An analysis of Australia’s carbon pollution reduction scheme

TLDR: In this paper, the authors review the decision-making since the Labour Government came into office (November 2007) and the Australian Government's 'Carbon Pollution Reduction Scheme' White Paper (15 December 2008) proposes that an Australian Emissions Trading Scheme (AETS) be implemented in mid-2010.

Abstract: The authors review the decision‐making since the Labour Government came into office (November 2007). The Australian Government’s ‘Carbon Pollution Reduction Scheme’ White Paper (15 December 2008) proposes that an Australian Emissions Trading Scheme (AETS) be implemented in mid‐2010. Acknowledging that the scheme is comprehensive, the paper finds that in many cases, Australia will take a softer approach to climate change through the AETS than the European Union ETS (EUETS). The paper assesses key issues in the White Paper such as emissions reduction targets, GHG coverage, sectoral coverage, inclusion of unlimited quantities of offsets from Kyoto international markets and exclusion of deforestation activities.

Full text

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An Analysis of Australia’s Carbon Pollution Reduction Scheme
Tek Narayan Maraseni
A
Australian Centre for Sustainable Catchments
University of Southern Queensland (USQ), Toowoomba, Queensland, 4350,
Australia,
Jerry Maroulis
Faculty of Education and Australian Centre for Sustainable Catchments
USQ, Toowoomba, Queensland, 4350, Australia
Geoff Cockfield
Faculty of Business and Australian Centre for Sustainable Catchments
USQ, Toowoomba, Queensland, 4350, Australia
ABSTRACT
The authors review the decision-making since the Labour Government came
into office (November 2007). The Australian Government‘s ‗Carbon Pollution
Reduction Scheme‘ White Paper (15 December 2008) proposes that an
Australian Emissions Trading Scheme (AETS) be implemented in mid 2010.
Acknowledging that the scheme is comprehensive, the paper finds that in many
cases, Australia will take a softer approach to climate change through the AETS
than the European Union ETS (EUETS). The paper assesses key issues in the
White Paper such as emissions reduction targets, GHG coverage, sectoral
coverage, inclusion of unlimited quantities of offsets from Kyoto international
markets and exclusion of deforestation activities.
Key Words: Australian Emissions Trading Scheme, Kyoto Protocol,
greenhouse gas coverage, agriculture, offsets
A
Corresponding authors details: email maraseni@usq.edu.au ; phone 61746312995; fax 61746315581

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INTRODUCTION
The previous Australian government, led by John Howard, played an important
role in assisting in the development of the Kyoto Protocol‘s rules. Nevertheless,
the government always refused to ratify the Protocol for two reasons:
 the Australian economy is highly dependent on fossil fuels and thus there
were claims that ratifying the Kyoto Protocol would damage the
Australian economy and,
 when climate change policy was being developed in 1990, developing
countries accounted for only 40% of total global greenhouse gas (GHG)
emissions. This increased to 54.3% in 2004 and is expected to increase to
66% by 2030 [1].
The Federal Howard Government believed that without shouldering the
responsibility of emissions reduction from developing countries, the
overarching target of global emissions reduction could not be achieved.
Sherrard and Tate [2] argued that if Australia had ratified the Kyoto Protocol
earlier and developed a domestic emissions trading system, Australian farmers
would have earned >$1.8 billion in revenue by simply selling carbon from
reduced forest clearing practices. They also found that the Australian economy
lost ~$3.8 billion of economic activity each year by not ratifying the Kyoto
Protocol. These losses comprise:
 ―$1.24 billion per year in lost opportunities associated with emissions
reductions projects in Australia;
 $2.38 billion per year in lost opportunities associated with the Kyoto
Protocol‘s Clean Development Mechanism projects in other countries;
and
 $180 million per year in lost opportunities associated with carbon credit
transactions‖[3].

