Clean Energy Bill 2011 Interpretation - Essay Example

Clean Energy Bill 2011 Interpretation and Analysis Client Inserts His/her Name Client Inserts Grade Course Client Inserts Tutor’s Name [Date] The Clean Energy Bill drafted in 2011 is a pack of laws that establishes an emissions trading scheme in Australia designed to down-scale carbon emissions and solve the problem of global warming. This Act not only sets up a carbon price and establishes industry assistance programs but also a Jobs and Competitiveness Program. It also includes coal-fired electricity generation assistance package. It articulates rules on who is liable to the carbon pricing mechanism and sources of carbon pollution that are subjected to the scheme. It outlines on how to surrender emissions units, and elaborates the monitoring mechanisms, enforcement as well as appeal and review provisions. Around 500 entities will be required to purchase a license for every tone of carbon they emit. Personal income tax will be adjusted downwards for those who earn less than $80,000 annually. The tax-free bracket will be raised from $6,000 to $18,200 (Jessup and Rubenstein 2012: 37). This bill is informed by the climate change. It has become a global economic predicament, which, according to the bill, results due to failure of the market forces to charge costs linked with emission of greenhouse gases. In this regard, producers are not deterred from containing emissions. According to conventional environmental theory, emissions are unhealthy environmental and unnecessary economic hazards that always come with costs. If not integrated in the pricing of goods or services sold by the emitter, these costs are passed on to other parties either directly or indirectly. The bill envisages the solution to this market failure in terms of policy as either by doing away with, or erecting a price tag on the emissions (Zahar, Peel and Godden 2012: 45). This paper focuses on the extent to which the policy options as provided for in the bill conform to the existing theoretical constructions. It also explains how the provisions of the bill deviate from such theories. It is on the basis of this assessment that the paper supports the bill to some level as well as offer critical analysis to the same. Towards this end, economic experts have provided three viable policy options that can be explored. First is the establishment of a maximum emission capacity and a requirement for an emission license, second, is the emissions trading system and third, an imposition of tax on emissions, which has been generally tagged as a carbon tax. Each of these options comprises some level of government rather than market intervention. The most prudent policy option within prevailing economic discourse is an emissions trading system. It is the most efficient and less costly way of correcting market failure. This is premised upon neoclassical economic theory. In this theory, in a perfectly competitive market for instance, free market is the most effective approach to undertake in the emission reduction (Dryzek, Norgaard and Schlosberg 2011: 98). In articulating its provisions, the bill invokes the theory of the firm. This theory asserts that businesses interact with the market to determine pricing and demand after which they allocate resources in a manner that seeks to gain maximum profits. In the perfectly competitive economy producers have no influence on the price of their products. Like consumers, they are mere price takers. The firm therefore will seek to maximize its profits by choosing a production technique that enables it to produce goods or services at the lowest possible cost given the market price. Carbon price will increase production costs for the emitters. This will act as a disincentive for firms to use carbon intensive modes of production. Firms will seek a more cost effective production technique to avoid the extra carbon tax and will tend to cleaner energy sources (Kaieda 2006: 76). The theory of the firm goes hand in hand with the theory of consumers. The latter states that consumers seek to maximize their overall utility. Because of their limited financial resources coupled with the need to advance their economic welfare, consumers assess the relative benefit to be derived from purchasing a good or service alongside the relative prices of other goods and services in the market, before they decide on which to buy. Consumers tend to go for cheaper brands, given that the quality remains the same. This will render the companies that have high costs of production relative to others less competitive. Because carbon price increases the cost of production, carbon emitting industries will opt for energy sources that are cost effective. This is the rationale that informs the clean energy bill, that is, a shift towards renewable and cleaner energy sources, if a firm must remain competitively relevant (Wanna 2009: 112). Pricing of carbon is no doubt a disincentive to pollution. This however contravenes the theory of pricing. Prices are pegged upon salable commodities. Emissions do not fit the definition of a commodity. This is because they are not produced for sale. In this sense, emissions trading transform the atmosphere to a fictitious commodity. This abstract nature of the emissions coupled with the complex and unpredictable nature of the atmosphere being protected results in the complex regulatory response required to effectively define the market (Mercer 2000: 34). The concept of marginal utility contends that income inter-alia has diminishing marginal utility. This translates to an extra dollar having more utility to the poor relative to the rich. This justifies compensation to low-income households provided for in the bill. This compensation comes in form of alterations to taxation and social security that raises income levels of poor households. There is also a provision to assist those unable to afford the capital investments needed to reduce their carbon emission. This compensation however is not entirely redistributive. In any case, the establishment of an emissions trading scheme comes with fresh costs, which are relatively higher for low-income earners. This compensation cancels out this effect. In the end, some low-income households are left in a little better position. The major issue here is not income redistribution; instead, it’s a compensation for the costs brought by change in policy (Makuch and Pereira 2012: 73) The question of domestic and international actors’ collective will to institutionalize carbon price mechanisms calls for answers. Conventional discourse contends unless economic agents are fully informed about the value of an economic activity, they will not make rational decisions on how to maximize gains or benefits and minimize costs in order to optimize their wellbeing. These economic agents