Australia’s cap and trade system, the Carbon Pollution Reduction Scheme (CPRS), is being reintroduced into Parliament this week, after two rejections in 2009 (see here and here). However, it is almost certain that it will fail again, following decreasing public support for the policy after the Copenhagen conference and Tony Abbott’s ascension to the opposition leadership.

To start with, public support for Prime minister Kevin Rudd’s flagship policy has dived 10 points from 66 to 56 per cent according to the latest Herald/Nielsen poll, while opposition to the trading scheme has risen 4 points from 25 to 29 per cent. While there has always been a high level of confusion in the electorate about climate change policy, and in particular about the CPRS, the failure of the Copenhagen conference shifted to a certain extent the public sentiment about climate change. In particular, extensive media coverage of a series of ‘scandals’ linked to the IPCC’s work has opened new windows for the numerous Australian and international climate sceptics (see for example Lord Monckton).

However the biggest challenge faced today by the government is without doubt the unexpected come back of the opposition (the Liberals) in the climate debate. The previous opposition leader, Malcolm Turnbull, is a supporter of the scheme, which had greatly divided his party over the climate issue, to the benefit of the government. Yet Turnbull has recently been ousted by Tony Abbott, a strong opponent of cap and trade and climate policy in general, not to say a climate sceptic. The change here is that Abbott has come forward with an alternative to the governmental policy. The Coalition’s (Liberals+Nationals) “Direct action plan on the environment and climate change” would create an AUS$2.5bn fund to provide incentives for industry and farmers to reduce emissions through measures such as storing carbon in soil. The plan also includes the planting of 20 million trees by 2020 and would provide $1000 rebates to home owners for solar cells. The plan has immediately been slashed by environmentalists, Greens and the Labour Party as been unable to lead the country to a minimum 5 per cent cut in emissions by 2020 compared to 2005 levels, as Australia pledged in Copenhagen. While Kevin Rudd has ridiculed the direct-action plan as “a climate con job”, most business groups have backed the plan, agreeing with the opposition Leader’s assertion it is “cheaper, simpler and more cost-effective” than Labour’s proposed carbon emissions trading scheme.

With a now clear opposition to the scheme, the government’s CPRS is very likely to be rejected by the Senate this week. The government would then again have the possibility to trigger an early election, though it would be very unlikely since the next general election will take place this year. In the most optimistic scenario, a cap and trade system would therefore not be voted for another year. Kevin Rudd’s approval rating is still way ahead from his potential challenger, though Abbott’s popularity is rising. But it is surprising that Rudd is not working to rally public opinion: he has not made a speech about climate change in the past weeks and is, instead, trying to change the subject. It is time now for Prime minister Rudd to start campaigning for his cap and trade scheme and explain to people why Australia should be moving when things look bleak internationally.

Ice sculpture in Darling Harbour. Image by Kirsten Spry.

There are only a few months left until leaders of the international community convene in Copenhagen to agree upon a replacement for the Kyoto Protocol. Prime Minister Rudd has already declared that Australia will not go to the convention empty-handed. So far, Australia’s climate change legislation has faced some hurdles with its CPRS bill. However, with the recent approval of the renewable energy target, there is hope that Rudd will be able to keep his promise.

Following the defeat of Prime Minister Rudd’s Carbon Pollution Reduction Scheme (CPRS) 42-30 by the Senate on August 13th, the Renewable Energy Target was split from Rudd’s controversial carbon trading legislation. The new legislation - calling for a 20 per cent renewable energy target - was subsequently approved when brought before the Senate again last Friday.

This new target matches the renewable energy target set by the European Union and means that, within a decade, all Australian households could be powered by renewable energy. While the Greens argue that this renewable energy target should be 30 per cent, it is huge increase from the 8 per cent target in place prior to the bill’s approval.

Upon the failure of Rudd’s CPRS scheme, Minister of Water and Climate Change, Penny Wong, vowed to bring the legislation up for a vote once more in three months time.

“I urge those opposite who have become supporters of renewable energy in recent times to join the bigger fight, the bigger fight against climate change, and I urge them to support when the government next presents the carbon pollution reduction scheme,” says Wong.

With the approval of the new renewable energy targets, Australia is guaranteed at least some legislation on hand in Copenhagen. However, the Rudd government faces an uphill battle in the months ahead to get their carbon trading scheme through.

With one failure already on its books, the carbon trading legislation will need re-tooling over the course of the next three months in order to stand a chance at success.

