A transition model may do the trick - CLEAN ENERGY - SPECIAL REPORT

01 Oct 2008Archived News Energetics in the News

PUBLISHED: The Australian - Jonathan Jutsen, Executive Director and Founder, Energetics Pty Ltd explains why a transitional model may be the answer to achieving rapid and substantial cuts in carbon emissions.

 

As we move toward an emissions trading scheme the focus has been primarily on scheme design. While this is very important, we need to focus on the reasons for setting a price on carbon pollution: achieving rapid and substantial cuts in carbon emissions.

Once Treasury modelling is available, the Rudd Government will have to confront the reality that in the first three to four years of the carbon pollution reduction scheme (CPRS) as currently designed, the low carbon price anticipated is unlikely to deliver a significant reduction in carbon emissions.

By itself it will not provide a sufficient incentive for businesses to invest in energy efficiency measures. To illustrate this point, if the CPRS drives a 10 per cent energy price increase on average in 2011, emissions are likely to reduce by only 2 to 4 per cent in the long term, because past experience tells us that price changes alone will not effect substantial changes in energy usage.

This problem is compounded when we consider that Australia's fossil energy use is increasing by 2 per cent every year. Therefore, the scheme needs to be supported by a transition plan for reducing greenhouse gas emissions. Such a transition strategy would prepare business and the community for the challenge of rapidly diminishing our carbon dependence. It is a vital measure to ensure the success of the CPRS.

The kind of transition strategy needed will involve a range of measures, combined in a cohesive policy framework. To encourage accelerated investment in energy efficiency, the Government should offer tax, depreciation or other investment incentives, together with well-targeted energy efficiency performance regulations.

In addition, the Government should consider extending mandatory savings reporting schemes to energy users captured under the National Greenhouse and Energy Reporting system, which has been established to collect information for government on businesses' greenhouse gas emissions, energy consumption and production.

The mandatory Energy Efficiency Opportunities program has been effective in getting companies to identify opportunities and drive energy efficiency. However, over half the companies surveyed saw financial incentives as being critical to ensure implementation of these measures.

As with all major government initiatives, not least the CPRS, there should be appropriate information and advertising programs to ensure the messages are adequately conveyed to the public. Finally, there should be incentives and support for companies to train their staff in energy management.

The transition plan should be implemented as a matter of urgency, and will be crucial for the next three to five years until the CPRS starts to gather momentum. By continuing this transition program as a complementary measure, the Government can soften the economic impact of a trading scheme.

Based on international experience, for this transition plan to reduce energy growth to zero over five years with a modest price on carbon, it will be necessary to provide $1-$2 billion per year of incentives. A key source of this funding would be revenue from the auctioning of carbon permits. But much of this has been committed to trade-exposed industry, the cutting of fuel excise, compensation to coal-fired power stations and compensation to households.

Business is awaiting some clarity on the funding it will be allocated.

Jonathan Jutsen founded sustainability consultancy Energetics in 1984

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