Our carbon trading blunder

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It’s a tragedy that the climate change debate is being used to pull the Coalition apart and to possibly bring on a double dissolution, because the political skirmish is obscuring significant events that have occurred since the current set of policies were framed.

This week the change really came home to me when I discussed the latest developments with a state environment minister who seemed tantalised by the possibilities created by the new events. But with all policies virtually locked in, and the opposition in disarray, the widened debate is left to media commentators.

In today’s commentary I am ignoring the rising number of climate change sceptics which are a hidden force bubbling below the surface. A majority of Australians want to slash our use of carbon in a way that creates the least disruption to the economy. If we are not very careful, the present track will lead us to a carbon reduction policy that does the economy great harm.

As I have explained many time before, the discovery of huge reserves of gas – which burns with much lower carbon emissions than coal – in Queensland and NSW in North West Shelf quantities, gives Australia the opportunity to combine gas and renewable energy sources to slash emissions at a manageable cost (New energy can’t wait, July 15). The United States is in a similar situation and the high-profile political figure Robert Kennedy Jr has woken up to the new paradigm.

To justify the investment in low carbon fuel sources, it is necessary to make carbon emissions a cost. In essence that’s what the emissions trading scheme is all about.

The trouble is that the proposed Australian version is complex and traps people and organisations that the community does not want to trap.

Many moons ago politicians on both sides of federal parliament and in most states abandoned the idea of a carbon tax because they reckoned it would be unpalatable to voters. But in those days they had budget surpluses and did not believe they needed an extra tax. Now they desperately need additional tax revenue to cover their huge deficits and are looking around for all sorts of nasty taxes.

So why not re-visit a carbon tax at a rate set at on the basis of an international formula? This would require a rebate for all export industries and a tax on the carbon content of imports. In other words, the price of carbon is lifted no matter where in the world it comes from. It’s simple and it’s easy to understand a tax and with wide community acceptance it would become the new GST to reduce the deficit. Fans of carbon trading will protest that selling carbon permits can raise just as much revenue for the government if the price is set correctly – however, the way the government’s carbon trading plans are already being manipulated by interest groups suggests that in practice this would not happen.

I know I will be howled down by all those that have invested heavily in carbon trading on the basis that the carbon trading schemes provide a market-based outcome which is far better than a tax. In theory they are right, and they were right at the time the carbon trading option was decided on. But as I see it, the proposed Australian trading scheme is being prostituted by all sorts of subsidies and exceptions which are often indiscriminate and reflect the political clout of various lobby groups.

At the same time we have 25 per cent of Australia’s power generation capacity – the Latrobe Valley in Victoria – in trouble with high debts. The ‘owners’ who have little or no real equity in the business are threatening to end long term maintenance. Australia has a wonderful eastern states gas pipeline network so let’s use it to supply low carbon-emitting gas to power stations that replace some or all of the Latrobe Valley brown coal stations.

The brown-coal-based stations would be phased out via the carbon tax instead of the lottery method of cutting long-term maintenance. The combination of low emitting gas and a big rise in renewables generated power (mainly wind and solar but later perhaps geo thermal) would suddenly give us a carbon reduction plan that will work now instead of relying on the hope that we can make storing carbon underground possible.

As a result of earlier commentaries I have been told about many new technologies which will make the low emitting gas/renewables combination an even bigger winner. For example, home generators developed by Ceramic Fuel Cells enable low-cost, gas-driven generators to be incorporated into houses, with their excess power fed back into the grid (Small but powerful, April 14).

Lloyd Energy Systems has created a large-scale, low-cost energy storage system based on high purity graphite which collects solar energy and greatly improves the economics of solar.

The Thermal Energy Storage division of Ice and Oven Technologies is currently laying the groundwork to release a product called ‘Flow-Ice’ to enable cooling to be undertaken when power loads are low.

There are of course many other developments. But let’s get the basics right first. We now have low carbon-emitting gas which is a lot cheaper to develop than renewables, but when the two are combined it gives Australia a cost-efficient alternative. But we will still require a charge for carbon emissions and with budget deficits requiring extra revenue, levying a straightforward tax on carbon will gain a great deal more community acceptance than the tax nasties being discussed.