The Carbon Price Policy - Essay Example

The Carbon Price Policy Name Course Instructor Institution Date The Carbon Price Policy Introduction The Australian progress in renewable energy is necessary to address worries about energy security and climate change. The 2012 status report on climate change indicated that emissions of CO2 from the use of fossil fuels has adversely distress global temperatures as compared natural climate variability in the last century. The largest emissions came from generation of electricity. The extensive utilization of fossil fuels is because Australia is abundantly endowed with gas and coal resources (Byrnes, Brown, Foster & Wagner 2013, 1-19). However, both national and international pressure regarding the environmental consequences of fossil fuels has forced the government develops alternative renewable energy for power generation. It is on this foundation that the Australian government decided to introduce a policy that will levy a price on GHG emissions from certain industries. Therefore, this paper is going to revolve around the Carbon price policy as well as its implications. Background of Carbon Price Policy Carbon price policy is a part of attempts to lower the Greenhouse Gas emissions (GHG) and it has been effective since July 1st 2012. For three years, the price of carbon was placed at a fixed rate starting at $23 and cumulating $25.4 in 2014. Within this duration, the quantity of emissions was allowed to be unlimited. Once the period has elapsed, the government is required to introduce cap emissions as advised by Climate Change Authority. The setting of the yearly cap will base on the Australia’s effort to reduce total GHG emissions by “5% on 2000 levels by 2020, and 80% reduction on 2000 levels by 2050,” and finally, get stricter as reduction goals improves. The logic behind carbon price is to enhance the development of an operative worldwide response towards climate change in a manner that motivates investment in renewable energy, while supporting competitiveness, economic growth and employment, and reducing pollution (Byrnes, Brown, Foster & Wagner 2013, 1-19). The policy mandates the 500 heaviest emitters to acquire carbon credits per emission ton. Coal-fired energy stations and Trade exposed industries qualify for free credits to support employment and competitiveness. Moreover, global players are not subject to carbon pricing. Because of this policy, $9.2 billion were set aside for employment and Competitive Programs to sustain Emissions Intensive and Trade Exposed (EITE) Industries. EITE industries such alumina and steel can be offered free carbon units commencing at 94.5% of their emissions. Moreover, steel industry is further given a direct help through the ‘Steel Transformation Plan’ which offers $300 million to sustain innovation. Minimal support levels are given to industries with minimal intensity of emissions and trade exposure, beginning with 66% of their carbon emissions (Byrnes, Brown, Foster & Wagner 2013, 1-19). Similarly, LNG projects will be given free carbon units that represent 50% of the total anticipated carbon emissions whereas Coal-fired generators will be given free carbon credits. Lastly, the most polluting industry will be gradually shut-down at a tune of $5.5 billion from 2011-2017. The coal plant also obtains another direct funding through a 1.3billion ‘Coal Sector Jobs Package.’ The funds are meant to help coal mines in implementing ‘carbon abatement technologies.’ The amount of free carbon units to each industry will progressively reduce over time. Aims and objectives of the policy Cost-effective: the policy seeks to achieve the Australian government’s commitment towards short-term and long-term emission reduction targets under minimal cost. Thus, its objective is to balance the environmental efficiency with economic effectiveness to attune the amount of emission decrease with abatement costs over a period as the players strive to make emission reductions more reasonable. Curtail adverse effects: the policy seeks curtail or else moderate severe effects on consumers, regional and sectors. Its objective is therefore to design a carbon pricing policy to address and sidestep, where possible, severe distributional consequences of attaching price on carbon across the country. Implications beyond the policy area or the jurisdiction The issue carbon pricing policy is that the aspect of government involvement implies that the environmental (external) costs that are supposed to be internalized are not or are partially internalized. In most scenarios, ‘emissions intensive trade exposed industries’ obtain their power from nonrenewable sources. The cost of this power will be least impacted by the carbon price policy. The authority should stabilize social concerns regarding competitiveness and employment with an aim to internalize the external costs. Offering enormous reliefs to certain plants while ignoring reallocate resources across the economy and is an attempt to balance rivaling legislation priorities. But it underscores the latent environmental, social and economic contributions of new and upcoming industries e.g. renewable plant through lowered emissions, taxes, profits and job creation. Direct provision of support through subsidies and free credits dents the efficacy of carbon pricing by artificially reducing electricity costs and falsifying the market in which sustainable technologies must wrestle (International Council on Mining and Metal, ICMM 2013, 1-82). The carbon pricing policy differs from one region to another; hence, the policy generates differing extra costs for concerned companies. Therefore, competitiveness is majorly determined by relative prices of across rivals making the similar commodity, in addition to, those manufacturing substitute goods. Moreover, carbon overheads could be transferred to consumers based on their market arrangement. In case the costs are non-transferable, then those industries with high intensity of carbon pricing might be rendered uncompetitive globally and can cause investment flight (carbon leakages) to areas outside the carbon pricing regions in order to make use of carbon cost variability. These repercussions are more likely to hit EITE industries (ICMM 2013, 1-82). Worries about severe economic repercussions, especially in regards to the EITE industries, is broadly discussed benchmark for execution leakage