Australia cut carbon dioxide emissions from its electricity sector by as much as 17 million tonnes because of the carbon price and would have curbed more had industry expected the price to be permanent, according to an Australian National University study.
The report, due to be submitted for peer-reviewed publication, found the two years of the carbon price had a discernible impact on emissions even assuming conservative responses by consumers and businesses.
“We see the carbon price doing what it was meant to do, and what it was expected to do, namely dampen demand and shift the supply from dirtier to cleaner sources of electricity,” said Associate Professor Frank Jotzo, director of the Centre for Climate Economics and Policy, and a co-author of the report with the centre’s Marianna O’Gorman.
The paper comes as the Senate voted on Thursday to bring almost five years of Coalition campaigning against a price on carbon to an end by repealing the tax. Labor and the Greens say they will continue to push for a price on emissions.
The ANU report, which used official market data to the end of June, found the drop in power demand attributed to the carbon price was between 2.5 and 4.2 terawatt-hours per year, or about 1.3 to 2.3 per cent of the National Electricity Market serving about 80 per cent of Australia’s population.
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The only thing that went wrong in Australia was the politics of climate change policy….There was nothing inherently wrong with scheme
Associate Professor Frank Jotzo, director of the Centre for Climate Economics and Policy
Emissions-intensive brown and black coal-fired power generators cut output, with about 4 gigawatts of capacity taken offline. The emissions intensity of NEM supply dropped between 16 and 28 kilograms of carbon dioxide per megawatt-hour of supply, underscoring the role of carbon pricing rather than slumping demand in curbing pollution, the paper said.
However, investors’ doubts that the carbon tax would last – fostered in part by then opposition leader Tony Abbott’s “blood oath” to repeal it if the Coalition took office - meant high-emissions generators were mothballed rather than permanently closed.
“We’d expect the impact of the carbon price would have been larger, perhaps far larger, if there had been an expectation that the carbon price would have continued,” Professor Jotzo said.
Falling demand
Environment Minister Greg Hunt has said repeatedly that the carbon tax was ineffective, stating Australia’s total emissions fell 0.1 per cent in the first year.
More recent figures, though, show the emissions drop accelerated, with 2013’s 0.8 per cent economy-wide fall the largest annual reduction in the 24 years of monitoring. In the power sector, the industry most directly covered by the carbon price, emissions fell 5 per cent.
“As confirmed by Origin Energy managing director Grant King, there are other factors resulting in lower emissions in the electricity sector – including lower demand, the impact of the [Renewable Energy Target], flooding at the Yallourn power station and increased hydro output,” a spokesman for Mr Hunt said.
However, the ANU paper takes those factors into account in estimating the carbon price impact, Professor Jotzo said.
Rather, the impact of the carbon price is probably understated. The highly politicised debate preceded its implementation by about a year, prompting energy consumers to focus more on electricity costs – and presumably to begin making savings – well before the tax began.
“We would expect politically motivated talk … may well have had a large impact on people’s power usage patterns,” Professor Jotzo said.
Reversing course
The repeal of the carbon tax will see a partial reversal of emissions reductions, particularly on the supply side as generators switch back to coal. Rising gas prices, unrelated to carbon pricing, will add to demand for coal-fired power generation.
Consumers, though, are likely to have locked in many of their energy savings, having bought more power-thrifty fridges and other appliances, Professor Jotzo said.
Globally, the government’s reversal on carbon pricing “sends a very negative signal” to other nations weighing up emissions trading schemes, he said. Some of them, such as China, had studied and adopted elements of Australia’s program.
“The only thing that went wrong in Australia was the politics of climate change policy,” Professor Jotzo said. “There was nothing inherently wrong with scheme.”
