the world, including the Australian Government, as the leading authority on climate change science A Layman’s View of Carbon Reduction Policies Intergovernmental Panel on Climate Change It states: • Warming of the climate system is unequivocal • Humans are very likely to be causing most of the warming that has been experienced since 1950 • It is very likely that changes in the global climate system will continue well into the future, and that they will be larger than those seen in the recent past A Layman’s View of Carbon Reduction Policies Since the 1950’s our climate has changed • 0.9°C warming since 1950 • More rain in NW Australia • More heat waves • Less rain in S & E Australia • Fewer frosts • Sea level rise 70mm Source: BOM A Layman’s View of Carbon Reduction Policies Local changes – NSW By 2030 Canberra’s climate could be similar to Dubbo: • Warming of 0.6 to 1°C • 2 to 5% decrease in rainfall This is a moderate climate scenario. Source: CSIRO A Layman’s View of Carbon Reduction Policies Potential impacts on agriculture • More heatwaves likely • Fewer cold and frosty days • More intense and sporadic rainfall • More frequent or intense droughts • Exceptional circumstances declarations likely twice as often and over twice the area by mid century A Layman’s View of Carbon Reduction Policies Australia’s policy response • Both the Australian Government and Opposition parties have agreed to reduce 2000 emissions by at least 5% by 2020 and possibly by up to 25% depending on what the rest of the world does A Layman’s View of Carbon Reduction Policies Government’s key policy response • An Emissions Trading Scheme (ETS) or Carbon Pollutions Reduction Scheme (CPRS) • Market based solution • Sets targets (cap) and issues permits (trade) • Makes big polluters pay (ultimately consumer funded) • Uses money collected from big polluters to compensate households A Layman’s View of Carbon Reduction Policies Cap and trade • An ETS places a price on carbon emissions • CPRS is a ‘cap and trade’ system – It works by putting a ‘cap’ – or annual limit on emissions – Permits or Australian emissions units (AEUs) will be allocated or auctioned up to the total annual cap – Over time the scheme cap will reduce in line with Australia’s international obligations – Long-term certainty for investment A Layman’s View of Carbon Reduction Policies Government’s key policy response is CPRS How does it work? A Layman’s View of Carbon Reduction Policies Cap and trade • The second aspect of the scheme, is that businesses will be able to ‘trade’ permits • Businesses have a choice: – reduce emissions – buy more permits • Market draws out the least cost abatement A Layman’s View of Carbon Reduction Policies Why an ETS? • Climate change is a global problem – Guaranteed emission reductions – International linkages – Least cost abatement, at least in theory A Layman’s View of Carbon Reduction Policies Why not an ETS? • If not introduced across the globe – Make Australian production relatively more expensive – Shift production and pollution to countries that do not price carbon – Reduces our employment and shrinks our economy without addressing global warming – Political reality is that an ETS is unlikely to be consistent across industries nor across national borders A Layman’s View of Carbon Reduction Policies Opposition’s key policy response • Direct action to reduce emissions – command and control • Driven by regulation and subsidies • Offers a quick fix and arguably easier to adjust to economic changes • Works for small reductions but not able to be scaled up • Government to try and pick winners • Public purse (taxpayer) funded • Emissions Reduction Fund is the key vehicle used A Layman’s View of Carbon Reduction Policies Emissions Reduction Fund • Funded by the Government • Invest annual average $1.2 billion in CO2 emission reduction activities • Businesses that reduce emissions below their baseline able to sell abatement to the government • Businesses that emit above baseline penalised • Small businesses able to opt-in A Layman’s View of Carbon Reduction Policies Agricultural emissions • Agricultural emissions have been excluded from CPRS indefinitely – Therefore, farmers will be excluded from liabilities by not having to buy permits A Layman’s View of Carbon Reduction Policies Agricultural offsets • CPRS offsets will apply to agriculture – Offsets are rewards for reductions in emissions from sources not covered by CPRS such as agriculture – Offsets are sold into the covered sector (high emitters such as power stations) for use against CPRS liabilities – Therefore, farmers will be able to generate income from reducing emissions, earning offsets and selling them A Layman’s View of Carbon Reduction Policies What are offsets? Source: DCC A Layman’s View of Carbon Reduction Policies Two types of offsets • CPRS offsets – Uncovered sources that are counted towards Australia’s international commitments, such as agricultural emissions including livestock, fertiliser use and burning of agricultural residues A Layman’s View of Carbon Reduction Policies Two types of offsets • Voluntary market offsets – not CPRS permits – Uncovered sources not counted towards Australia’s international commitments, including through soil carbon and biochar – Transition to CPRS once abatement internationally recognised • International rules satisfied and CPRS requirements met A Layman’s View of Carbon Reduction Policies Agricultural opportunities under Opposition proposal • Like CPRS, no direct costs or liabilities • Potential income through: – replenishment of soil carbons – tree planting and forestry activities A Layman’s View of Carbon Reduction Policies In summary CPRS • • • • • Market based solution Emissions certainty Provides target flexibility Scalable Market draws out least cost abatement in theory • International linkages • Costs passed to consumer vs Direct action • • • • • • • Regulation and subsidies No emissions certainty Less flexible Not scalable Government to try and pick winners No international linkages Taxpayer funded A Layman’s View of Carbon Reduction Policies Questions ?