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The loss would have been even greater if the cost of failing to preserve the
competitiveness of Australian coal, liquid natural gas exports and the
retardation of new technology development was included [4].
There has always been debate among the Australian political parties on
ratification. Commissions such as the Howard Government‘s Task Group on
Emissions Trading (TGET), the states and territories‘ National Emissions
Trading Task Force (NETT) and the Garnaut Climate Change Review [5] were
established in consequence. With the demise of the Howard government on
November 24, 2007, the newly elected Rudd government moved swiftly to
ratify the Kyoto Protocol in early December 2007. Furthermore, Professor
Garnaut not only commented that action on climate change was needed
immediately, but also that Australia would be hurt more than other countries by
unmitigated climate change because the continent is predominantly dry and
surrounded by highly climate change vulnerable developing countries [5].
Despite many developed countries and some highly polluting developing
countries not committing to significant cuts in GHG emissions, along with the
absence of a post-Kyoto agreement, Australia is nonetheless pushing ahead with
its Australian Emissions Trading Scheme (AETS) and its carbon targets in an
attempt to pressure other countries to make global contributions to reduce GHG
emissions.
The current Australian Government plans to implement its comprehensive
climate change strategies that include mitigation, adaptation, and assisting
global communities to seek global solutions. As a mitigation strategy, the
Australian Government is committed to reducing Australia‘s GHG emissions by
60% below 2000 levels by 2050 [6]. To meet this target in a cost effective
manner, the Australian Government‘s White Paper (15 December 2008)
proposed a comprehensive Carbon Pollution Reduction Scheme (CPRS),
scheduled to be implemented in mid 2010 [6].

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This paper comments on the Federal Government‘s White Paper with
reference to contemporary emissions trading schemes. In addition, it briefly
discusses the evolution of the Kyoto Protocol and the theory behind emissions
trading schemes.
KYOTO PROTOCOL AND EMISSIONS TRADING
Climate change caused by greenhouse gas (GHG) emissions is a major
environmental issue for the world, now and in the future. Because of climate
change, it is estimated that global air temperature could increase by 1.8°-4.0°C
while sea level could rise by 9-88cm over the next 100 years [7]. Further, the
zone of grain production will shift away from the equator by 10 km/yr [8]. With
increased temperatures, many respiratory and cardiovascular diseases, coral
bleaching and the frequency of heat waves, cyclones and extreme precipitation
will increase [9-10].
The United Nations Framework Convention on Climate Change (UNFCCC)
in 1992 and the subsequent Conferences of Parties (COPs) raised concerns
about stabilizing GHG concentrations in the atmosphere. The Kyoto Protocol,
the third COP in 1997, was an important milestone as, for the first time, the
majority of developed countries realised they were responsible for past
emissions and accepted legally binding caps on GHG emissions [11]. In the
Protocol, individual developed nations (Annex B countries) were allocated
differentiated targets to achieve a collective GHG reduction target of at least
5.2% of 1990 levels by the first commitment period (2008-2012). The European
Union (EU) agreed to reduce emissions by 8%, Canada and Japan by 6% while
Australia was generously allowed to increase GHG emissions by 8% of 1990
levels in the first commitment period for two reasons [12].
1. Australia is a net emitter of GHG from land use and the forestry sector
[13-14], and

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2. Australia‘s economy is highly dependent on fossil fuels with energy
exports accounting for $38 billion per year, which is equivalent to 28% of
total commodity exports [1].
To achieve these targets in a cost-effective manner, the Protocol adopted
three flexible market-based mechanisms:
 International Emissions Trading,
 Joint Implementation (JI) and
 Clean Development Mechanism (CDM).
Since then, the carbon market has been steadily increasing — an estimated
A$67 billion in 2007, A$30 billion in 2006, three times greater than the
previous year which was itself 12 times greater than 2004 [15-17], and with this
level of growth, it will shortly be the world‘s largest market [18].
Under JI, an Annex I country can meet part of its emission reduction target
by carrying out a project in another Annex I country, whereas in CDM the
project activities must be hosted by a non-Annex 1 country (developing
country). CDM and JI help host countries with technology transfer and in
achieving sustainable development.
International emissions trading involves the trading of emissions among the
Annex B countries. The economic rationale, based on the seminal work of
Coase [19] and Dales [20], is that each Annex B country could have different
marginal abatement costs (MAC)—the cost of eliminating an additional unit of
GHG—and trading among these countries provides an opportunity to find cost-
effective ways to achieve the specified emissions reduction targets. A country in
which MAC is lower than the market price can reduce emissions and sell the
surplus to another Annex B country for which the MAC is higher than the
market price and therefore abates a lesser quantity of emissions (up to the point
where MAC and market price meet) and buy the deficit amount [21]. By using

Frequently asked questions

Q1. What are the contributions mentioned in the paper "An analysis of australia’s carbon pollution reduction scheme" ?

The authors review the decision-making since the Labour Government came into office ( November 2007 ). Acknowledging that the scheme is comprehensive, the paper finds that in many cases, Australia will take a softer approach to climate change through the AETS than the European Union ETS ( EUETS ). The paper assesses key issues in the White Paper such as emissions reduction targets, GHG coverage, sectoral coverage, inclusion of unlimited quantities of offsets from Kyoto international markets and exclusion of deforestation activities. 

