NEW research predicts Australia’s carbon price could collapse to about $4 a tonne by 2020 and that the scheme, as designed, risks failing to support either renewable energy power development or the switch from coal to gas needed to slash the nation’s emissions.
A draft report prepared by Bloomberg New Energy Finance for the Australian Industry Greenhouse Network, which represents some of Australia’s biggest companies in the climate change policy debate, says the scheme’s strong linkages to the international carbon market, where prices are expected to remain low, will mean average carbon prices could fall sharply after the domestic floor price is removed in 2018.
Under the design of the scheme, a price floor of $15 (rising at 4 per cent a year) will be imposed for three years when the $23 fixed price period, which starts on July 1, makes way for a floating cap and trade scheme from July 2015.
The report shows continued low international prices pose a potential political threat to the government, as business groups that oppose the scheme outright or have called for the starting price to be as low as $10 a tonne warn that Australia’s $23 price from July 1 is more than twice that of Europe.
But supporters of a market-based scheme are also likely to be dismayed by the draft report because the carbon price, under current predictions, will not be high enough to force the switch from coal to gas or to support renewable energy project development.
The report says the current price that forces a switch from coal to gas is $35 a tonne.
The report emerged as Greens leader Christine Milne ruled out supporting changes to the carbon pricing package amid leadership speculation in Labor ranks and calls from some backbenchers for modifications.
“We won’t be renegotiating the clean energy package. It has been something that was really hard fought, if you like, and it’s an agreement with other independents as well as the government and so it stands,” Senator Milne told the Ten Network.
A spokesman for Climate Change Minister Greg Combet said there was a range of predictions on carbon prices out to 2020. “The government has designed the carbon price carefully to ensure it drives investment in clean energy in the most economically efficient way,” the spokesman said.
“Our policy will reduce Australia’s greenhouse gas emissions while supporting jobs and competitiveness in industry and assisting households through tax cuts, higher family payments and increases in pensions and benefits.”
But the Bloomberg report, obtained by The Australian, says when the impact of international supply and demand economics is considered in relation to Australia’s legislation “a bumpy domestic carbon unit price is produced”.
“The carbon price is expected to fall on to the price floor once the market enters the flexible price period and then fall further in 2019 if the price floor is not extended beyond 2018,” the report says.
When it floats, the Australian scheme is expected to be closely linked to the international price because under its rules, companies will have the option of meeting half of their carbon emissions obligations by importing permits from recognised overseas schemes.
The predicted low price would provide less support to renewable energy power development than currently available through the certificates issued under the 20 per cent Renewable Energy Target.
And a low price is unlikely to make gas-fired electricity cheaper than coal.
How can it be a market-based scheme when it’s imposed by the government?