policies and competitiveness. Any facility that can cover-up their operating costs can only succeed in short-run. However, in long-run, the extra costs carbon pricing can diminish the capacity of industries to cushion their capital expenditures. Under tough situations, in which carbon pricing reduces industries ability to cushion their interim running costs, operation of facilities could halt, leading to idling of resources. Note that metal and mining sector is diverse; therefore, it is hard to generalize the effect a given business, installation or commodity will experience. The policy can only a trickle of opportunities and obstacles (ICMM 2013, 1-82). A company associated with precarious levels of indirect or direct emissions quantifiable as technically exorbitant or difficult lessen is least likely to transfer or absorb the carbon costs. Such industry is at high risk of leakage and more likely to relocate its operations. However, this risk can be countered through numerous ways. For instance, if obtaining of emission lowering technologies involves minimal costs or if an industry’s outputs are sold in isolated global markets with no rivalry. Where relocation is the only remedy, there can be diverse social and economic impacts. If local output is replaced with foreign production that is more emission-intensive, there will be an increase in global emissions (ICMM 2013, 1-82). This will in effect compromise the legislation’s environmental reasoning and purpose. Several metal in addition mining products are as well significant for the development of the Australian economic; more so steel, coal and iron. Any minimal disturbance to the functioning of these industries will hamper the development of the country. In certain instances, the citizens are predominantly reliant on the plants as a source of employment and income. This implies that policymakers need to analyze how the enforcement of carbon price policy will shake these priorities. Despite all the consequences that come with carbon pricing, Australians are expected to support the policy enormously because they have had more direct experiences with effects of climate change. Accountability The Australian government, research sponsors, central policy makers and climate researchers are responsible for developing, evaluating and implementing a climate change policies. First, any policy in regards to climate change is developed by climate scientists plus team professionals from other sectors including economists. The Australian scientists and professionals are placed in the forefront of worldwide efforts to analyze the science behind climate change and provide the remedies to combat it. Their study enhanced by the Australia’s geographical conditions which offer a strategic environment, especially the southern part, for conducting climate change science (Baird 2014, Pp. A27). After the policy has been developed, it is then transferred to policy makers and research funders to carry-out a feasibility analysis of the policy. The analysis takes into consideration the social and economic costs associated with that policy. Generally, a good policy should maximize benefits and minimizing pain. It is after this that carbon pricing emerged as one of the best policies to influence key economic players to embrace renewable energy technologies. Lastily, it is the duty of the state to implement any policy and ensure that every sector or industry function in accordance to the policy. For instance, carbon pricing in Australia was implemented by Gillard’s government only to be repealed in the Abbott’s government (Baird 2014, Pp. A27). Communications The public is well-informed about the policy through various communication media. Television, radio and newspaper are some of the primary telecommunication media that are used to reach out the mass. Through various successful initiatives, programs and events, the policy makers ensured that every Australian citizen get a copy of the policy. According to these facts, it is apparent that the information reached the public in a clear and concise manner for an ordinary human being to comprehend what the policy was all about. For instance, during last year election campaigns, the ABC aired a distinct online educational survey called ‘Vote Compass’ to Appeal to the public to express their opinions on the subject matter of climate change and carbon pricing. Over 1.4 million feedback were collected, an indication that the public was well aware of the policy (Englart 2013, n.p.). Outcomes The carbon price policy came into effect on 1st July 2012, and it was enforced by the Gillard’s government. The policy was effective until 17th July 2014 when the Australian senate revoked. The policy required industries that were not in agriculture or transport sector and yet produce carbon emissions to acquire permits. By the time of its termination, the policy makers had called over 260 entities to account for these actions as reported by the Department of Climate Change. In addition, more than 185 companies paid carbon tax in 2013. A study by National University indicated that GHG emissions from electricity generation had declined by 1-2% as a result of the policy (Baird 2014, Pp. A27). The move to repeal carbon price policy was unfortunate given that Australia is among the countries that produce large quantities of GHG emission globally. Similarly, the decision went against the will many Australians who agree that there must be a carbon pricing for chief emitters. There is no clear reason the policy was retracted, and this shows how Australia is lacking clear climate policy. Among the reasons offered for revoking, policy is that it hiked electricity tariffs, although economists project that consumers would not see any effect soon (Baird 2014, Pp. A27). Reference Baird, J. 2014. “Why Australia Killed Its Carbon Tax.” The New York Times. JULY 25. Available from [8 October, 2014]. Byrnes, L., Brown, C., Foster, J. & Wagner, L. (2013). “Australian Renewable Energy Policy: Barriers and Challenges.” Available from [8 October, 2014]. Englart, J. (2013). “ Australian Public opinion on carbon pricing and climate change.” Climate Citizen November 24. Available from [8 October, 2014]. International Council on Mining and Metal (ICMM). (2013). “The cost of carbon pricing: competitiveness implications for the mining and metals industry.” Available from [8 October, 2014]. Read More

