The Best Policy to Reduce Greenhouse Gas Emissions - Essay Example

EU’s ETS versus Abbott’s Government’s DAP By Student’s Name Code +course name Professor’s name University name City, State Date Greenhouse Gases Emission a Product of Economic Activities Production of greenhouse gases is expected to have an impact on the economy, human health and the environment. Arguments about the effect of emissions to the economy are varied. Some scientists and pressure groups are of the view that the impact on the economy would be higher if the world tried to reduce the use of fossil fuels that are driving the major economic powers. This argument is myopic, as it does not attempt to view the economic impact of inaction on emissions to the economy (Arup & Hannam, 2014). Economic activities in many countries and regions continue to contribute to an increase in greenhouse emissions. Greenhouse gases are produced when generating electricity – from fossil fuel like burning of Coal and natural gas, Industrial activities that consume the electricity that is produced from fossil fuels, transportation-, agricultural activities such as livestock keeping and heating energy for commercial and residential properties (Wade, 2013). Growth in economy in similar proportion increases the amount of Greenhouse gases (GHGs) emitted. Increase in energy consumption directly affects the amount of GHGs emitted. In the process of conversion of raw material to finished goods, industries emit GHGs into the atmosphere, as well. Therefore, production of GHGs will continue to increase as our economies increase if the current sources of energy are not diversified (Wade, 2013). European Union’s ETS / “Cap-and-Trade” The European Union’s U ETS system was started to allow emitting industries to limit or reduce their Carbon Dioxide and other GHGs emissions with limited government intervention. The system has a ‘cap’. Which the maximum amount of GHGs and CO2 that can be emitted by all participating institutions in a ‘trading period’. A trading period, on the other hand, is a monitoring period which companies report the amount of emissions. During the trading period, ‘Allowances’ are allocated for free or auctioned off. Allowances are limits for which an institution or company can emit without incurring any costs. If institutions exceed their allowances, they have to purchase allowances from other companies or participating institutions, and when they do not exceed their allowances, they can sell the remaining credits to other companies. Abbott’s Direct Action Plan (PAD) is centred on providing participating companies incentives for reducing emissions. DAP consist of eight key policy areas according to Cotton Australia: Emission Reduction Fund Clean Energy Employment Hubs Solar Towns and Solar Schools One Million Solar Roofs Geothermal and Tidal Towns Renewable Fuels Greenhouse Friendly Programme and The Urban Forests and Green Corridors Source (Cotton Australia, 2013) The government purchases the lowest cost abatement (clean-up projects, energy efficient improvements or reafforestation of marginal lands) through actions. The Emission Reduction Fund is used for the purchases of these contracts. Projects such as carbon farming initiative mechanism are also funded by the Emission Reduction Fund. The scheme uses compulsory or voluntary bases. ‘Business as Usual’ levels are set for various companies who face fines or penalties for exceeding the base levels. All companies under the Carbon tax scheme will join as compulsory participants in the National Greenhouse and Energy Reporting Scheme (NGERs). DAP, focuses on incentivising companies and institutions to use clean energy. The focus is on reducing amount of electricity generated using fossil fuels by encouraging companies to use renewable energies. The Emission fund will be used to assist electricity generators in Job protection and funding shutdowns (Kenny, 2013). Policy Differences between ETS and DAP There are several differences between EU ETS system and Abbot’s DAP system. The main difference is the trading mechanism of the two systems (Lubcke, 2013). The trading mechanisms of ETS are based on the participating companies trading among themselves. The fact that the emitting companies are involved in the trading between one another seems counterproductive. ETS’ use emission caps and allowances allows companies save and earn from it, while the ones that exceed their limits pass the cost to consumers through ‘opportunity costs’ purchasing. While ETS system limits the involvement of government, DAP is rooted on government participation and purchasing contracts from companies as incentives to reduce emissions. DAP’s participation in trading allows the government to prevent energy consumers from suffering an Electricity tax. Under ETS EU, member countries agree on a national emission cap that allocates the allowances to companies and institutions in their countries. While the ETS represents the largest program to reduce emissions it still has enormous challenges. Various sources have offered critical analysis that the policy allows companies that are major polluters to be paid for savings in allowances. Participating institutions already charge a levy to the consumer in anticipation of surpassing the limits allowed. These extra-costs are met by consumers while no tax breakers have been applied as the program intends to limit government involvement. DAP; on the other