The Great Polluter Giveaway: Australia's Cap-and-Trade Scheme

A new analysis from the Innovest team shows that Australia's coming cap-and-trade scheme is full of giveaways to polluter firms -- even though the practice produces massive corporate windfalls and no public benefits.

Emissions-intensive trade-exposed industries will receive significant assistance in meeting permit obligations.

Specifically, Australia's coal-fired generators would see $3.9 billion in free permits over five years, with the biggest of them benefiting the most. Says Innovest: "The handouts are concentrated among the largest and highest emitting brown coal-fired generators in Victoria." Additionally:

  • Aluminum smelters, cement and steel makers will receive assistance covering 90 percent of industry average emissions.
  • Alumina refiners, petroleum refiners and LNG producers will receive 60 percent of permits for free.

A quarter of the total permits in the system would be handed out for free and to the worst offenders. According to Innovest, that percentage could rise to 45 percent by 2020.

The plan is set to go into effect in 2010.

While it is true that it is an improvement over Europe's Emissions Trading Scheme (ETS) – which gave away 100 percent of its permits for free and provided zero incentives to develop clean generation – it's still bad. The far wiser choice for Australia would be to auction off all rights to pollute from the outset – a method that forces polluters to pay and generates revenue for clean energy, efficiency technologies and green jobs.

ETS is now moving in that direction. The ten Northeastern states adopted the auction method for the Regional Greenhouse Gas Initiative. And President Obama, in his cap-and-trade plan, pledged support for an auction of 100 percent of pollution permits – the best you can ask for.

So why not Australia?

On December 3, 2007 – on the very same day he was sworn in as Australia's prime minister – Kevin Rudd signed the Kyoto Protocol. With a stroke of a pen he broke the Australian government's cycle of climate denial.

A national climate action plan was drafted – the Australian Carbon Pollution Reduction Scheme. Emissions trading was to be a central piece. As the scheme evolved, there was hope that it wouldn't be weakened by measures that would undermine the benefits it creates.

So much for that. Tighter regs fell victim to lobbying, and the plan is now full of compensation for heavily polluting industries. On top of that, the overall target is not adequate for the task at hand: a five percent reduction in emissions from 2000 levels by 2020. If the world forges a global climate treaty, that number could grow to 15 percent by 2020. The plan's long-range target is a 60 percent reduction from 2000 levels by 2050.

The science dictates far more. And Australia, you would think, would get that. Gripped in a drought of epic proportions and battered by extreme heat, it's already seeing first-hand the signs of climate change, and feeling the economic aftereffects.

It's important to note that what happens in Australia on energy and climate matters everywhere, and vice versa: It's the world's biggest exporter of coal. In fact, the emissions it spews from feeding the world's coal appetite exceed Australia's entire domestic carbon footprint. Worse yet, its coal exports are growing wildly. All major coal ports are currently undergoing expansion. And get this: Prime Minister Rudd has said he wants to double his nation's exports of the dirtiest fossil fuel on Earth.

In a letter to the prime minister in March 2008, leading climate scientist James Hansen made a plea:

If Australia halted construction of coal-fired power plants that do not capture and sequester the CO2, it could be a tipping point for the world.

With its cap-and-giveaway scheme and big coal aspirations, it appears that Australia is indeed tipping the world – in the wrong direction.

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