Download Climate Change AEBN speech

Australian Environment Business Network
Industry and Greenhouse Conference
Sydney, 27 February 2008
Alternative arrangements for carbon abatement and
associated issues from a petroleum company’s
perspective
Frank Topham
Government Affairs & Strategic Communications Manager
Caltex Australia Limited
Climate change AEBN Caltex speech 270208.ppt
Caltex profile
• Australian company - ASX listed
• Chevron 50% shareholder – but all decisions by Aust
management and board
• No overseas operations, no exploration or production
• Refining and marketing only
• 2 refineries – Kurnell NSW and Lytton Qld
• 1750 branded service stations (Caltex, Caltex Woolworths,
Ampol) of which 511 owned or leased
• #1 convenience retailer
• 3200 employees
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Climate change AEBN Caltex speech 270208.ppt
Caltex climate change policy
• Accept conclusions of IPCC on science
• Recognise climate change presents a significant risk to economies,
societies and the environment
• Support long term aspirational goal for reduction of greenhouse gas
emissions but experts to determine reduction %
• Support carbon pricing – carbon tax better for liquid fuels
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Climate change AEBN Caltex speech 270208.ppt
Australian greenhouse gas emissions
• Total Australian GHG emissions 559 Mt CO2eq
• Contribution of petroleum products
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Petrol (motorists)
47 Mt
8%
Diesel (transport/industry)
44 Mt
8%
Jet/other fuels
22 Mt
4%
Total
113 Mt
20%
Refinery emissions
5 Mt
1%
Source : Australia's National Greenhouse Accounts,
National Greenhouse Gas Inventory 2005
Climate change AEBN Caltex speech 270208.ppt
Customer emissions are 20 times Caltex emissions
Greenhouse gas emissions
Mt CO2 eq
Caltex direct emissions
1.8
Caltex indirect emissions
0.4
Caltex customers
5
Petrol
17
Diesel
12
Jet fuel/other
6
Total fuels
35
Australia - petroleum products
113
Australia - total emissions
559
Climate change AEBN Caltex speech 270208.ppt
Caltex key policies on carbon pricing
• Emission trading supported for refining - but must not reduce
international competitiveness
– energy intensive trade exposed industries require protection
– issue free allocation of permits
• Carbon tax should apply to liquid fuels - not emission trading
– Caltex proposes carbon tax be set equal to ET permit price
– 40 A$/t CO2 is about 10 cpl petrol
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Climate change AEBN Caltex speech 270208.ppt
Carbon tax for liquid fuels more environmentally
effective than emission trading
• Carbon tax more visible so stronger consumer influence
– emission trading cost “lost” in fuel price volatility
• How much would carbon price reduce emissions?
– A$40/tonne CO2 is 10 cpl petrol
– price elasticity of demand about -0.1 (short run), -0.5 (long run)
– 7% price increase reduces petrol emissions by 0.3 Mt (short
run) and 3.5 Mt (long run) versus 47 Mt emissions in 2005
– so carbon price ineffective in substantially reducing emissions
• Alternative policy instruments may be needed
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Climate change AEBN Caltex speech 270208.ppt
Carbon tax more transparent than emission trading
• Carbon tax would operate in similar way to excise
• Price monitoring simple as carbon price known
• Emission trading carbon price very difficult to monitor
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Climate change AEBN Caltex speech 270208.ppt
Emission trading would cost motorists $200 million pa
(1 cpl) more than carbon tax
• Under emission trading, fuel suppliers must purchase $5 billion of
emission permits annually
• Caltex $1.4 billion v debt of $600 million/EBIT $675 million
– so unable to significantly participate in permit auctions
• Financial middleman working capital cost/profit $200 million pa
– no middleman with carbon tax
• Carbon tax allows more precise revenue recycling
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Climate change AEBN Caltex speech 270208.ppt
Other issues
• Emission trading for liquid fuels would not assist carbon price
discovery as fuel suppliers can’t make technology choices
• End user liability would be very complex under emission trading,
simple under carbon tax
• Emission trading for liquid fuels creates inequitable financial risks
for fuel suppliers
– no capacity to absorb carbon costs
– but exposed to competitive risk of permit price under-recovery
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Climate change AEBN Caltex speech 270208.ppt
What are the policy options for 2010?
• Omit all liquid fuels from carbon pricing
• Omit all liquid fuels from carbon pricing except those within
emission reporting threshold (eg 25,000 kt for facility)
• Apply emission trading to all liquid fuels
• Apply a carbon tax to all liquid fuels
– with end user acquittal likely from 2011
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Climate change AEBN Caltex speech 270208.ppt