hand, relies on carbon sequestration and funding private companies and institutions through taxpayer financed initiatives to reduce GHGs emissions. DAP envisages an increase in usage of renewable energy. The targets of One-million-solar farm, is a project the coalition intends to use to reduce overreliance in fossil fuels. Funding through rebates will be given to low-income households to assist in generation of renewable energies. There is expectation that increase of commodities especially agricultural products will increase. It is also expected that energy and electricity bills will increase for many consumers. Indeed, the Australian Competition and Consumer Commission are investigating cases where consumers were charged more in claims of Carbon tax increases. DAP introduces a compensatory mechanism including changes in the income tax laws such as increasing the tax-free threshold from $6000 to $18,200. This means that consumers will pay less in income tax. Other steps to reduce the consumer burden include payment of Clean Energy advances directly to consumers through their banks. Those companies that influence the Carbon prices are compensated by the government, hence reducing the passed on costs to the consumers. Under DAP; farmers who plant trees will earn carbon credits which they can sell to companies that exceed the set limits. This program is expected to help manufacturing industry to support clean energy initiatives by employing low emission technologies and using energy efficient capital equipment. Comparison on Best Policy to Reduce Greenhouse Gas Emissions Reducing greenhouse gas emission is at the heart of both policies. The European Union envisages a situation where companies are incentivised to diversify the energy resources and reduce GHGs by earning revenues from their savings. This system in theory is very good. The major problem is encountered in reporting of the emissions and the amount of allowances that have not been traded. Economic downturns, migration of production units to China and South East Asia and the global economic crisis meant that many companies reduced production. Reduced production meant lower emissions which contributed to availability of large surpluses of allowances. With many companies holding large amounts of allowances, the EU has started mechanism to reduce the supply of allowances (Hunt, 2013). While both DAP and ETS envisage reduction of emissions, DAP offers producers of GHGs real incentives to lower emissions. Companies that produce high levels of GHGs get an opportunity to earn from their saving. This gives the companies a desire to reduce emissions, while in ETS; companies are comfortable to trade amongst themselves at low carbon price rates (Climate Action, n.d). ETS’ lack of governance and common authority continues to hinder its impact in reducing carbon emissions. While carbon emissions have significantly reduced in Europe, the contributing factors are beyond the ETS system. With reduced production and economic downturn around the world being the largest contributors to low emissions, tangible figures are hard to get on the influence the scheme has had. DAP encourages citizens to participate in afforestation efforts. Compensation for tree planting will encourage involvement of community and private citizens in reducing carbon emissions. While the Australian DAP policy is in its early stages with critics suggesting it too ambitious, it remains the most viable mechanism to reduce GHGs in the long-term. Companies should be encouraged to reduce emissions while consumers should be cushioned against higher prices of commodities. In conclusion, DAP is the most effective method in reducing GHGs. The EU and Australia are investigating changes to their policy to make it more competitive and effective in combating GHG emission. Efforts by the EU and Australia have to be lauded as they provided a mechanism to gauge and develop one standard that can be used globally. The major ‘polluters’ – (China and the US) have to be engaged, as well. Reference List Arup, T. & Hannam, P., 2014. Tony Abbott's climate change policy problematic. [Online] Available at: http://www.smh.com.au/environment/climate-change/tony-abbotts-climate-change-policy-problematic-20140110-30mfi.html [Accessed 14 September 2014]. Climate Action, n.d. The EU Emissions Trading System (EU ETS). [Online] Available at: http://ec.europa.eu/clima/policies/ets/index_en.htm [Accessed 14 September 2014]. Cotton Australia, 2013. New government Policy: Scrapping the Carbon tax and implementing the Direct Action Plan - breifing Paper, MASCOT: www.cottonaustralia.com.au. Hunt, G., 2013. The Coalition’s Direct Action Plan. [Online] Available at: http://www.greghunt.com.au/Issues/DirectAction/DirectAction-Index.aspx [Accessed 14 September 2014]. Kenny, M., 2013. Trust me, says Abbott, the carbon tax is dead. [Online] Available at: http://www.smh.com.au/federal-politics/political-news/trust-me-says-abbott-the-carbon-tax-is-dead-20130131-2dnq9.html [Accessed 14 September 2014]. Lubcke, T., 2013. A Review of the Viability of the Coalition's "Direct Action Plan", s.l.: newanthropocene.wordpress.com. Wade, M., 2013. Economists remain convinced carbon tax or ETS is the way forward. [Online] Available at: http://www.smh.com.au/federal-politics/political-opinion/economists-remain-convinced-carbon-tax-or-ets-is-the-way-forward-20131027-2w9rv.html [Accessed 14 September 2014]. Read More