The CCA's implicit social cost of carbon

Australia’s Climate Change Authority (CCA), in its 2014 Targets and Progress Review, recommended that Australia pursue a minimum reduction in GHG emissions of 19% by 2020 (vs. 2000). In modelling that target, the CCA estimated that it would involve carbon prices of up to $30/tCO₂-e in 2020, in real terms. (See p. 135)

The CCA used the damage costs of carbon (i.e. the social costs) in making its recommendations. While not explicitly stated, the CCA’s preparedness to recommend an abatement target that imposes costs of $30/tCO₂-e in 2020, in real terms, implies the CCA regards the social costs of carbon as ≥$30/tCO₂-e.

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Additionality in the VEET

When I reviewed energy efficiency trading schemes a few years ago,* the VEET was the only scheme we considered to address additionality. The section of the VEET Act 2007 we referred to was Division 2 (Prescribed Activities), §15 (2):

An activity may be prescribed to be a prescribed activity if the activity will result in a reduction in greenhouse gas emissions that would not otherwise have occurred if the activity was not undertaken.

However! I think we (I) referred to the wrong section – I think Division 2 (Prescribed Activities), §19 (2) is the appropriate one:

Without limiting the generality of subsection (1), the discount factors are to take into account any uncertainty associated with the reduction of greenhouse gas emissions that would eventuate from a specified prescribed activity or specified class of prescribed activities but for the existence of the VEET scheme.

* Betz, R., Jones, M.C., MacGill, I.M., and Passey, R. (2013). Trading in energy efficiency in Australia: What are the lessons learnt so far? [PDF]

Trading Costs and the Efficiency of Emissions Trading – Evidence from the EU ETS

I’ve lost a track a little of how the research projects I worked on at the Centre for Energy and Environmental Markets progressed since I left, but it looks as though at least one of them is proving useful: my former boss, Regina Betz, presented some of our work at the 4th IAEE Asia Conference in Beijing this September just gone.

Trading Costs and the Efficiency of Emissions Trading – Evidence from the EU ETS [pdf]

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Cost of living decreases if carbon price repealed?

I was asked this week to pull together some information on what effects the Federal Coalition’s repeal of the carbon price could have on households, specifically as regards their income and expenses (excluding environmental costs/benefits), with the background of whether any cost of living decreases could be used to justify cutting back on other welfare programs. This is only a very quick analysis (and I’ve doubtlessly missed some more rigorous analysis that others have done), but my short answer is that cutting welfare programs due to an abolition of the carbon price is a bad idea.

The most recent and comprehensive source of information on this is the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 Explanatory Memorandum. I’ve only skimmed it, but the gist is:

• The carbon price will be removed
• Household compensation will be kept at current levels, but no longer increased
• The ACCC will have new powers to investigate failure to pass through carbon price reductions for regulated supply (i.e. gas and electricity)

Taking these in turn:

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Carbon Pricing: It Works, Bitches (redux)

Updated on Friday, November 22, 2013 at 10:55 by MCJ

I dragged the sign out for yesterday’s climate change rallies, and while I wasn’t parading it as prominently as in 2011, pictures of me ended up online again. I suppose I shouldn’t be surprised.

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States of decay: Complementing the federal carbon policy

Updated on Wednesday, April 24, 2013 at 23:10 by MCJ

With the centrepiece of Australia’s climate policy not even a year old, most Australians are sick of it, or sick of hearing about it – fewer than 13% trust what politicians say about major public issues like climate change. And in the shadow of the Clean Energy Future package (CEF), state and federal governments are quietly letting other climate policies slip.

This “abdication of climate policy”, as Tristan Edis calls it, wouldn’t be so bad if Australia’s climate policy were perfect. But it isn’t; no policy is. The carbon price, while worth having, is a broad, blunt tool that covers but two-thirds of Australia’s greenhouse gas emissions. The rest of the CEF fills in some gaps, but there is ample room for further complementary climate policy at a state and federal level.

I wrote last year on this topic, giving reasons why state (or other federal) climate policies could still be worthwhile under the CEF. This would mean innovative approaches:

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DEHSt discussion paper: Prospects for CDM in Post 2012 Carbon Markets

Earlier in the year I contributed to a discussion paper about the prospects for the Clean Development Mechanism; the part of the Kyoto protocol that enables the creation of internationally traded carbon offsets.

The German Emissions Trading Authority (DEHSt), part of the Federal Environment Agency (UBA), was/is worried about the fragmentation of international carbon markets without a clear successor to the Kyoto protocol, and wanted to look at provisions for offsetting by potential major carbon credit
buyers such as Australia, California, South Korea, and Japan.

The paper is now live on their website:

Discussion Paper: Prospects for CDM in Post 2012 Carbon Markets

Australian Carbon Demand in 2015-16

Updated on Monday, October 15, 2012 at 23:46 by MCJ

Updated on Thursday, October 25, 2012 at 16:29 by MCJ

In the September issue of Point Carbon’s Carbon Market Australia-New Zealand newsletter,  Cecile Langevin writes that

[Point Carbon] expect[s] the emitters covered in Australia’s emissions market will have 57 million fewer permits than they need in the year 2015-2016

and

the market price will be set by the international cost of U.N. Clean Development Mechanism (CDM) credits for the first two years, and then by EU Allowances (EUAs) the last three years of this decade.

Based on my rough calculations (below), the Australian market should demand 240-245 MtCO₂-e in 2015-16, and the government’s (official) projections are even higher, so I’m struggling to reconcile that with Point Carbon’s 57 million estimate.

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Why Drop the Price Floor? Taking a Gamble on the EU

Updated on Wednesday, August 29, 2012 at 14:28 by MCJ

Updated on Thursday, August 30, 2012 at 16:27 by MCJ

I couldn’t make much at first of today’s announcement by Greg Combet, Minister for Climate Change and Energy Efficiency, that Australia was going to link its ETS with the EU ETS, and oh, by the way, we’re dropping the price floor.

That Australia and the EU will link their schemes good news, but it’s an expected development. Dropping the price floor, on the hand, had been speculated about (notably by the AFR; well done, Marcus Priest), wasn’t really part of the original plan.

As I wrote back in May, a price floor has some good things going for it, despite being technically challenging, and as it’s only regulation the government has the numbers to pass it even with Rob Oakeshott’s opposition. So my initial reaction was that the floor price had been put in the “too hard” basket and the ETS linkage was just used to hide the announcement somewhat.

I’ve since heard, however, that dropping the price floor was a condition of the EU agreeing to link the schemes. This makes more sense.

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The Effect of the Carbon Price on Electricity Prices

Updated on Friday, September 13, 2013 at 18:11 by MCJ

Updated on Sunday, November 3, 2013 at 22:39 by MCJ

In an otherwise good article, Peter Martin today wrote that

[the TD Securities Melbourne Institute price index] reports a jump in electricity prices of 14.9 per cent and a jump in household gas prices of 10.3 per cent, almost all of which would have been due to the carbon tax. [emphasis mine]

This is incorrect, and, unfortunately, he is not the first journalist to make this mistaken claim. Evidence to the contrary be found in, for example, the reports from the relevant authorities in states that regulate their electricity prices:

New South Wales

IPART’s “Final Report – Changes in regulated electricity retail prices from 1 July 2012”

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