In its current form, the proposed legislation faced several opponents who will make the same claims in the next round of votes if their concerns are not appeased. These opponents included the Greens, Conservatives and independent senators who blocked the emissions trade scheme due to its impact on the economy, environment, and on jobs for Australians.

With so many groups to appease, can Rudd make the necessary adjustments in time to get his carbon trading legislation through parliament? The timing might be short, but the Opposition has already begun drafting amendments for the bill and Government continues to have talks with the coal industry.

It may be impossible to please every opponent, but hopefully by mid-November, some form of consensus will be reached on an emissions trading scheme for Australia, allowing Rudd to bring a solid example of Australia’s commitment to combat climate change with him to Copenhagen.

Cloud over climate climate change deal in Parliament House, Canberra

On Thursday (13/08/09), the Australian Senate defeated the Rudd Government’s Carbon Pollution Reduction Scheme (CPRS), a legislative package made up of a Carbon emission trading scheme and ten related bills (click here for previous developments). The Opposition, Greens, and the independents, Nick Xenophon and Steve Fielding, voted to defeat the package 42 to 30. Prime Minister Rudd has called the day “a disappointing day for Australia” and accused the opposition of “placing the nation’s future at risk” (ABC 13/08/09).

The Government is determined not to go to Copenhagen empty-handed, and will reintroduce the same legislation in three months. At that time, if the bills are rejected a second time, Labour will have a trigger to dissolve both houses of Parliament and call an early election.

Let’s have look at the opponents’ rationale for rejecting this scheme.

Malcolm Turnbull, the Coalition leader, has managed to save himself some embarrassment by gaining the support of the majority of his party room to keep alive the prospect of negotiating a deal with the Government over the emission trading scheme. Indeed, if Turnbull had directed the Coalition to vote for the Government scheme, his weakness would have been fully exposed. The Nationals, and perhaps even some Liberals, would have defied him by crossing the floor in the Senate.

However, his leadership is seriously threatened as he will have to reassess his position to avoid potentially disastrous elections, and faces an inevitable split among the Coalition. Eventually, Liberals will somehow have to support the legislative package and split from the Nationals, who are not prepared to countenance any emissions trading scheme. In the meantime, Turnbull is trying to win some time in order to offer constructive alternatives. But he is not. Two days before the vote, the Coalition had produced a policy model, commissioned from the consultancy Frontier Economics, and which Climate Change Minister Penny Wong has described as a ”mongrel” (SMH 14/08/09). The model is radically different from Labour’s scheme in that it treats electricity generation less punitively and claims to reduce the negative impacts on Australian employment, one of the main Liberal arguments against CPRS. But Turnbull has little hope of succeeding in negotiating with the Government, which is showing him no mercy.

The Greens rejected the bills because they see the Government’s 2020 emissions reduction targets - between an unconditional 5 per cent and a highly-conditional 25 per cent - as too timid; and generally condemn the CPRS’ easiness on polluters (ENS 14/08/09). Green groups are now using the defeat of the emissions trading scheme bill to urge the Government to separate its renewable energy target from the rejected trading legislation. Indeed, the renewable energy target - 20 per cent by 2020 - is set to reach the Senate next week for a vote, but is not expected to pass unless the Government removes a part of the bill that links compensation to heavy-emitting industries under the target to the passage of its now-rejected carbon trading scheme.

The Greens will move amendments to the target legislation, increasing it and removing industry assistance, and introducing a renewable energy feed-in tariff. The Opposition is also working on amendments, mainly to add extra exemptions for the aluminum and milk pasteurisation industries. Prime Minister Rudd said he would not commit to changes to the renewable energy target but that Labour is likely to separate this question from the carbon trading scheme. Next week’s vote on renewables target will therefore be an important test to see if Australian parties manage to overcome their excessive divisions. All the more so as a recent poll showed that Australians, who by a majority support the CPRS legislation, are losing patience with their politicians on climate change. (SMH 14/08/09)

The Rudd government has just released (19/06/09) draft regulations for the Australian Carbon Pollution Reduction Scheme (CPRS), outlining how carbon emissions will be measured and industry compensation calculated. The draft regulations specify the framework for the Emission Intensive-Trade Exposed assistance program, application procedures and reporting requirements for eligible entities under the program.

