Chapter 8
Voluntary abatement efforts under the CPRS
8.1 Households are major emitters, responsible through their energy and fuel
use for around 25 per cent of emissions covered by the CPRS. Commercial
services and government sectors are responsible for a further 10 per cent as a
result of their electricity use.[1] Reductions in these emissions will be necessary to achieve deep cuts in
emissions.
8.2 A matter of concern brought to the committee's attention is the
implication for total emissions under the CPRS of 'voluntary' action by
households (and also by business and state and local governments). In this
context 'voluntary' action refers to things that are done for (or primarily
motivated by) altruistic concerns about the environment rather than (just) in
response to a price signal. It is sometimes termed in the literature
'additionality'. Arguably the clearest example of a voluntary action is
electricity consumers who opt to pay more for electricity derived from
renewable sources rather than fossil fuels. Installing solar panels will save
on power bills but when, as is often the case, the installation costs exceed
the savings on power bills they can also be regarded as voluntary action in
this sense.
8.3 Many submitters are concerned that under the currently proposed design
of the CPRS, such voluntary actions do not lead to a reduction in Australia's
emissions of greenhouse gases.[2]
For example, a household choosing Green Power will lead their electricity
supplier to make fewer emissions and need fewer permits, but this just means
that there are more permits available so that, for example, an aluminium
smelter can increase its emissions. The total emissions are unchanged.
8.4 The committee heard a range of views on this issue. It was variously
characterised as a fundamental flaw or an appropriate consequence of the
scheme's design, or just a distraction.
A fundamental flaw?
8.5 Some examples of criticisms of how voluntary reductions are treated
under the current proposal are:
... no government scheme should take away the volition of the
individual to do good, and this scheme has considerable potential to do that by
capping all emissions at five per cent. I believe that individual actions
should be additional to that target because if I go out and decide to plant a
tree or do something with my own money I do not want that to be seen as
insignificant.[3]
...the current design of the CPRS will ...kill the incentive for
Australian businesses, households and individuals to voluntarily make a
difference to greenhouse emissions.[4]
The draft legislation renders voluntary consumer action
meaningless. It denies consumers the opportunity to act to further reduce Australia’s emissions, and in doing so also threatens the viability of a number of emerging
industries.[5]
In its current form the legislation fails the many hundreds
of thousands of individuals and businesses, as well as local and state
governments that have engaged with the carbon offset, GreenPower and energy
efficiency markets.[6]
The current design of the CPRS disempowers the community by
sending a clear message that local action under covered sectors does not make a
difference to Australia’s net emissions...[7]
Government campaigns
8.6 Dr Richard Denniss of the Australia Institute has been a prominent
critic of the CPRS and the voluntary abatement issue in particular.[8]
Dr Dennis argues that as well as rendering voluntary actions initiated by
households ineffective, it makes government campaigns encouraging households to
undertake voluntary action ineffective, and arguably disingenuous. He gave the
example of the Government's recent initiative to spend $4 billion on home
insulation:
...the Prime Minister...said that the $4 billion expenditure on
insulation would reduce...Australia’s emissions by 50 million tonnes. This is demonstrably
untrue. If we spend $4 billion on installation, under the CPRS all we do is
reduce the household demand for electricity and we free up 50 million tonnes
worth of permits by which the aluminium industry or some other industry would
expand.[9]
8.7 Other witnesses expressed concern at the contradictory message that the
CPRS would send about government campaigns for voluntary abatement efforts:
...at the very least where there is discrete government policy
in place, one that directly stimulates and motivates individuals to take steps
to reduce their greenhouse profile, that needs to have the integrity of that
action preserved...We are concerned that if a perception evolves in the
marketplace that putting PV on the group [roof?] does not actually make any
difference—it just reduces the cost of carbon permits for major emitters in the
economy—that will undermine the enthusiasm and incentive for those households
and small businesses to deploy the technology. That will in turn undermine a
developing market.[10]
Size of the impact
8.8 Views differ about the quantitative importance of reductions in
voluntary actions.
