ANALYSIS - Australian States' Carbon Trading Faces Battle
Date: 03-Apr-06
Country: AUSTRALIA
Author: Paul Marriott
An inter-state working group has said it favours a "cap and trade" system to encourage clean energy and clear up the regulatory outlook for power sector investors in one of the globe's most intensive producers of the greenhouse gas.
It could model itself on the pact by nine Northeastern US states to establish an emissions trading market by 2009, in contrast to both the United States and Australian government's opposition to emissions trading under the UN Kyoto Protocol.
But the Australian states, united politically in opposition to the right-wing national government, appear divided over where to set the bar due to wide regional variations in power plant fuel, typically the biggest emitter of carbon dioxide.
"For such schemes to really work you need to change the long-term investor mix by disadvantaging existing players," said Ian MacGill, senior lecturer at the Centre for Energy and Environmental Markets at the University of New South Wales.
Regions that depend on coal-fired power such as Victoria appear reluctant to impose stiff financial penalties that could threaten the viability of their major energy producers.
"Scheme design is critical so we don't disaffect Victoria's brown coal industry," Victoria's energy minister, Theo Theophanous, said this week.
He said his government supported an inter-state emissions trading scheme, but designated caps on emissions -- beyond which companies would need to buy permits to produce carbon -- would need to protect the commercial viability of brown coal power.
Brown coal fires 85 percent of Victoria's power plants and is dirtier than the black-coal electricity in fellow industrialised states New South Wales, Queensland and Western Australia.
The natural winners would be rural South Australia and Tasmania, which favour gas and hydro-power, respectively, but their smaller economies afford them less political clout.
Only New South Wales and Queensland have existing greenhouse gas abatement schemes, while New South Wales and South Australia were signatories to a 2005 international declaration that aimed to target reduced emissions on a territory-by-territory level.
Energy consultant Kumar Padisetti, of Saha International, said at a likely value of between A$20 and A$30 a tonne, carbon trading would favour cleaner black coal generation.
"Black coal will likely replace brown coal as the most cost-effective generation," said Padisetti. "But that would hit Victoria most so there's a lot of discussion still to come."
ENVIRONMENTAL CHALLENGE
Like the United States, Australia has resisted calls for a national emissions trading scheme similar to that now operating in the European Union, drawing criticism it prioritises economic growth and a powerful industry lobby over the environment.
As the world's largest exporter of coal and supplier of around a tenth of global trade in liquefied natural gas (LNG), Australian energy exports are worth over A$24 billion (US$17 billion) a year to a sector that employs 120,000 people.
But environmental sustainability has become its greatest energy challenge, with emissions from fuel combustion per unit of GDP almost 1.5 times the International Energy Agency's mean.
Australia failed to sign the Kyoto Protocol on reducing greenhouse gas emissions, and has since set its stall on technological advances combatting climate change as part of the Asia Pacific Partnership on Clean Development and Climate.
With conflicting signals at the national and regional level, power companies say they are unable to commit billions to building new plants that Australia will need. Demand for power is expected to grow by around 2.5 percent a year through to 2020.
"There is currently a disconnect in investment signals in relation to carbon emissions which needs to close for new plant to appear," said Ian Nethercote, chief executive of Loy Yang Power, Victoria's biggest generator.
"The indu