Q2. What is the common use of bio-oil in Australia?

Bio-oil can be used for fuelling space heaters, furnaces and boilers, and also to fuel some combustion turbines and reciprocating engines. 

Q3. What is the effect of de-nitrification of nitrogen fertiliser on the environment?

De-nitrification of nitrogen fertiliser emits significant amounts of N2O [37], which has 310 times more global warmingpotential than CO2. 

Q4. What are the main reasons for the inclusion of small emitters in the AETS?

Benchmarking emissions, up to a prescribed level (>25,000 tCO2e), is an effective way of reducing the one-off and recurrent costs to small emitters (those emitting <25,000 tCO2e/yr), but in the long run it is necessary to include the small emitters for five reasons. 

Q5. What are the main objectives of the Kyoto Protocol?

In order to achieve an emissions reduction target in a cost-effective manner, the Kyoto Protocol adopted three flexible market-based mechanisms of which the Clean Development Mechanism (CDM) and the Joint Implementation (JI) are offset schemes. 

Q6. What is the current Australian Government’s plan to implement?

The current Australian Government plans to implement its comprehensive climate change strategies that include mitigation, adaptation, and assisting global communities to seek global solutions. 

Q7. What is the main benefit of agrichar for soils?

Besides the carbon benefits, agrichar has many co-benefits for soils: reduces the leaching of soil nutrients; enhances nutrient availability for plants; increases water quality of runoff; reduces dependency on artificial fertilizers; reduces toxicity of aluminum to plant roots and microbiota; increases soil structure and pH, thus reducing the need for lime; reduces bioavailability of heavy metals, thus works as bioremediation;and decreases N2O and CH4 emissions from soils, thus further reducing GHGemissions [5-52]. 

Q8. How much economic activity did they lose by not ratifying the Kyoto Protocol?

They also found that the Australian economy lost ~$3.8 billion of economic activity each year by not ratifying the Kyoto Protocol. 

Q9. What is the importance of increasing soil carbon in the dry continent of Australia?

increasing soil carbon also increases soil productivity, profitability, sustainability, water quality, plant and water holding capacity [4-46]: all being very important in the dry continent of Australia. 

Q10. Why did the previous government refuse to ratify the Kyoto Protocol?

the government always refused to ratify the Protocol for two reasons: the Australian economy is highly dependent on fossil fuels and thus therewere claims that ratifying the Kyoto Protocol would damage the Australian economy and, when climate change policy was being developed in 1990, developingcountries accounted for only 40% of total global greenhouse gas (GHG) emissions. 

Q11. How much of the emissions from clearing activities in Australia in 2012?

For instance, if land clearing activities were not included, Australia‘s GHG emissions in 2005 were 125.6% of 1990 levels [12],and in a business-as-usual scenario, emissions are predicted to exceed 137.5% in 2012. 

Q12. What other schemes have been replicated at national and regional levels?

Examples include the European Union Emissions Trading Scheme (EUETS), the New Zealand Emissions Trading Scheme (NZETS), the UK Emissions Trading Scheme (UKETS), and recently the Canadian and now the Australian Emissions Trading Scheme (AETS). 

Q13. What was the first time the European Union agreed to reduce emissions?

The European Union (EU) agreed to reduce emissions by 8%, Canada and Japan by 6% while Australia was generously allowed to increase GHG emissions by 8% of 1990 levels in the first commitment period for two reasons [12]. 

Q14. What is the economic rationale for trading emissions among Annex B countries?

The economic rationale, based on the seminal work of Coase [19] and Dales [20], is that each Annex B country could have different marginal abatement costs (MAC)—the cost of eliminating an additional unit of GHG—and trading among these countries provides an opportunity to find costeffective ways to achieve the specified emissions reduction targets. 

Q15. What would be the effect of allowing unconditional, unlimited, international offsets?

By allowing unconditional, unlimited, international offsets, the financial burden to the Australian people would be low but the AETS would appear weak in international carbon markets. 

Q16. What is the difference between a country's MAC and the market price?

A country in which MAC is lower than the market price can reduce emissions and sell the surplus to another Annex B country for which the MAC is higher than the market price and therefore abates a lesser quantity of emissions (up to the point where MAC and market price meet) and buy the deficit amount [21]. 

Q17. What is the comprehensive white paper on emissions trading?

(AETS)The AETS (known as the Carbon Pollution Reduction Scheme (CPRS)) white paper proposed by the Australian Government [6] is very comprehensive in terms of the number of GHGs considered, sectoral coverage and the percentage of total national GHG coverage.