8.9 Households and local governments have been the main participants in
voluntary abatement action, particularly through purchasing GreenPower. Professor
Hamilton extrapolated:
...if we estimate that perhaps 10 per cent of households are interested
in taking significant action on a voluntary basis to cut their emissions and
they succeed in cutting their emissions in their households by half, overall
those voluntary actions would cut Australia’s emissions by 0.5 per cent. So the
symbolic value of voluntary action by households might be important but in
practice they have very little impact indeed. That is why mandatory measures
such as an emissions trading system will have a much greater effect, because they
have will apply to everyone rather than that perhaps 10 per cent of the
population that is sufficiently worried and motivated to take voluntary action.[11]
8.10 Purchases of GreenPower by households, governments and business resulted
in abatement of around 1.3 million tonnes in 2007–08.[12]
To put this into context, Australia will need to reduce its emissions by 135 million
tonnes per annum to achieve a 5 per cent reduction in emissions, and 195
million tonnes per annum to achieve a 15 per cent target.[13]
A benefit of the scheme's design
8.11 Mr David Pearce of the Centre for International Economics told the
committee that far from being a problem, the voluntary abatement issue was in
fact a benefit of the CPRS scheme. He argued that voluntary action that households
undertake lowers the demand for permits, which lowers the price of permits and
thereby makes abatement less costly for everybody.[14]
8.12 The Australian Industry Group are opposed to recognition of voluntary
action:
Ai Group does not understand what of substance is intended by
including among the factors that may be taken into account in setting caps the "voluntary
action"... Our understanding is that an ETS (or a carbon tax) would
encourage households and businesses to reduce emissions by imposing a price... Ai
Group submits that the concept of voluntary action should be removed from the
list of factors that can be taken into account in setting caps.[15]
A distraction?
8.13 One view is that this debate is over-emphasising voluntary action. Prior
to adoption of a national cap on emissions, all abatement action delivered an
additional environmental outcome, by reducing emissions below what they would
otherwise have been. Yet total emissions continued to rise because voluntary
abatement was offset by rapidly increasing emissions elsewhere in the economy.
8.14 Professor Clive Hamilton, while acknowledging the presence of the
voluntary action problem, views it as a 'distraction from much more important
issues with the CPRS, in particular the lack of ambition of the target'. In
this context, Professor Hamilton added that if the target had been set at 25
per cent by 2020, everybody would be cutting their emissions for financial
rather than altruistic reasons.[16]
Furthermore, he regards voluntary action as quantitatively unimportant (see below).
8.15 Dr Frank Jotzo, a Research Fellow at the Australian National University,
described the voluntary action issue as 'misleading' and claims that it unnecessarily
'feeds into rising public frustration about climate policy'.
I think that argument as it has been put by some sides in the
(voluntary action) debate recently is rather misleading and in my view
unnecessarily feeds into rising public frustration about climate policy.
The argument....ignores that there is in fact a national
emissions target, such as the five per cent, 15 per cent or 25 per cent
reduction, and that is in the end what will determine Australia’s contribution
to the global effort to reduce emissions.
It is not a design fault of the emissions trading scheme or
the particular way in which it is spelt out under CPRS. It is simply a
consequence of in fact having a national target, quite irrespective of what
domestic policy instrument is to be used to meet that target. If we have a
national target then that is the national target.
Is this voluntary personal action to reduce energy use and
emissions futile with a national target? No, of course it is not—not at all. It
is in fact an integral part of achieving the overall outcome at least cost, and
personal action will be encouraged by rising energy prices under the emissions
trading system.
