Short answer: big companies from The UK, America, State Gubbermints and some Aussie companies.
Beyond the headline figure of a unilateral 5% cut on 2000 levels, the numbers that will get us there look deeply disturbing. As I argued, there are effectively two carbon prices: a floating price capped at either $40/t or the CDM price for us (the suckers) and a vortex in the federal budget to stop Aluminium smelting, petrol refineries and coal fired power plants going all Howl’s Moving Castle on us and flying off to Neverland or something (their carbon price is zero).
The biggest handouts will be to EITEs and coal fired generators under the auspices of “[securing] today’s jobs while building the low pollution economy of tomorrow.” (don’t think about that one too hard)
The ACF has commissioned some modelling on the recipients of assistance [PDF]
Rudd dishes out Climate Justice |
It makes for some pretty sombre reading.
There are two classes of ‘trade exposed’ winners – the 90% free permit winnners (Aluminium Smelting, Cement and Steel) and the 60% free permits winners (Alumina refining, LNG and Petrol refining). The assistance is uncapped, a huge snub to Garnaut who’s come out with some suggestions on how to ‘oil the squeaks’ in the White Paper, such as, not pissing money straight onto the balance sheets of the biggest polluters.
The biggest winner is Rio Tinto – whose Alumina smelting and refining businesses stand to gain some $462m in the initial phases up to 2010. Bluescope Steel has been working diligently with government and will get some $174m. Woodside gets $50m to keep their LNG rigs away from Timor, just in case they were bluffing when they said they’d ruled out doing that.
The Gubbermint is expecting 45% of permits to be given away by 2020. The big uncertainty with this figure is the impact of commodity prices, which the Libs plan to take punt at guessing by modelling how far the Aussieconomy has gone down the crapper between back whenever suits the Libs stance and February.
On the Coal Fired Generation side, International Power PLC – A UK based conglomerate – wins with $1,152m in ‘ESAS’ assistance over the first 5 years. The LaTrobe Valley operators do quite nicely thankyou very much.
Speaking of Coal, I’ve often wondered how the entrepreneurial douche bags behind the expansion of coal mining and burning actually sleep at night under the vast weight of scientific and technical evidence against what they’re doing. This interview with one such douche provides some way towards an answer:
“IO:With all the discussion of more sustainable forms of energy and also alternative energy, do you think there’s a future for cleaner coal?
Yeah. There has to be and the reason there has to be is that the world can’t switch off the lights one day and, you know, switch on to alternative energy sources on another. So, all the statistics show that coal consumption’s actually going to increase for another 50 years. Whether that’s a good thing or a bad thing, well I guess that’s not really the debate. If it is a fact and all of the experts seem to agree on that, then you know we’ve got to do something about ensuring that what is burned is a better product and when people tend to think about coal, they immediately jump to the carbon debate.”
Do these people carry firearms on their person too – coz, y’know, they can find statistics that point to increasing crime? Astonishing.
Elsewhere: Who’s afraid of a Green New Deal? asks Giles Parkinson at Bus Spectator
Wonderful it’s the best of both worlds. We’re doing something for the environment and providing some much needed corporate welfare to the firms that are doing the most to create a sustainable economy…
.
Er….
http://www.theaustralian.news.com.au/story/0,25197,23781070-5013404,00.html
Penny Wong in clash with carbon emitters may 30 2008
“One of these meetings in Melbourne last Tuesday completely broke down, with Senator Wong reportedly furious at the way she was being treated by the eight business leaders present, telling them “you wouldn’t treat (former Treasurer) Peter Costello the way you are treating me”.
Those present at the meetings, described by a spokesman for Senator Wong as “frank and robust,” included Rio Tinto Australia managing director Stephen Creese, International Power executive director Tony Concannon, Alumina Limited chief executive John Marlay and senior executives from Exxon Mobil, CSR and BHP Billiton.”
Looks like Creese, Concannan and Marley, plus the others, deserve a bonus fronm their companies.
From these ‘frank and robust’ meetings they picked up, according to the post, about one and a half billion dollars from a few meetings for their companies.
DK – I find your posts interesting and provocative, but you are wrong when you say the following “and a vortex in the federal budget to stop Aluminium smelting, petrol refineries and coal fired power plants going all Howl’s Moving Castle on us and flying off to Neverland or something (their carbon price is zero).”
What is wrong with your statement is saying that the carbon price for those firms is zero. And it is important to explain why because it reflects a large misunderstanding in the debate about the government’s policy.
When an ETS, or a carbon tax is imposed, it has two effects on firms and households. There is an income effect (reduces the post-tax profits of firms that cannot pass on the full cost of the tax/permits) and a substitution effect (the change in relative prices induces a behavioural response that encourages the use of inputs or goods and services whose relative price falls).
