This was published 13 years ago
Carbon can't be stored in limbo
Political inaction makes climate change and the carbon-costing problem all the worse.
By Leon Gettler
THE climate change morass, with the two major political parties refusing to tackle the issue, will hurt business and the economy. And business is beginning to demand more than an ad hoc approach that will lead to market failures.
The first signs of this are emerging with Standard & Poor's downgrading of one of Australia's biggest emission-generating power stations, Loy Yang B, to just above junk status because of uncertainty over a carbon price.
In the US, the Democrats have abandoned plans to introduce climate change legislation. In Australia, Prime Minister Julia Gillard has deferred consideration of a carbon price until at least 2012.
The only real leadership on the issue appears to be coming from China, which is ironically the world's leading producer of greenhouse gases.
In the same week that Gillard announced she would take $394 million out of programs to develop solar energy and carbon capture and storage to fund a $2000 grant for each person trading in pre-1995 cars for more fuel-efficient new vehicles (that's $394 million to save motorists $344 million in fuel costs over a decade), the China Daily reported that Beijing plans to start carbon trading from next year.
China aims to cut its carbon emissions per unit of economic growth by 40 to 45 per cent by 2020 from 2005 levels.
According to a study by the China Greentech Initiative, a coalition of Chinese and foreign businesses and Chinese non-government and government agencies, renewable energy could become a $US1 trillion ($A1.1 trillion) market in China by 2013.
At the same time, Chinese manufacturers, which have 43 per cent of the global photovoltaic-panel market, are slashing costs in a bid to dominate solar energy in the way Japanese manufacturers took over consumer electronics decades ago.
With no carbon price, Australia will lose out on investment. Amanda McCluskey, Colonial First State Global Asset Management's head of responsible investment, says money available for technology to fight climate change has been leaving Australia because of inadequate government policy support. Institutional investors wanting to safeguard assets from regulatory risks are sending money to China and Europe where there are policies, carbon prices, national low-carbon feed-in tariffs and state loan guarantees.
"What's happening is that when companies can't attract investment support here, they'll be going to China instead,'' McCluskey says. Colonial First State's biggest renewable investment is in Chinese wind power company Longyan.
A recent report by Citigroup analyst Elaine Prior says businesses are refusing to invest in low-carbon technologies here because of what she describes as policy and regulatory "limbo".
The timing of an Australian carbon price will depend purely on what happens overseas. Neither party offers policies that will see a 5 per cent reduction in emissions by 2020.
Prior says Labor's policies of interim measures such as renewable infrastructure support and energy efficient tax breaks will not be enough.
''Despite features to allow 'early action' and to discourage new build of 'dirty' coal-fired power stations, we doubt that major investments in lower emissions plants and technologies will occur without confidence in a long-term carbon price signal," Prior writes.
"The policy leaves industry in 'limbo' - it seems risky to build high emissions plants given the likelihood of future carbon costs, but it may be risky to over-invest in low emissions technologies.
"In our view, this policy is unlikely to drive significant emissions reduction activity by industry, until there is more certainty that benefits will be realised under eventual carbon pricing.''
Prior says the Coalition's policy of paying farmers to enrich soils with 85 million tonnes of extra carbon a year is based on dubious assumptions. There are too many uncertainties and it relies heavily on doubtful cost estimates.
"Many cost estimates come from letters to the shadow minister from interested industry bodies in January 2010 … It is unclear what the 'fallback' policy would be if abatement options proved more costly than projected," the Citigroup report says.
While the Coalition believes it can achieve soil carbon reductions at $8-$10 a tonne, there's one problem: farmers can make more than twice as much trading credits on domestic and international carbon markets.
Because of their cowardice, the two major parties have left business with three difficult choices: "direct action" as proposed by the Coalition; the government's piecemeal legislation and temporary fixes; or a carbon tax.
Ironically, this might force business to start supporting a properly designed carbon trading scheme, taking us back to late 2006, when then prime minister John Howard convened his carbon trading task force. In the meantime, emissions will continue to rise.
leon@leongettler.com