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The FASTER way to successful carbon pricing

By Dr Anthony Horton

In recent blogs I have discussed the extent to which decisions made by Government, the private sector and individuals are precipitating significant action with respect to investment in clean technologies (solar and wind in particular), decarbonising entire business operations, the divestment phenomenon and an increase in the uptake of carbon emission pricing schemes. These pricing schemes are now valued at approximately US$50 billion and cover 12% of global greenhouse gas emissions.

I have also discussed how companies are using internal carbon pricing as a means of decarbonising their operations and more recently as a basis for choosing suppliers of goods, services or in some cases, both. In a global economy, procurement decisions made on such a basis have far reaching consequences.

In partnership with the OECD, the World Bank Group published its report titled ‘The FASTER Principles for Successful Carbon Pricing: An approach based on initial experience’ in September this year. In the Preface of the report, other approaches to reduce greenhouse gas emissions such as energy efficiency standards (for vehicles, buildings, lighting, appliances) and clean energy incentives are acknowledged, however the World Bank’s position is that carbon pricing is critical to shifting economies onto a low carbon path which will ultimately benefit all of us.

According to the report, there are six principles of successful carbon pricing based on international experience and economic principles. With the United Nations Climate Change Conference in Paris now only 2 weeks away, it is timely to be discussing the issue of carbon pricing given the debate around it as a mechanism for reducing greenhouse gas emissions and the risks associated with climate change over the last few months.

The six principles are Fairness, Alignment of Policies and Objectives, Stability and Predictability, Transparency, Efficiency and Cost Effectiveness and Reliability and Environmental Integrity. The World Bank hopes that the FASTER principles will guide and inspire countries, regions, states and companies that may be considering carbon pricing systems in the future to accelerate their progress, and that the principles will evolve to accommodate new experiences with respect to the design and implementation of pricing.

Fairness underpins successful carbon pricing according to the World Bank Group, as pricing policies capture the cost of damage from the emissions and therefore reflect the polluter pays principle. National systems that support innovation in labour markets can facilitate an easier transition of jobs and assets from high emission to lower emission companies, and if pricing does burden poorer households disproportionately, fiscal transfers or other targeted complimentary measures can be implemented to provide some protection.

Measures that support continually increased emissions reductions over time are critical to the success of carbon pricing policies. Innovation, the removal of institutional barriers, behavioural incentives and policies that encourage investment in low carbon infrastructure are examples of the alignment of policies and objectives, as they facilitate competition and openness, ensure equal opportunities for low carbon initiatives and lastly, they can interact with broader climate and non-climate (e.g. economic, social) policies.

Carbon pricing is one component of a policy framework that provides a consistent, credible and strong investment signal and creates new business opportunities over time. From a Government point of view it can also provide a stable revenue base. While a lower initial but steadily rising carbon price creates incentives, it can produce higher short term emissions compared to a price that is higher initially. Emissions Trading Systems can assist economies to adapt to unpredictable economic and technological developments and can also be revised as the scientific understanding of climate change becomes more thorough and robust.

Regular communication with stakeholders regarding the rationale, desired outcome and shared benefits of carbon pricing not only helps to generate support, it can also assist the change management in terms of the structure of the economy that is required to support it. In addition, effective monitoring and verification of emissions reduction/mitigation efforts is critical to maintain the trust and support of the voting public.

In terms of efficiency and cost-effectiveness, carbon pricing encourages lowest cost reductions which gives companies some flexibility to choose the method and timing of those reductions based on their cost/benefit assessments. Resource allocation can also be improved by ensuring that the costs associated with greenhouse gas emissions are taken into account in decisions regarding production, consumption and investment made by both the public and private sectors, households and individuals.

When carbon pricing policies are consistent with environmental objectives they are more effective, especially if substitutes for emission intensive activities or products are easily available at low cost. Pricing policies can also facilitate local environmental and health benefits, on the proviso that the design and selection of pricing instruments are underpinned by robust decision making support models/tools.

rWdMeee6_pe About the author: Anthony Horton holds a PhD in Environmental Science, a Bachelor of Environmental Science with Honours and a Diploma of Carbon Management. He has a track record of delivering customised solutions in Academia, Government, the Mining Industry and Consulting based on the latest wisdom and his scientific background and experience in Climate/Atmospheric Science and Air Quality. Anthony’s work has been published in internationally recognised scientific journals and presented at international and national conferences, and he is currently on the Editorial Board of the Journal Nature Environment and Pollution Technology. Anthony also blogs on his own site, The Climate Change Guy.

 

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8 comments

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  1. Möbius Ecko

    I caught part of an ABC interview with Greg Hunt in which he states Australia is in the top few countries for reaching their 2020 target.

    Does anyone know the context of this?

    Here is the transcript of his interview in which he brags about being the best in the world in carbon emission reductions and being applauded for it as well as receiving praise from others. Seems like a lot of self aggrandisement to me with nothing to back it up.

    Are his claims correct?

  2. Matters Not

    Seems to me that we need to change the way we talk about emissions. Currently we describe carbon dioxide emissions in terms of ‘nations’ which is somewhat misleading. I suspect that most Australians believe that ‘China’ is a big emitter which, while true when taken as a whole, masks what the average Chinese citizen is responsible for.

    Australia as a ‘nation’ isn’t a particularly big emitter but when the per capita figure becomes the focus we find the average Australian citizen emits at least four times that of a Chinese citizen.

    If significant change is to occur, each and every person must be aware of their contribution to the ‘pollution’ problem and held accountable. The language used needs modification. The per capita figure should be the ‘common sense’ metric.

  3. Kaye Lee

    ME,

    The following article goes some way to answering your question.

    https://theconversation.com/factcheck-has-australia-met-its-climate-goals-while-other-nations-make-airy-fairy-promises-44656

    It shows that, by 2012, the EU committed to reducing emissions by 8%, New Zealand agreed to a 0% increase, whereas we committed to keeping within an 8% INCREASE.

    Australia also made a 2020 emissions reduction promise to strengthen its target to -15% or -25%, but this “never came to anything”.

  4. Florence nee Fedup

    Maybe what he is claiming credit for, is results previous governments. After all, DA hasn’t been that long in operation. Some CEF is still in play.

    We do know the decrease in used of brown coal has been reversed. I suspect closed coal power generators have reopened.

  5. Wally

    I find Greg Hunts claims very hard to believe.

    The downward trajectory in Australia’s electricity sector emissions, achieved before and during the brief existence of the carbon pricing scheme, has effectively been reversed under the Abbott government, a new report has found, as the nation’s coal-fired generators power up to meet increasing consumer demand.
    http://reneweconomy.com.au/2015/how-abbott-reversed-energy-emissions-cuts-boosted-coal-power-67377

    The increase in coal fired power generation can be attributed to the removal of carbon pricing and the ridiculously low prices being paid for power exported to the grid from new solar installations is a major factor. In Victoria we pay around 30 cents per kwh and receive 6 cents per kwh for solar exports so the number of new solar installations is much lower than increases in demand. I find it very hard to understand how it is justified to charge 30 cents per kwh when the wholesale price of power is 6 cents, that is a 500% mark-up.

  6. iggy648

    The latest Pitt and Sherry CEDEX Report (figure 1) shows a steady decline in emissions from electricity generation of about 17% from June 09 to June 14, and then a steady increase of about 4% from June 14 to the end of October this year. What changed in June 2014, and when do we suppose the new system of the LNP will start to impact on this? Any clues?

  7. Jeffrey

    Grog krunt just now trying to baffle with bull. Bamboozled himself. And this is what will represent us?
    Ffs.

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