There are plenty of criticism to make about the method of compensation to firms and households. For example, the white paper makes no attempt to assess how likely carbon leakage is, as a result of the scheme, and hence probably gives away more permits than is necessary to prevent that leakage.
However, even for firms that receive free permits, holding those permits still has an opportunity cost. They have a choice – use all the permits alloted to them (and do nothing to make their processes less carbon intensive) – or reduce the carbon intensiveness of their processes and sell some of their permits (under a carbon tax they would simply pay less tax). That opportunity cost alters the incentives of firms.
Think of it this way – let us say that the government had forced all firms to purchase permits via an auction – but at the same time had recued the corporate tax rate – would you still say that the carbon price is zero? Of course not.
Now, it is of course true that if the government eliminates the income effect, the reduction in emissions will be smaller than if the income effect had remained in place – but it was never the ALP’s aim to raise the overall tax burden in Australia on firms and households through the introduction of the ETS. In that sense, they were always going to recycle the revenue associated with the scheme in the form of income support for affected households and firms.
The issue is similar for firms that own power generating assets. Yes, coal-fired power stations get some free permits (note that the compensation is not full though). But the scheme still alters the relative profitibility of using different energy sources – for example, the relative profitibility of gas and renewables will increase as a result of the policy. So the policy will still reduce the incentive to build new coal-fired power stations.
The problem with the ETS, as I see it, is that there has been little thought given to how the revenue generated from the scheme can be used most efficiently.
How likely is it that trade exposed firms facing a carbon price will relocate to countries where no carbon price is in place?
Is there a genuine danger that by not offering compensation to coal-fired power generators that base-load supply would be disrupted before other energy sources are able to be reliably substituted?
What is the social rate of return of alternative uses of the revenue, such as accelerating investment in R&D of low-emission technologies?
What would the most equitable way of distributing compensation be?
The white paper, in all of its detail, only deals vaguely with these issues, and for the most part, waves its hands at them by saying that deeper analysis would be too complicated. In that sense, it is a political fix.
Finally, in making these points I am abstracting from the size of the targets. Its obvious that the carbon price implied by the scheme will be relatively low. That means that the substitution effects will be more muted than would have been the case under more stringent targets.
But it is still wrong to say that there is no carbon price for firms that receive free permits.
Labor Outsider is correct that firms which receive free permits still face a carbon price. A firm that receives free permits can reduce its emissions has the opportunity to see its permits — greenhouse pollution attracts the same marginal price.
Handing out free permits is still very bad policy though, especially when the permits are handed out to coal-fired electricity generators. Every dollar in free permits that goes to emissions intensive firms is a dollar that could go to low-income households, or be invested in low-emissions infrastructure or research and development in low emissions technologies. There is also very little evidence that carbon leakage is likely to be a significant problem. With Australia’s high per-capita emissions and weak targets, carbon leakage to Australia is more likely to be a problem.
Having a carbon price is different from making the polluter pay. Because avoided climate change is a public good, polluters should have to pay the public for the right to pollute. The White Paper is not consistent with the polluter pays prinicple.
There is only one sense in which I disagree with you Peter. Avoided climate change is a global public good. In the extreme case in which current devloping countries decided to undertake no greenhouse abatement either now or in the future, Australian actions to reduce emissions would yield little environmental benefit.
That said, you are also right that there is little evidence that carbon leakage will be much of a problem. That is because location decisions are complicated, with direct input costs only being one determinant. The white paper makes this point explicitly (while then ignoring it in its recommendations).
Indeed, Warwick Mckibbin has an excellent argument for why carbon leakage is a red-herring in the domestic debate. He argues that for business, uncertainty about carbon pricing is a significant disincentive to business investment. Thus, why would a business, relocate from Australia (with all the attendant fixed costs of that relocation), with its excellent work force, stable political institutions, for the most part good infrastructure, and now at least some clear carbon price signal – to a country that could be forced within a few years to follow the same policy Australia has?
Unfortunately, it is game of bluff that Australia’s government has lost.
Sorry.
My previous entry was typed ‘left caret sigh right caret’
Obviously a no no . . .
. . . as is the white paper’s acceptability.
Thanks for the heads-up.
I think we need to consider organised consumer boycotts on hi-pollution companies who go offshore to take advantage of zero carbon prices.
It wont solve the problem, but it’ll hit em right where it hurts.
Obviously, world government would be simpler – nowhere to run, nowhere to hide, and no escape from carbon pricing.
