Professor Tony Owen

One of Australia’s foremost energy academics has called on the Federal Government to immediately introduce a carbon tax and drop any move to an emissions trading scheme (ETS).

Professor Tony Owen, the Santos Chair of Energy Resources and Director of the University College London’s School of Energy and Resources in Australia, says the general failure of the Copenhagen climate change talks has left continued emissions confusion and upheaval at  global and domestic levels.

“That lack of decision from Copenhagen gives Australia the opportunity to now stand back and reassess our carbon pollution reduction scheme (CPRS) and replace it with a more efficient and flexible mechanism - a carbon tax,” Professor Owen said.
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“Post Copenhagen, the Australian public has been left yet again, hopelessly confused by the plethora of countervailing political claims regarding the optimal policy for Australia to reduce its carbon footprint.

“While the Commonwealth Government has decided to operate an emissions trading scheme within Australia, the evolution of the ETS to its current state reflects an out-of-control bureaucratic machine that has returned to plague the inventor.

“An ETS has great conceptual appeal for both politicians and tree huggers as it provides a commitment to a particular emissions level that yields a simple measure of environmental progress as well as compliance.

“This is driven by the philosophy behind a domestic ETS, that permits to emit greenhouse gases  (GHGs) are issued to current emitters up to a level that is determined by the regulator (i.e. the Commonwealth) based upon Australia’s Kyoto target.

“The devil is in the detail and in its current form, the ETS requires a range of new mechanisms including auctioning and administrative allocation, a registry and audit body, an enforcement body, a monitoring body and a trading institution.”

Professor Owen added that an ETS imposed a cost on all emitters, a cost which would generally be passed on to the ultimate consumer.

“When this cost is imposed on large greenhouse gas emitters such as coal-fired electricity generators or major energy exporters such as LNG producers, the inevitable claims for compensation or exemption will arise,” he said.

“Once these are offered, everyone will want to be compensated or exempted,” Professor Owen said, “watering down the polluter-pays-principle and bringing into question the whole integrity of the scheme.

“What is worse is that a profitable industry will inevitably develop around the acquisition and sale of the permits with the profits from such activity going to traders and entrepreneurs who use the system to make money while having no commitment to greenhouse gas reductions.

“This will achieve nothing other than drain resources from the intended greenhouse gas abatement objectives.

“Australia will be left with a carbon pollution reduction scheme drowning in its own morass of complex rules and spiralling compliance costs.

“The better way of imposing a cost of carbon on the Australian community that avoids many of the practical inefficiencies of an ETS, is a carbon tax.”

Simpler application and less risk

Professor Owen argued that carbon taxes - which fix the price of GHG emissions in dollars per tonne of carbon dioxide to yield the required reduction in emissions - were transparent and conceptually simple for domestic application. In many instances (e.g. excise duty on fuel), the existing tax structure could be used, minimising operating costs.

“Carbon tax revenue can be used to offset existing inefficient taxes (e.g. employment taxes or stamp duties) or to compensate poorer sections of the community or to support research into low carbon prospective technologies,” Professor Owen said.

“In common with an ETS, a carbon tax will also encourage adoption of low-carbon technologies through price signals.

“Carbon taxes give a known cost of reduction of emissions, removing a major risk for investors in the energy sector – a benefit the ETS does not have.

“Whilst it is true compensation is also an issue with a carbon tax, exemption for energy intensive export industries can be handled in a similar manner to rebates under the GST. This also supports the polluter-pays-concept for exported Australian energy products and removes the potential adverse competitive impact of a carbon price on exports as the ultimate polluter is the final overseas customer.”

Professor Owen said any carbon price would be politically unpopular, unlike the cost of permits which was less visible than taxes.

“However, the potential for significant price volatility under an emissions trading scheme raises risks for investors in technologies that rely on a carbon price to make them competitive,” he said.


Initial ETS price cap a defacto carbon tax

The UCL head also questioned the planned price cap to be imposed on Australia’s ETS in its first four years of operation - 2012-13 to 2015-16.

“The price cap will start at $40/t CO2 and will be raised by 5 per cent, plus inflation, annually,” Professor Owen said.

“This is really a de facto carbon tax, albeit acting as a ceiling. It has been introduced in order to reduce investment risks associated with a potentially volatile market price for permits. If that is the case, why not just impose a carbon tax from day one and remove all volatility?”

The final irony Professor Owen noted could be that if the few remaining climate change sceptics turned out to be correct and climate change was ultimately proven not to be a result of man-made greenhouse gas emissions, then a carbon tax could be zero-rated immediately.

“In contrast, the plunge to zero in the price of emission permits following such a revelation could well trigger another global financial crisis,” he said.