More money for low carbon R&D and energy efficiency in Australia – Budget 09 summary

The government tonight released the budget for 2009-10. The big themes were infrastructure spending and debt, but I want to focus specifically on the programs relevant to climate change. Robert Merkel at LP rated it as having a “distinctly camouflage mottled hue”, but I’m a little more positive, albeit with some criticisms. See my analysis below.

RD&D, innovation and skills

The biggest area of spending, and the biggest increase in spending, came in what I have categorised as RD&D, innovation and skills. Then headline items in this area are under the umbrella of the $4.3 billion Clean Energy Initiative, which includes $3 billion of new money – mostly going to Carbon Capture and Storage (CCS) and the Solar Flagships Program (which will fund up to 4 very large solar thermal or photovoltaic installations, totaling 1GW of capacity). There is also a $1.3 billion Green Car Innovation Fund, and $100 million per year for the Global Carbon Capture and Storage Institute, both 10 year programs that were announced last year.

So by my calculations (see below), this adds up to $6.9 billion of commitments in this area, up from $3.4 billion previously. One important point is that in the area of low carbon stationary energy, $4.9 billion is allocated to specific technologies – CCS and large scale solar, compared with only $615 million to technology neutral, competitive funding. Admittedly, there are several competing technology options within CCS and solar, but this amounts to a fairly significant picking of winners by the government. I’ll come back to this difficult issue in a future post.

Energy efficiency and small scale renewables

On the demand side of the energy equation, we have energy efficiency and small scale renewables. By my calculations, this budget is committing about $5 billion to this category, up from $4.1 billion before the CPRS was announced. Most of this is going towards domestic insulation and solar hot water through the Energy Efficient Homes Program. There seems to be a confusing array of 9 overlapping programs in this area, with various timeframes, 5 of which are relevant to domestic and 7 of which are relevant to business. Why so many? The $100 million smart grid funding is welcome, but should be larger and allocated to a wider national roll-out, rather than another demonstration project. The technology is well established and has been demonstrated ad-nauseum.

Miscellaneous spending includes $98 million allocated to Australia Climate Change Regulatory Authority (which will oversee the CPRS) and the National Carbon Accounting Toolbox.

Conclusions

Overall, there are some important boosts to the green economy in this budget. But is it enough, and is it well directed? I would have liked to see more going towards Renewables Australia and the Energy Innovation Fund, which are both good, technology neutral funds. Also, the Clean Business Australia program could have been a lot bigger, particularly in comparison to the massive Energy Efficient Homes package. Business energy efficiency is less visible to voters, but equally important. As I’ve already mentioned, more on Smart Grids would also have been welcome.

But I do support the big spending committments that were made, in CCS, large-scale solar, and green cars. Overall, I give the 2009/10 Budget 6 1/2 green stars out of 10.

Emissions trading – it’s time to support it

Last weekend, the Australian government announced several amendments to their proposal for an emissions trading scheme. I had a number of criticisms of the original CPRS scheme, which I discussed here, but with these changes, along with the newly expanded Renewable Energy Target, I would be prepared to support it. It’s time to get behind this legislation and support its passage through a hostile senate.

In a nutshell, the changes are -

• An effective delay of 2 years before emissions trading begins (with no trading in 2010 and a very low fixed price of $10/tCO2 in 2011)
• Increased compensation for polluters
• A “Carbon Trust” scheme to make voluntary emissions reductions meaningful
• Moving the conditional emissions reduction target from 15% to 25% by 2020

The first two changes are disappointing, but in the grand scheme of things will make little difference to the environmental outcome. I can accept that they are justifiable politically and economically.

The third change addresses one of the big criticisms that many environmental groups and green commentators had about the original scheme, that voluntary reductions (at a personal and household level) were not counted, and would only decrease the burden on industry. Personally I was, and still am, ambivalent about this issue, because I have a feeling that the scale of these voluntary measures would be pretty small.

The most important change to the environmental outcome of the CPRS was the fourth point above. The government is now saying that if a comprehensive international agreement is reached on reducing emissions, Australia will commit to a reduction of 25% on 2000 levels by 2020. That’s a significant improvement on their original position of 15%. It puts us in the right ballpark internationally and shows that we are prepared to lift our share of the burden. You could, if you were being generous, even call it a position of leadership, but I probably wouldn’t go that far.

Disappointingly, this position has been criticised heavily by some green groups – most notably the Australian Greens – and many left/green commentators. They still have their eye on the “unconditional” target of 5%, if no global agreement is reached, pointing out that this is our only real commitment. But I disagree. Frankly, if the world cannot reach a comprehensive agreement in the next few years, we’re all screwed. If we are still in a situation of business as usual by 2020, it may be too late to avoid dangerous climate change. In that case, it would be game over, and it wouldn’t matter one bit what reduction Australia had committed to. 5%, 15%, or 25%, if the world doesn’t come to the party, our actions are, sadly, pointless.

The global agreement is the whole point. That’s why having a big differential between the unconditional and conditional targets is good policy. The government is not trying to shirk our responsibilities, they are trying to add to the international pressure for action.

My other criticisms of the CPRS related to its support for innovation and green jobs. I would have liked to see a price floor on carbon, and a limit of the amount of abatement that can be outsourced to other countries. These criticisms still stand, but I am realistic enough to know that it probably won’t happen. And the consolation is that the expanded renewable energy target, which will force 20% of electricity to be renewable by 2020, along with other measures like R&D funding, state initiatives on energy efficiency and building standards, will help by supporting domestic innovation.

It’s time for green groups to stop pushing for some kind of theoretically ideal scheme and realise that this is as good as it’s going to get. The Australian Greens, in particular, need to realise that their absolutism has only made them irrelevant in these negotiations. If they want to have a positive effect on Australia low carbon future, they need to come down from the mountain.

Elsewhere: John Quiggin

If I were President of the World…

If I were President of the World, I would set a limit of the quantity of fossil fuels that could be extracted, worldwide. The amount would be determined by an independent body of scientists and economists, that would auction a fixed number of tradable permits every year – let’s call it the World Carbon Authority (WCA).

The WCA would be responsible for conducting audits and enforcement, and would be informed by very well funded scientific and economic research divisions. The revenue from the auctions would go partly to the WCA to fund its activities, partly towards complementary measures like stopping deforestation and promoting better land use, with the remaining revenue distributed to all countries based on their population, to offset the higher energy prices. All countries would receive the same per-capita income, but the less energy intensive countries would be net winners. This money would also be a strong incentive for countries to recognise the authority of the WCA.

It would be up to each national government to decide how to spend this money, but the natural incentive is for rich countries to spend it on improving efficiency and investing in renewable energy, and for poor countries to improve the general well-being of the population. It would be a force both for environmental responsibility as well as social equality.

The extraction industry and the emissions intensive industry would face the same conditions worldwide, so they would be able to pass through their higher costs to consumers, and would have no incentive to move their operations to unregulated countries.

Compared to an emissions trading system, an extraction trading system would also be far simpler, because it would cover only the thousands of organisations that extract significant amounts of coal, oil and natural gas, rather than the many millions of organisations that burn them.

This kind of system is not entirely without precedent. At a much smaller scale, some fisheries are managed in this way. And at the international level, OPEC  has been enforcing oil production quotas (although not always successfully) among its 12 member countries for many decades.

Of course, I’m realistic enough to know that I’ll never be President of the World (sigh…), and that this proposal will never be politically tenable. But its nice to dream.