Ok, thanks for the correction, Labor Outsider and Peter. I accept that there is a marginal cost on firms’ carbon pollution in the two senses you outline, but my point is that their lobbying has been so successful that they have much greater incentives to bring pressure to bear on subsequent governments – for whatever reason – than devote substantial resources to technological and behavioural change, which most of them will be able to defer or offset. If a carbon price doesn’t actually effect meaningful change, it’s worth than useless.
This has been my problem with the debate as it’s been conducted on behalf of the government. They’re essentially saying ‘trust us – there is a carbon price.’ Well that’s well and dandy for them to say from the inside of these negotiations, but I want to be walked through the steps much more clearly. The NSW GGAS is instructive here – a hideously top-down process that did NOTHING to emissions or supply infrasturcture profile: just a huge churn of taxpayers money. Are we really going to walk straight into those traps again? (you can probably guess my answer to that) Economists have been given far too long a leash in setting these things up.
No compensation isn’t full, but this comes back to what we expect from government in the context of climate change. In my previous post I put forward the case that we require different forms of government to deal with this issue effectively. Any intervention – compensation, rejigging the NEM, a RET – will have winners and losers. You can model who will get across the line first with certain carbon prices. I’ve said it before and I’ll say it again, the question of ‘efficiency’ or the ‘social rate of return’ for Alt-tech R&D will always be a function of whoever ultimately signs off on those reforms. A good ETS will employ more engineers than accountants and lobbyists (thought let’s leave the shortage of engineers aside for the moment).
The question should really be who can put the case forward for their technology in a more cohesive way, without deferring to non-sequiturs like ‘baseload supply’, including giving the most plausible account of how its externalities can be accounted for . (You can probably guess my answer to that too)
These are essentially epistemological and ethical questions to be sure – precisely where the bullshit we’ve seen from the coal eating surrender monkeys has yet to make an impression on me in the slightest.
I certainly agree that there should be much more rigorous assessment of both carbon leakage potential (which, as Peter, and the IEA have pointed out is very small) and equity of permit auction distribution. I think Possum’s work on the ALP Prism has been instructive to understanding the rationale for this.
DK
NSW GGAS was a baseline and credit scheme, not a cap and trade scheme. It was never going to be able to deliver an absolute reduction in carbon emissions because it wasn’t set up to do so. The small scale, and the fact that it was enacted by NSW alone (which operates within the NEM), means that it was never going to alter supply decisions significantly. The comparison with the ETS really isn’t that meaningful.
I also don’t find it particularly helpful to blame economists for badly designed public policy. Don’t you find it ironic that your statement:
“A good ETS will employ more engineers than accountants and lobbyists”
is one of the essential insights from the public choice literature that was invented by the Chicago School economists to draw attention to the costs of badly designed regulations?
If you look carefully enough, you will find economics to be a much richer discipline than you give it credit for. Asymmetric information, public goods, regulatory arbitrage, imperfect competition, corruption, moral hazard, the subjective element of social cost-benefit analysis, the embededness of markets within legal and political institutional frameworks, have all been studied in detail by economists. The discipline is evolving all the time and there is scope for its own professionals to carry a wide variety of positions on political and public policy issues.
Economics is not your enemy here – indeed, properly used it can be your ally.
Labor Outsider:
(a) It’s an insight one could come to without deriving it from the public choice literature;
and (b) no doubt one would want to because the public choice literature isn’t best described as “draw(ing) attention to the costs of badly designed regulations” but rather based on a set of assumptions and premises directed towards the goal of discrediting regulation altogether.
One wonders whether some of the wonks attending PerCapita conferences on “effective market design” etc. are aware of the intellectual (and ideological) legacy of some of the concepts which inform their practice. Even if they’re not aware of it – what was it that Keynes said?
Hi Mark
I was actually going to quote Keynes myself in my prior comment. Although there is a lot of truth to his statement, I don’t necessarily think it is a problem for modern perspectives to have an intellectual ancestry that includes thinkers with whom they disagree with on many things.
My point was that sometimes people offer critiques of what they see as economists’ policy frameworks without always understanding that economists themselves have tackled and developed those same critiques themselves. Few economists, especially in Australia, subscribe to the public choice view that all regulation is bad. However, that literature was still invaluable in raising the issues of regulatory capture, regulatory arbitrage, and misaligned incentives, that previously had been ignored by most policymakers, and in my view policymakers would be silly not to take account of when designing new regulations.
If I take my own intellectual development. When going through uni, I was strongly influenced by Rawls’ A Theory of Justice, and the strands of the economics literature demonstrating the circumstances and consequences of various types of market failure. However, I’ve also been influenced by the public choice literature in that my conviction that markets can and often fail, is tempered by an understanding that as the political process attempts to correct those market failures, or seeks different goals altogether, that outcomes can be worse than the orginal, sub-optimal market outcome.