The more we do individually the easier it will be to
collectively meet the national target, and that in turn will make it possible
to go for more ambitious targets further down the track. That, of course, requires
that targets will, in fact, be ratcheted down if and when we find that it is
easier to reduce emissions as anticipated, or if the signs and other countries
actions indicate that a stronger target for Australia will be needed. [17]
Treatment of voluntary action under the CPRS
Voluntary reductions and future
caps
8.16 The commentary on the Exposure Draft lists a number of
'additional domestic factors' to which the Minister may have regard when
setting targets and caps for national greenhouse gas emissions. One of these
factors, listed in clause 14(5)(c)(iv) of the bill, is 'the extent of actions
voluntarily taken by Australian households to reduce Australia's greenhouse gas
emissions'. The commentary notes that:
Voluntary action to reduce greenhouse gas emissions can help
ameliorate the economic implications associated with various levels of national
scheme caps, making it more likely that more stringent caps can be set over
time.[18]
8.17 This argument has been reiterated by the Minister for Climate Change,
who argued that the voluntary abatement issue had been misunderstood. Rather
than simply free up carbon pollution permits for others to use:
...individual and community action
to be more energy efficient not only saves them money, it will contribute
directly to Australia meeting our emissions reductions targets. Strong
household action also helps make it easier for governments to set even more
ambitious targets in the future.[19]
8.18 In evidence to this inquiry, the Secretary of the Department of Climate
Change, Dr Martin Parkinson was asked how voluntary actions would be accounted
for under the CPRS. He responded that there are two ways in which voluntary
action undertaken by households can be recognised under the scheme; by purchase
of permits (discussed below) and :
...the minister and future ministers have in their capacity of
setting future caps the ability to take account of likely voluntary action when
they set the caps.[20]
8.19 However, the caps are fixed five years in advance. Furthermore, there is
no obligation on the then minister to take account of voluntary action in
setting future caps. It is just something that may be considered.
'Ripping up' permits – an
alternative form of household action
8.20 The Secretary of the Department of Climate Change explained that another
way concerned citizens could contribute to emissions reductions was:
...the scheme allows anyone to purchase permits and essentially
submit them to the regulator to have them torn up. If they do that, the
government will take out of operation an assigned unit, under Kyoto.[21]
8.21 It is not clear how practical it will be for individuals to buy single
permits. If the minium permit refers to a tonne of emissions, it may cost about
$25, but if they refer to a thousand tonnes of emissions they would cost around
$25,000 which would be out of reach of a typical household. The Authority is
expecting to be dealing with about 1,000 permit users and may not relish having
to deal with possibly millions of individuals entering the market (with their
numbers swelling if in addition to individual environmentalists making
purchases, so do individual speculators).
8.22 The organisation Sandbag, based in the United Kingdom, encourages
individuals to voluntarily retire permits by aggregating donations from
individuals and buying and retiring permits. It concedes that ‘a very large
number of individuals (or a few individuals with lots of money) would be needed
to materially affect the price but it is theory at least an immediate action’.[22]
8.23 Professor Pears notes that while individuals could buy and surrender
permits, this is ‘not very emotionally satisfying’.[23]
He argues that taking permits out of the system leaves the additional abatement
action to the liable entities, not those who surrender the permits. This
effectively takes from them the ability to reduce emissions in a manner that
also achieves other goals.
Possible ways of recognising voluntary emission reductions
8.24 A number of submitters proposed that the bill be amended to allow scheme
permits and Kyoto units to be cancelled for voluntary abatement, what is
sometimes referred to as a 'cap and slice' scheme:
While the draft legislation allows future caps to be set with
consideration to the level of voluntary action, the exposure draft does not
allow immediate recognition of voluntary action under the CPRS. For an example
of how this could be achieved, the purchase of additional renewable energy
through green power could be converted into tons of CO2 equivalent
avoided and CPRS permits retired accordingly.[24]
The CPRS legislation must not be passed without a mechanism
that guarantees the extinguishment of equivalent Australian emission units and Kyoto units for every tonne of greenhouse emissions abated voluntarily.[25]
8.25 Dr Denniss has argued that the Exposure Draft of the CPRS bill should be
amended to allow the number of permits to be reduced each year directly in line
with the amount of pollution saved by voluntary action. The creation of a
secondary market of permits based on households’ emissions reductions would
enable household emission reduction permits to be exchanged for CPRS permits.