could be companies, consumers, or even other countries. For these economic agents to play any role in reducing the greenhouse gas emissions from the atmosphere, they need information on its social costs. This requires that these costs be translated in real monetary terms. They should be quantified to a price that is reflected accordingly in producers’ cost structures and in market prices. Generally speaking, a majority of these economic agents are not informed with the costs of a polluted environment. There also lacks collective international will to tame carbon emissions. Actually, a major criticism of the carbon pricing has been that Australia ought not to carry on with its introduction prior to other countries (Kamieniecki and Kraft 2013: 87). Is trade emission system the best policy option for Australia’s realization of a clean energy future? To answer this, let’s explore such other policies comparatively. With no doubts, the Clean Energy Bill was crafted with all the good intensions of preserving the environment, now and in future. However, history of some established schemes around the world indicate that the supply of permits is not set independently of envisaged demand. Most schemes set targets that sanction existing emission levels. This is the surest way that carbon production will stop. Focusing on the sale of permits overlooks the fact that some emitters could be willing to pay the price in as long as it is viable for them. The operational focus of the system is concentrated on getting those enterprises that emit greenhouse gases to meet some of the costs they impose on the economic community by requiring them to pay for the right to emit by buying permits, which some of them are in a position to do. By doing this, consumers are sidelined from the market (Chevallier 2012: 90) It is skeptical as to whether this bill will survive the test of implementation. Achieving policy change is not only a difficult but also a challenging task. Especially so, achieving one that has many implications for employment, industry structure and the distribution of income is extremely challenging. There are limited examples of this being achieved. One is the construction of the welfare state and the other example is the implementation of economic reform in USA. They both required time, and heavy mobilization of political groupings and resources. The clean energy bill raises the prospect of the sort of political resistance and backlash that has accompanied economic reform. The irony is that such a reform remains the main policy alternative in a context of increased domestic support for nation building and international skepticism towards neoliberals (Leal-Arcas 2013: 37). The bill offers awesome projections in terms of its scope and ambition. It is however difficult to place confidence in the results and projections. Making such long term forecasts is coupled with uncertainties. Tracking systems of these forecasts are also very poor. This makes it hard to place any trust on these future projections. This is not to say that mitigation policy is not justified. It only suggests that it is hard to justify these policies based on this type of cost-benefit approach. These uncertainties are just too great, that our technical expertise to model such complicated systems over such long timeframes limited. (Garnaut and Garnaut 2011: 56) An emission trading is a complex policy instrument for a layman to understand. This complexity escalates the costs that come with engaging in policy formulation and debate. This eventually reduces the number of people actively engaged in the policy process. Those with substantial resources, as well as those who are susceptible to greatest potential costs or benefits from the envisaged policy stand greater chances of remaining. This means that large high-emissions industries dominate the market. The problem is compounded by these polluting industries intervening in the policy. On the other hand, it is extremely difficult for even engaged citizens to monitor the debate carefully (Kamieniecki and Kraft 2013: 87). There is a high possibility of this scheme failing to bridge the theory-practice disparity. Carbon pricing approach holds some appeal on the face of it. However in practice, many economic reforms do not implement adequate compensatory arrangements. In addition, they produce continuous dynamics that slowly widen inequality gap with time, beyond what may have been anticipated. This results in less topical discussions of the contingencies of transition. It therefore leaves some workforce, regions and even industries worse off than before. This is the least believable aspect of the bill’s commitment to flexible markets because of the prevailing experience of rampant high unemployment in the regions that has been occasioned by previous versions of economic reforms. More fundamentally, it brings into question the bill’s evaluation of the costs imposed as well as the distributional effects of recommendations thereto. This is because both are premised on the strength of flexible markets to make sure the transition does not aggravate unemployment, or poorly paid employment (Garnaut and Garnaut 2011: 65) References Chevallier, J. (2012). Econometric analysis of carbon markets: the European Union Emissions Trading Scheme and the Clean Development Mechanism. Dordrecht [etc.], Springer. Dryzek, J. S., Norgaard, R. B., & Schlosberg, D. (2011). Oxford handbook of climate change and society. Oxford, U.K., Oxford University Press. Garnaut, R., & Garnaut, R. (2011). The Garnaut review 2011: Australia in the global response to climate change. Cambridge, Cambridge University Press. Http://site.ebrary.com/id/10533326. Jessup, B., & Rubenstein, K. (2012). Environmental discourses in public and international law. Cambridge, U.K., Cambridge University. Kaieda, H. (2006). Evaluation of the first-stage reservoir in the Australian Hot Dry Rock geothermal energy development beneath the Cooper Basin. Tōkyō, Denryoku Chūō Kenkyūsho. Kamieniecki, S., & Kraft, M. E. (2013). The Oxford handbook of U.S. environmental policy. Oxford, Oxford University Press. Leal-Arcas, R. (2013). Climate change and international trade. Cheltenham, UK, Edward Elgar Publishing Limited. Http://search.ebscohost.com/login.aspx?Direct=true&scope=site&db=nlebk&db=nlabk&AN=495742. Makuch, K. E., & Pereira, R. (2012). Environmental and energy law. Chicester, Wiley. Http://public.eblib.com/eblpublic/publicview.do?Ptiid=974496. Mercer, D. (2000). A question of balance: natural resources conflict issues in Australia. Annandale, NSW, Federation Press. Wanna, J. (2009). Critical reflections on Australian public policy selected essays. Acton, A.C.T., ANU E Press. Zahar, A., Peel, J., & Godden, L. (2012). Australian climate law in global context. Cambridge, England, Port Melbourne, Vic. Read More