The regulations just published are the first of several disclosures on how the country’s emissions trading scheme will take shape, Australia’s Climate Change Minister Penny Wong said. The rules outline some of the highly emissions-intensive sectors that will receive up to 94.5 per cent of their expected needed amount of emission permits for free under the CPRS.
Production of carbon black, methanol, silicon, bulk flat glass, newsprint, and zinc will all be counted in this category. Moderately emission-intensive sectors will get up to 66 per cent of their allowances free of charge.

Treatment of energy-intensive trade-exposed industries under the carbon scheme is playing a major role in Australia’s debate on how to tackle climate change, as many industries and the Opposition fear jobs will be lost to countries without carbon regulations, such as China and India. In addition, Greens strongly oppose the draft, as stated by Senator Christine Milne: “The draft regulations confirm that the carbon pollution reduction scheme will be a multi-million dollar wealth transfer from the people to the big polluters, and that stands in the way of protecting the climate,” (ABC 19/06/09)

The Government says it is releasing the draft regulations earlier than normal because it wants to give MPs as much information as possible. It is indeed trying to get senators to support its scheme in an effort to have the legislation passed by the Senate next week. But the ETS legislation is in trouble. The Opposition, which does not want to vote on the scheme until next year, plans to filibuster all week to avoid it being put to a vote at all. The Greens have vowed to vote the scheme down but do not support delaying the vote. (ABC 18/06/09) If the bill is defeated, or there is a vote to defer it until August, either will count as a refusal by the Senate to pass it. In this case, things could start to become very difficult for the Rudd government, possibly triggering an early election before the end of the year. (SMH 19/06/09)

Australian Senate (flickr Aschaf)

Last week, in the biggest policy reversal of his prime ministership, aimed at wooing big businesses and the Liberal Party, Kevin Rudd announced important changes concerning Australia’s emission trading scheme.

Firstly, Prime Minister Rudd announced the delay of the scheme of one year, pushing back the start date to July 2011, in order to manage the impact of the global recession. Australia will also fix the trading price of carbon at AU$ 10 (US$ 7.35, € 5.50) a tonne until mid-2012 (instead of the AU$ 40 a tonne maximum price for emission permits originally proposed), making the scheme akin to a carbon tax in its first year. In addition, the government will increase free permit allocation by adding a “global recession buffer” in the early years. Industries eligible for 60 per cent of their permits issued free will receive a further 10 per cent, while energy intensive, trade exposed industries eligible for 90 per cent assistance will now receive an extra 5 per cent. This generous compensation for the nation’s heaviest polluters, illustrating the success of the country’s enormous oil, gas and coal lobbies, has been found repugnant by Rudd’s own expert, Professor Ross Garnaut.

The issue is that the Rudd government doesn’t have the power to implement any scheme because it doesn’t have the numbers in the Senate and faces a barrage of opposition from the Liberals, the Greens and independent Senators. Through accommodating the demands of business lobby groups, Rudd aimed at putting the Opposition Leader, Malcolm Turnbull, under business pressure to pass the emissions trading scheme in the Senate. But that was underestimating Turnbull’s stubbornness. Following its strategy of opposing anything and everything the Government says or does, the Federal Opposition said it will have an alternative proposal to the Government’s emissions trading scheme by the time it is debated in the Parliament next month. (ABC 10/05/09)

Secondly, Rudd announced a change to Australia’s 2020 emissions reduction target range. As a sop to environmentalists, he announced a heavily conditional commitment to increase from 15 per cent to 25 per cent the maximum amount by which greenhouse gases would be reduced by 2020. “I am in the practical business of responding to realistic challenges,” Mr Rudd said of his reversal, which would mean “a slower start” but a “stronger, greener conclusion” (SMH 05/05/09). The Government’s strategy was to win back public support for Labour’s climate policy by holding out the prospect that Australia was now supporting a stronger global agreement. However, this commitment would depend utterly on other countries, China and India included, making serious commitments at Copenhagen. The new deal was slammed by Green senators who consider the new target still too low and new corporate compensation too generous (SMH 10/05/09).

Today, hope around the two-fold Government strategy to win back support for its carbon scheme in Senate has evaporated. Australia remains deeply divided on how to build an ambitious national climate change policy. Four Opposition senators have even issued a report that says boosting Australia’s emissions could help the planet because if Australia reduced its emissions, that could mean industries moving offshore, where environmental standards were lower. Such initiative has reason to worry Climate Change Minister Penny Wong. She is determined to pass the emission trading scheme through Parliament in June; otherwise Australia’s negotiation credibility could be undermined at Copenhagen. But today it appears Wong will arrive in Copenhagen not only without a national commitment, but also without a national consensus.

