A Layman’s View of Carbon Reduction Policies

1. A Layman’s View ofCarbon Reduction Policies

2. Overview History of climate change policy debate Projected impacts Australian Government’s response Opposition proposal Implications for agricultural sector

3. The Development of Australia’s Climate Change Policy

4. Intergovernmental Panelon Climate Change The IPCC is acknowledged by Governments around the world, including the Australian Government, as the leading authority on climate change science

5. Intergovernmental Panelon Climate Change It states: • Warming of the climate system is unequivocal • Humans are very likely to be causing most of the warming that has been experienced since 1950 • It is very likely that changes in the global climate system will continue well into the future, andthat they will be larger than those seen in the recent past

6. Since the 1950’s our climate has changed • 0.9°C warming since 1950 • More heat waves • Fewer frosts • More rain in NW Australia • Less rain in S & E Australia • Sea level rise 70mm Source: BOM

7. Local changes – NSW By 2030 Canberra’s climatecould be similar to Dubbo: • Warming of 0.6 to 1°C • 2 to 5% decrease in rainfall This is a moderate climatescenario. Source: CSIRO

8. Potential impacts on agriculture More heatwaves likely Fewer cold and frosty days More intense and sporadic rainfall More frequent or intense droughts Exceptional circumstances declarations likely twice as often and over twice the area by mid century

9. Australia’s policy response Both the Australian Government and Opposition parties have agreed to reduce 2000 emissions by at least 5% by 2020 and possibly by up to 25% depending on what the rest of the world does

10. Government’s key policy response An Emissions Trading Scheme (ETS) or Carbon Pollutions Reduction Scheme (CPRS) Market based solution Sets targets (cap) and issues permits (trade) Makes big polluters pay (ultimately consumer funded) Uses money collected from big polluters to compensate households

11. Cap and trade • An ETS places a price on carbon emissions • CPRS is a ‘cap and trade’ system • It works by putting a ‘cap’ – or annual limit on emissions • Permits or Australian emissions units (AEUs) will be allocated or auctioned up to the total annual cap • Over time the scheme cap will reduce in line with Australia’s international obligations • Long-term certainty for investment

12. Government’s key policy responseis CPRS How does it work?

13. Cap and trade • The second aspect of the scheme, is that businesses will be able to ‘trade’ permits • Businesses havea choice: • reduce emissions • buy more permits • Market drawsout the leastcost abatement

14. Why an ETS? • Climate change is a global problem • Guaranteed emission reductions • International linkages • Least cost abatement, at least in theory

15. Why not an ETS? • If not introduced across the globe • Make Australian production relatively more expensive • Shift production and pollution to countries that do not price carbon • Reduces our employment and shrinks our economy without addressing global warming • Political reality is that an ETS is unlikely to be consistent across industries nor across national borders

16. Opposition’s key policy response Direct action to reduce emissions – command and control Driven by regulation and subsidies Offers a quick fix and arguably easier to adjust to economic changes Works for small reductions but not able to be scaled up Government to try and pick winners Public purse (taxpayer) funded Emissions Reduction Fund is the key vehicle used

17. Emissions Reduction Fund Funded by the Government Invest annual average $1.2 billion in CO2 emission reduction activities Businesses that reduce emissions below their baseline able to sell abatement to the government Businesses that emit above baseline penalised Small businesses able to opt-in

18. Agricultural emissions • Agricultural emissions have been excluded from CPRS indefinitely • Therefore, farmers will be excluded from liabilities by not having to buy permits

19. Agricultural offsets • CPRS offsets will apply to agriculture • Offsets are rewards for reductions in emissions from sources not covered by CPRS such as agriculture • Offsets are sold into the covered sector (highemitters such as power stations) for use against CPRS liabilities • Therefore, farmers will be able to generate income from reducing emissions, earning offsets andselling them

20. What are offsets? Source: DCC

21. Two types of offsets • CPRS offsets • Uncovered sources that are counted towards Australia’s international commitments, such as agricultural emissions including livestock, fertiliser use and burning of agricultural residues

22. Two types of offsets • Voluntary market offsets – not CPRS permits • Uncovered sources not counted towards Australia’s international commitments, including through soil carbon and biochar • Transition to CPRS once abatement internationally recognised • International rules satisfied and CPRS requirements met

23. Agricultural opportunities underOpposition proposal • Like CPRS, no direct costs or liabilities • Potential income through: • replenishment of soil carbons • tree planting and forestry activities

24. In summary vs • Direct action • Regulation and subsidies • No emissions certainty • Less flexible • Not scalable • Government to try and pick winners • No international linkages • Taxpayer funded CPRS • Market based solution • Emissions certainty • Provides target flexibility • Scalable • Market draws out least cost abatement in theory • International linkages • Costs passed to consumer

25. Questions ?