To account for difficulties in the accuracy of household emissions
measurements, Dr Denniss proposes that secondary market permits be exchanged
for CPRS permits at a fixed rate of 2 to 1. If two tonnes of household permits
was exchanged for a tonne of CPRS permits, ‘it is impossible for the secondary
market in household efficiency permits to dilute the value of CPRS permits so
long as the measurement error is less than 50 per cent’.[26]
8.26 Professor Pears, in his submission on the Green Paper, argued for a
scheme that provides ‘immediate and clear’ recognition for abatement efforts
that go ‘beyond reasonable expectations’. Energy retailers would account for
the quantities of Green Power sold, which is deducted from the cap when sales
are reported. Moreover, all individuals and companies that commit to reduce
emissions through energy efficiency improvement would be required to report
under NGERS. If the reductions exceed those of the cap trajectory, they will be
acknowledged as additional abatement.[27]
8.27 However, he concedes there are complexities involved in determining what
constitutes 'voluntary' action under the CPRS, and in trying to translate every
form of voluntary action into tonnes of abatement:
In the discussions we have had with the department, the
concern that they have, which we are sympathetic to, is about creation. I
should go back a step. When it comes to individuals doing various actions,
there are a range of motivations for those actions and they vary as to deciding
to ride a bike or walk to work, rather than driving, or catching public
transport. They go through to purchases of white and brown goods, and what sort
of car you drive. It does open a Pandora’s box if you try to account for every
one of these voluntary actions. [28]
8.28 Mr Pearce of the Centre for International Economics referred to:
...white certificate type schemes, those things where you
recognise abatement in the built environment. It is probably more important in
the commercial sector than in the household sector, but you recognise that abatement
and you get some form of reward for it. It could be linked to the CPRS or to
some sort of trading scheme in the sense that what you could get is actually
permits under that scheme for abatement.[29]
8.29 In its submission on the Green Paper, the Carbon Reduction Institute
suggested creating a system of carbon debits which would cancel out CO2 units through greenhouse abatement projects
and Green Power:
It could work similarly to a
GreenPower Right, in that a retailer of GreenPower or project proponent that
creates a carbon credit would be required to purchase a carbon debits and apply
this to the relevant sector of our national greenhouse accounts. For example,
if a project proponent created a carbon credit from a project that diverted
organic waste from landfill into a composting scheme and sold a carbon credit
from this into a voluntary scheme then they would need to register a carbon
debit into the waste sector of the national greenhouse inventory. When
reconciling its accounts, the government would quantify the emissions from the
waste sector and would capture the reduction from the project during this
process.[30]
8.30 Dr Regina Betz suggested:
...there could be an option to introduce an additional action
reserve, which would mean that we are setting aside part of the allocation that
would otherwise go to industry into a reserve and we would allow units in the
reserve to be cancelled based on specific actions that are part of a positive
list.[31]
Committee comment
8.31 While relying on voluntary action will not solve the problem of climate
change, this does not mean that the contribution of voluntary action should be
dismissed.
8.32 People want to feel that they are making a contribution, even if only in
a small way, to saving the planet. The growing perception that the CPRS negates
actions taken by individual households to reduce emissions is eroding support
for the scheme. This must be addressed.
8.33 The size of voluntary actions to cut emissions is hard to measure. It
may be only a modest proportion of total national emissions, but it may already
be reasonably large and, if encouraged, may increase further as awareness of
the impact of climate change grows.
8.34 The Committee supports the ability of concerned citizens to buy and
cancel permits but do not believe that on its own this mechanism provides a
sufficient outlet for voluntary action.
8.35 The Committee therefore believes that introducing some measures to
continue encouraging voluntary action is a worthwhile initiative.
8.36 Some 'voluntary' or 'altruistic' reductions in emissions can be readily
measured, such as customers signing up to Green Power or sales of solar panels.
Other indications could be derived from publicly available data such as reduced
energy consumption by households. The difficulty of defining 'voluntary action'
and the diverse, sometimes complex proposals for methods of recognition make it
difficult to prescribe one course of action.
Recommendation 3
8.37 The Committee recommends that the government develop policies
complementary to the CPRS to encourage voluntary action.
Recommendation 4
8.38 The Committee recommends that the wording of section 14(5) of the CPRS
Bill 2009 be amended so that in making recommendations on emissions caps the
Minister "shall have regard" rather than "may have regard"
to "voluntary action".
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