The real aim of carbon pricing schemes is to get off fossil fuels; this is a way of introducing direct, artificial costs to the market to drive prices up ahead of the natural cost increase as resources dwindle over the next fifty years. This increasing price makes the products unattractive to consumers, who will become more and more active in looking for alternatives. When this idea was first proposed in the early 90s, the focus was on minimizing the burning of carbon that results in higher atmospheric concentrations. Whilst this is still a desired immediate result, the further understanding of the energy trap shows that we have even less time to act on the immense task of changing our society away from relying on fossil fuels. This means we must accelerate the process to catalyze the required change. This means emissions trading schemes are far less useful than carbon pricing schemes in driving the desired change. We need a fixed price that ratchets up every year to provide certainty to business of the inevitable need to migrate off fossil fuels. This process would also increase demand from all citizens to move away from services experiencing ever increasing prices. We would experience this anyway by following the natural exponential price increases caused by resource depletion, but using a carbon price to drive change earlier has three greater benefits:
- We can escape the energy trap and make the move before we run out of resources to do so.
- We can lessen the overall pain of this immense change to society and technology over the next thirty years.
- Revenue raised can go directly to the infrastructure projects required to effect the change.
The important point to remember is that this approach can lessen the pain, but will not remove it. Global change of this magnitude is going to cause many problems. Being aware of the nature of the change and planning for it now, while there’s still time, can improve Australia’s prospects dramatically. Once our own future is planned out, we have a platform to share the knowledge and schedules with other countries to provide expert assistance where required.
The largest question in the world of carbon pricing is where to set the price and what it should be. Industry always wants it low, the reality is, it should be much higher, closer to US$150 a tonne in the short terms and steadily increase from there. There are multiple reports on this that place the Australian price, which is just $26, as one of the highest today. Conservative predictions from the US government place the price of fossil fuels increasing 3% per annum cumulatively between 2011 and 2040. This means that the prices will have doubled by 2027 and tripled by 2037. That leaves just twenty further years beyond that point until resources would expire completely and the prices would grow even more rapidly and exponentially over that period. With renewable energy solution costs already matching or running lower than fossil fuels today; this tells us the time to move is now.
Australia’s emissions in 2013 are estimated to be around 550 million tonnes. This equates to total possible revenue of around $13 billion at the current $24 a tonne carbon price. The actual reported revenue for 2012/13 was $4 billion. This was in line with estimates and was expected to climb to over $6 billion in 2013/14 and raise around $24 billion over the first four years. The reality is the scheme is aimed to move to a floating price connected to the European market in 2015 and that price will be less than a quarter of the Australian fixed price. In short, this scheme cannot work to achieve the desired results with such a low price. Whilst removing it would provide no benefit, its current form also provides limited scope for driving real change fast enough.
If Australia was to apply the level of tax that is really required to drive change, around $150 a tonne, the annual revenue would leap to $25 billion a year if current carbon emissions levels are maintained. If Australia maintained the current scheme and kept increasing the price per tonne by 15% per annum, we would reach the $150 a tonne level in 2027. This is a level that would actively push consumers off fossil fuel use before the price will naturally rise. In reality, the driving concern of the level of the carbon price should be to raise enough revenue to enable the change to 100% renewable to occur steadily over the next thirty years.
This will make the change before the energy trap closes and before carbon levels in the atmosphere rise high enough to cause over four degree global warming and the climate catastrophe that would represent.