That in turn leads me to want to examine any given regulation on its merits, rather than fall into the regulation good/bad dichotomy that I find particularly unhelpful in policy debates.
Perhaps another example or two here would be good….
The english social liberals like Hobson and Hobhouse recognised that Marxist thought had some influence over their own political philosophy, though they weren’t Marxists, and that ancestry does not discredit their thinking. Similarly, Rawlsian liberals, though not classical liberals, owe considerable debt to Lockean social contract theory. I don’t think that is problematic.
Securing today’s 19C dirty jobs while NOT building the low pollution economy of tomorrow, or creating ANY green jobs.
And giving our money to the worst polluters.
Hardly a recipe for progress.
This is a joke, and its on us (the public) who are expected to pay for this nonsense. And we have no say in this – the government is hostage to industry and not representing the best interests of the Australian people.
I think we need a campaign of civil disobedience.
I am considering installing a few more panels and completely disconnecting from the grid. They are stuffing up the FIT. No more of my money will go to coal fired power interests.
And refusing to pay for the Victorian desalination plant as we don’t use any Melbourne water – our 23,500 litres of tanks keeps us supplied.
Maybe also withold a proportion of my income tax that will be misdirected to the ludicrous fossil fool corporate welfare?
We need to stop carbon emissions, not reward them. Rudd is perverse.
No, but – as I’ve consistently argued here – it’s the processes of consultation and the underlying rationale of government, rather than the scheme itself, that is problematic. And I don’t find it particularly helpful to say that Economics has intrinsic characteristics (its practitioners are ‘my friends’).
What the Canbureaucrats are essentially betting on is people’s trust in the scheme to deliver long term abatement at the expense of them actually making they believe would be most helpful – eg. I’ve lost count of the number of times I’ve heard people ask for subsidies/feed-in tariffs/tax breaks etc. for PV installations for their home/apartment block/factory at various public fora.
I understand the basic premise that more abatement for the same money is necessarily ‘a good thing’ for economists (and the German tariff sure wasn’t free); but my observations of the debate so far are that economists have to work much harder to maintain that level of trust with ‘the public’ writ large that their forms of calculus are doing the best work. This is where – as per your point about regulation generally – trucking in all those middle range concepts you mention may or may not work to their advantage and should be assessed on an individual basis.
People in the EU have drawn the link between their increased energy bills, the increased profits of their power companies and the (cap and trade) ETS there. There are some excellent features in the White Paper (such as a higher level of auctioning than the EU) that may get around some of these problems, but my impression is that there is considerable room for improvement.
I’m surprised that people are surprised. The same Canbureaucrats who advised Howard on climate change are now running the Department of Climate Change. Not just the same type of people, actually the same guys.
Not that there’s anything wrong with them of course; quite the contrary, they are no doubt very competent. But November 24 2007 was not July 14 1789. There was no revolution. Anyone who has followed what the government has been saying all year would not have been surprised by the White Paper, except the extent of the handouts to industry and the timidity of the targets.
But these are matters of detail. The policy methodology was entirely predictable.
It’s a bit surprising that there has been little discussion of the reasoning behind giving assistance to coal-fired generators, as opposed to just commenting on the assistance, as exemplified in this post.
Section 13.3.3 of the White Paper gives the reasoning behind the assistance – the soverign risk argument:
The White Paper states that there was support for assistance from stakeholders in the electricity sector but little support outside it, e.g. one view was that investment done on the basis that there wouldn’t be a carbon price was poor subjective risk judgement.
I’ll say nothing more about this as I work for one of the three energy market institutions.
Thanks for that Sacha, but I’m with Professor Garnaut on the $3.9bn gift:
Was it really just poor subjective risk judgement though? By the time the second and third assessments from the IPCC came out, wouldn’t it be fair to say there were some objective reasons to start winding down coal fired generation?
I’m sorry, but I don’t buy into the argument that governments should relativize the science on this issue. It’s been very clear for a long time.
Their wasn’t much surprising in the White Paper, the targets were exactly the same as the ones modeled in the Treasury modeling. The expansion of assistance to emissions intensive industries was flagged in newspapers such as the Financial Review. Much of it was similar to the Green Paper, the main thing that I didn’t expect was the distortionary handouts to owners of gassy coal mines (part of the so called “Climate Change Action Fund”)
dk.au, this is then the question of whether “soverign risk” is a good reason for assistance, and whether any assistance to “ensure investor confidence” is justified.
Questions then arises about (a) the impacts in the case if there wasn’t assistance, and (b) the impacts of having assistance. Unfortunately there’s been little discussion, from what I can see, about “soverign risk” being a rationale for the assistance.
In saying this, I’m not saying what my views are, just that the discussion to date has been inadequate.