As predicted in Climatico’s last national climate policy report, Australia has just taken the lead, along with Britain, in the development of Carbon Capture and Storage. A few days ago, Prime Minister Kevin Rudd inaugurated the Global Carbon Capture and Storage Institute in Canberra, with its 85 members, ranging from the governments of Japan and the US to giant coal and oil companies. The Institute will receive up to AU$ 100 million in government funding per year. CCS demonstration plants will soon be built.

Australia is indeed the world’s largest coal exporter, and coal is the nation’s most valuable export. As acknowledged by Rudd, “coal has been a major contributor to our nation’s prosperity.” (SMH 16/04/09). Yet coal production and use is also a very significant contributor to greenhouse gas concerns and remains a millstone around the country’s neck. By recognising that “the cold hard reality that coal will be a major source of power generation for many years to come” (SHM 16/04/09) Prime Minister Rudd is quite clear about his intentions, and therefore reassures the powerful industry lobby.

Pressure to be able to deliver Australia’s pledges of major carbon emissions reductions in 20 to 50 years is undoubtedly hangs in the balance. But what about medium term targets? Coal-fired power stations with CCS technology will not be operating for another ten years at least and they will not be commercially viable for 30-40 years. The technology’s efficiency is controversial. Moreover, CCS technology cannot be retro-fitted to existing coal fired power stations, so how long will it realistically take before Australia uses 100% clean coal?

The Government needs climate solutions now and should dedicate its funds to develop existing reliable renewable solutions such as wind and solar. Scientists from the government’s principal scientific board, the CSIRO, have taken a bold step last week by making clear that coal is the energy of the past. The scientists have chosen not to make a submission to the Senate inquiry into the Government’s Carbon Pollution Reduction Scheme (SMH 27/04/09) but have rather spoken out personally to the Senate committee. Their message was precise and simple: no coal-fired power plants should be built, and existing plants must shut within 20 years, if the world is to keep atmospheric carbon dioxide at a less dangerous level (SMH 24/04/09).

Last week, from the midst of COP-14 in Poland, I reported that the major developed countries were engaged in something of a waiting game on emissions targets, each waiting to see what others would do before announcing their own.  

As you may remember, on Wednesday of last week Canada, Australia and Japan pulled the text on 2020 emissions targets from one of the conference texts.  The absence of the targets (25-40%) left states waiting to see if others would commit before they did in a classic example of game theory.

Australia put itself in the best position in this game by delaying announcement of its targets until today–two days after the end of the Poznan COP-14.  It has now pledged a 5-15% cut by 2020, as well as an auction-based cap-and-trade system covering 75% of emissions.  Permits will be auctioned with a maximum price of A$40, with the system becoming operational by mid-2010. 

The emission target is much lower than other major developed countries, especially in Europe and increasingly the USA where targets are 20%.  You’ll also notice that this number is a range, and not a particularly narrow one.  If ‘other countries’ (read: USA, Canada, Japan) do not take on targets themselves in Copenhagen–meaning that there would not be a global emissions cut for developed countries–Australia will take the 5% option.  If a global deal is reached then the numbers move up, presumably on some kind of undefined sliding scale.  The definition of these numbers will, in turn, shape the domestic carbon market price. 

Effectively, Australia has managed to keep it hand in the game by allowing itself some room for maneuver into the future.  It has the advantageous position of having made a commitment but also allowing itself remaining competitive by altering that commitment in such an uncertain political process.

From the inside, however, this position looks less advantageous; Prime Minister Rudd is under significant pressure from the mining lobby in Australia, who, according to reports in the corridors at Poznan, were pushing for the abandonment of the cuts completely.  On the other hand, Rudd has consistently run on a green political platform, building expectations from both NGOs and European Leaders over the past year of major emissions cuts.  

Rather than a carefully calculated game theory move, Australia’s announcement today is more of the sum of the pressures Rudd faces from various sides.  

An interesting question to emerge from this announcement is just how many more countries will use this ‘targets range’ in their discussion about interim targets this year.  The EU has said 20%, with a possibility of 30%; now Australia is 5 to 15%.  Are we seeing the overcoming of traditional game playing where an early mover incentives other change?  Maybe in this, the most complex of games, countries will all set ranges and then simply negotiate to a common point–thus partially overcoming some of risk taken by the earlier players, which has often disincentivised action.

It’s certainly a ‘one to watch’ for 2009.