Thursday, February 24, 2011

Carbon price in 2012 - Gillard shows some leadership

"Australia will set a carbon price from July 1, 2012, as an interim measure until a full emissions trading scheme can be introduced three to five years later, Prime Minister Julia Gillard says.".......

"This is an essential economic reform, and it is the right thing to do," Ms Gillard told a news conference. "Carbon pollution is a threat to our country, and a threat to our future prosperity."

See the full SMH article here. More excerpts below. The basic idea is to start with a straight carbon tax and then transition that into an Emissions Trading Scheme over time. Economically using a market mechanism to price carbon is the most efficient (ie: lowest cost the economy) way to go. Also crucial is what happens to the money raised by the Tax and/or Emissions Trading. According to the PM.

Ms Gillard said the carbon price set by the government would be fair.

"Every cent raised from pricing carbon will go to assisting households, helping businesses manage the transition and funding climate change programs," she said.

"And the government will always support those who are in need of assistance with cost of living pressures."

This is the right thing to do and if managed correctly will help shield those on lower incomes from price rises and help businesses invest in low carbon tech and clean business practices.

Reading comments on various newspaper stories it seems that how this all works is poorly understood, with people asking how a carbon price could work if you also compensate people? The answer is to remember a carbon price doesn't just act on consumer behaviour but also on business investment and decision making.

I.e.: A carbon price will increase the cost of electricity from coal, leading to higher power bills, but it will also make building new dirty coal power plants (and keeping old ones running) a much less attractive investment. Instead cleaner plants will be built which will lower the C02 generated. Meanwhile consumers will be reimbursed for cost increases, which you can spend on anything, so you could use it to pay the higher power bill, or you could put it towards more efficient appliances or solar hot water etc to help lower your bill. This is the point of a market mechanism, you can make the decision that's best for you.

Despite today's announcement important questions remain to be answered:

What will be the starting price and at what rate will it increase?

What is the emissions reduction target to 2020 and 2050?

Will transport be included?

What level of "compensation" will be offered to business?

Some of which I'll try to opine on in a future post.

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