Aims and objectives of the policy Cost-effective: the policy seeks to achieve the Australian government’s commitment towards short-term and long-term emission reduction targets under minimal cost. Thus, its objective is to balance the environmental efficiency with economic effectiveness to attune the amount of emission decrease with abatement costs over a period as the players strive to make emission reductions more reasonable. Curtail adverse effects: the policy seeks curtail or else moderate severe effects on consumers, regional and sectors.

Its objective is therefore to design a carbon pricing policy to address and sidestep, where possible, severe distributional consequences of attaching price on carbon across the country. Implications beyond the policy area or the jurisdiction The issue carbon pricing policy is that the aspect of government involvement implies that the environmental (external) costs that are supposed to be internalized are not or are partially internalized. In most scenarios, ‘emissions intensive trade exposed industries’ obtain their power from nonrenewable sources.

The cost of this power will be least impacted by the carbon price policy. The authority should stabilize social concerns regarding competitiveness and employment with an aim to internalize the external costs. Offering enormous reliefs to certain plants while ignoring reallocate resources across the economy and is an attempt to balance rivaling legislation priorities. But it underscores the latent environmental, social and economic contributions of new and upcoming industries e.g. renewable plant through lowered emissions, taxes, profits and job creation.

Direct provision of support through subsidies and free credits dents the efficacy of carbon pricing by artificially reducing electricity costs and falsifying the market in which sustainable technologies must wrestle (International Council on Mining and Metal, ICMM 2013, 1-82). The carbon pricing policy differs from one region to another; hence, the policy generates differing extra costs for concerned companies. Therefore, competitiveness is majorly determined by relative prices of across rivals making the similar commodity, in addition to, those manufacturing substitute goods.

Moreover, carbon overheads could be transferred to consumers based on their market arrangement. In case the costs are non-transferable, then those industries with high intensity of carbon pricing might be rendered uncompetitive globally and can cause investment flight (carbon leakages) to areas outside the carbon pricing regions in order to make use of carbon cost variability. These repercussions are more likely to hit EITE industries (ICMM 2013, 1-82). Worries about severe economic repercussions, especially in regards to the EITE industries, is broadly discussed benchmark for execution leakage policies and competitiveness.

Any facility that can cover-up their operating costs can only succeed in short-run. However, in long-run, the extra costs carbon pricing can diminish the capacity of industries to cushion their capital expenditures. Under tough situations, in which carbon pricing reduces industries ability to cushion their interim running costs, operation of facilities could halt, leading to idling of resources. Note that metal and mining sector is diverse; therefore, it is hard to generalize the effect a given business, installation or commodity will experience.

The policy can only a trickle of opportunities and obstacles (ICMM 2013, 1-82). A company associated with precarious levels of indirect or direct emissions quantifiable as technically exorbitant or difficult lessen is least likely to transfer or absorb the carbon costs. Such industry is at high risk of leakage and more likely to relocate its operations. However, this risk can be countered through numerous ways. For instance, if obtaining of emission lowering technologies involves minimal costs or if an industry’s outputs are sold in isolated global markets with no rivalry.

Read More