Ready or Not, Here Come the Carbon Traders

Global warming skeptics may be scarce, but they’re still being heard. Many have taken refuge in the land of Blog, where they obsessively parse the work of the Intergovernmental Panel on Climate Change, Sir Nicholas Stern and Al Gore. Although the pendulum of public opinion has swung swiftly and mercilessly away from them, the doubters provide a vital service. They keep the scientists and politicians in check, and are first to smack down the loons who want to shut down fossil-fuel industries. In Australia, the dynamic in grass-roots politics and public policy is toward immediate action. A joint government-business Task Group on Emissions Trading last week said “the warning signs cannot be ignored.” “While debate continues about the precise scale, consequences and costs of climate change, and the scope for long-term adaptation to global warming, there is growing acknowledgment that governments, individually and collectively, should act to mitigate the emission of greenhouse gases.”

Australia produces 550 million tons of greenhouse gases a year. That’s a mere 1.5% of world emissions. Australia on its own can have little impact on global warming. But policymakers believe that if the nation can develop a successful local carbon-trading regime, it will become easier to spread such institutions to the rest of the world. Largely because of reduced land clearing, Australia—which did not ratify the Kyoto Protocol—should meet an agreed target (limiting annual emissions from 2008-12 to 108% of 1990 levels). But the challenge beyond then could be formidable, and few people have contemplated its impact on the way they work, live and play. Already, through various government schemes to limit greenhouse gases and promote renewable energy, the annual cost is approaching $A1 billion, according to the Institute of Public Affairs. Now a “climate change realist,” Prime Minister John Howard is nudging Australia into the world of carbon trading. If polluters are required to hold tradable permits (allowing them to emit defined amounts of greenhouse gases), the market will, in theory, put a price on carbon. Over time, emissions trading may lead to an abatement in the level of greenhouse gases without large job losses or high costs to industry and consumers. As well, some experts think that with the right settings, a carbon market can curb energy demand and lead to the take-up of new energy technologies (that is, as the Task Group said, “clean coal,” gas, nuclear power and renewable sources).

Taking some of the initiative, on Feb. 9 Labor premiers and chief ministers agreed to implement a national system of carbon trading from 2010—with or without the federal government. Carbon trading is already happening in Australia’s suburbs and towns. For instance, in New South Wales, the Greenhouse Gas Abatement Scheme imposes annual reduction targets on electricity retailers; other companies that carry out work to reduce greenhouse gases (by installing energy-efficient light globes and water-saving showerheads or planting trees) can create so-called “abatement certificates.” Polluters can buy these to offset their own emissions. Since 2003, about 37 million tons have been traded, worth more than $A400 million, making N.S.W. one of the largest carbon markets in the world.

Justin Burnes works for Easy Being Green in Sydney and goes door to door offering a simple deal. He will replace the light bulbs in your home with high-efficiency globes that will cut your power bill; you assign your carbon rights to Easy Being Green, which gets abatement certificates and sells them to polluters. Last year, the company distributed 3 million bulbs to 500,000 homes. Even with public opinion turning green, Burnes says it can be a tough sell. “Offering people something for free is the major attraction,” he says. “But it’s still hard convincing older people, who can be stuck in their ways.” On the home front, some electricians wonder how renewable energy sources such as solar will be priced in future abatement schemes. Or whether local governments will take action to limit the use of domestic air conditioning or impose solar passive elements (such as eaves) in home design.

While the ground is shifting, many questions remain about greenhouse policies. How ambitious will emission reduction targets be? Is carbon trading a way to shift funds from taxpayers and consumers to renewable-energy entrepreneurs and big business? Will these potentially valuable carbon permits be given away or sold at auction? What will be the balance between gdp growth and the environment? Will politicians continue to undermine an open market? In N.S.W., for example, the state government has granted BlueScope an exemption from its carbon trading scheme or any future carbon tax to help establish a new steel plant at Port Kembla.

With demand for electricity in Australia expected to double by 2050, the way it is produced will have to change. A report to the Prime Minister last December on nuclear power, by former Telstra chief Ziggy Switkowski, estimated that the additional electricity-producing capacity to drive the nation at mid-century will need to use technology with near-zero greenhouse gas emissions (to keep emissions from this sector at today’s levels). The Task Group is now taking submissions from the community and will report to the P.M. by the end of May. “Given the scale of the challenge faced,” the group says in its issues paper, “there is no room for complacency.” A local emissions-trading scheme is coming. Move over scientists, politicians and lobbyists—and make way for good market economics.