Alan Kohler
Carbon trading in the dollar doldrums
Negotiators are now busily lowering expectations for what will be achieved on climate change in Copenhagen next month.
It’s becoming clear that nothing more than another statement of principles will emerge from the UN sponsored meeting of 15,000 people from 192 countries; a legally binding deal looks totally impossible.
The pre-meeting meeting in Barcelona that broke up a few days ago in an angry altercation is back on, but the UN official in charge of the process, Yvo de Boer, said: “Unless we see some substantial movement from industrial countries on targets and finance, the problem will remain the same today as it was yesterday.”
Maybe there’s a double play going on, where they all talk down the chances of an agreement and then – ta dah! – unveil a binding deal on December 7 before spending the next 11 days in the Danish capital celebrating with organic apple juice, but that’s very unlikely.
If Australia’s latest budget projections are any guide, the decision to replace the Kyoto Protocols with a series of interlocking international emissions trading schemes rather than carbon taxes is turning into a disaster because of currency realignments.
The collapsing US dollar is playing havoc with ETS projections. Governments that had been hoping to make extra revenue by selling carbon permits will now lose money, which means less cash available for subsidies to the developing countries.
That was exposed by this week’s Mid Year Economic and Fiscal Outlook from the Australian Treasury.
In the past six months the Rudd government’s CPRS has gone from being a net contributor to revenue to a big cost – mainly because of the rising Australian dollar.
The CPRS was a $208 million benefit to the budget; now it’s a $1.2 billion cost over the forward estimates (to 2012-13). Over 10 years the net cost is now $2.5 billion.
In 2013-14, according to Treasury’s new forecasts, revenue from the sale of permits will total $12.1 billion and the cost of assistance measures will be $13.7 billion – a $1.6 billion budget hole.
The MYEFO says: “While world carbon prices have remained stable, the appreciation of the Australian dollar has resulted in the A$ carbon price estimate for 2012-13 falling from A$29 per tonne in the 2009-10 Budget to A$26 per tonne. A lower A$ carbon price assumption directly lowers the amount of revenue that is expected to be collected from the sale of CPRS permits.”
Of course the government could reduce the cash assistance provided to households and emissions intensive industries under the CPRS, but Treasury is not assuming that in its projections.
As the MYEFO says: “...discrete policy action must be taken if the scheme is to be fully calibrated to movements in the carbon price.”
The decision to tackle climate change with an international “cap and trade” emissions trading system means that it is impossibly difficult to agree on, and then even if a deal is struck, the “tax” that carbon emitters pay is subject to volatile exchange rates.
Australia’s revenue loss would be happening to budget projections around the world – except in the United States, where there appears almost no hope of getting a meaningful emissions trading bill through Congress anyway.
And with the US dollar price of carbon permits rising because of America’s plummeting exchange rate, there is less and less chance of that happening by the day.
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