Australia’s Ambitious Scheme Sets World’s Highest Price on Emissions

The Nicholas Institute for Environmental Policy Solutions at Duke University

Australia, with the highest per capita greenhouse emissions of any large developed country, will soon take on one of the most ambitious schemes to tackle climate change, with a new carbon-trading system.

The planned carbon tax will start in 2012 and apply first to the 500 worst polluting companies responsible for about 60 percent of the country’s emissions, making it the largest carbon market outside of Europe. Rates will start at 23 Australian dollars per tonne of carbon (US$24.20 per ton), higher than prices have been on the European emissions market for the past couple of years.

The carbon prices would gradually rise, and then the government would transition in 2015 into a cap-and-trade system, aiming for emission cuts by 2050 of 80 percent compared with 2000 levels.

Taxes Redefined

Australia’s plan was generally hailed by environmentalists and those working on renewable energy, and economists generally support it. But it was panned by many in big industry, and Prime Minister Julia Gillard’s administration, already suffering low approval ratings, saw ratings drop further after announcement of the new plan.

To avoid the carbon tax penalizing the poor, about half of the new revenues will be returned to citizens in the form of tax breaks for the lowest earners, part of an effort toward “reducing taxes on desirable things (work and income) … and replacing them with a charge on something undesirable (carbon pollution).”

The carbon tax is part of a package of new policies on climate and energy, which also include the creation of a new Australian Renewable Energy Agency, which will oversee more than $3 billion in funding, primarily for solar, wind, and geothermal energy. The funding boost will put “solar on steroids,” said John Grimes, chief executive of the Australian Solar Energy Society, aiding large-scale solar installations.

Nuclear Power Continues to Polarize

Meanwhile, the U.K. is embarking on a huge restructuring of its electricity market, which is outlined in a new white paper. The Guardian’s Damian Carrington argues the “sprawling and complex maze of measures … has the central aim of getting new nuclear power stations built.”

Since Japan’s Fukushima disaster, the U.K.’s Secretary of State for Energy and Climate Change, Chris Huhne, and others in the U.K. government have supported expanding the country’s nuclear power. Within days of Japan’s disaster, the U.K. government began drawing up a public relations strategy to downplay the disaster, according to a recent report on a leak of government e-mails.

The restructuring proposed in the new white paper would require spending £200 billion ($320 billion) on new infrastructure, but this won’t necessarily lead to higher electricity prices than customers would face otherwise, argues Huhne, since customers now are vulnerable to rising oil and gas prices.

Elsewhere, there are a growing number of countries planning or weighing a nuclear retrenchment. Most recently, Kuwait’s Deputy Prime Minister said the country is no longer interested in developing nuclear energy, and Japan’s Prime Minister urged his country to phase out nuclear.

France, the most nuclear-reliant country, is embarking on a new study of the country’s future energy mix that will consider the possibility of phasing out nuclear by 2040 or 2050.

Saudi Oil Peak?

After the announcement by the International Energy Agency that the world’s richer countries would tap into their emergency oil reserves, oil prices initially fell. For the U.S. portion of the release, many bidders vied for the oil, offering about $105 to $110 a barrel—which would raise more than $3 billion for the government.

The high number of bidders “shows there are concerns in the marketplace over just how much oil is going to be out there,” said David Pumphrey, deputy director of energy and national security for the Center for Strategic and International Studies.

After an acrimonious meeting of the Organization of Petroleum Exporting Countries in which members disagreed about whether to boost production, some countries decided to go it alone. The most significant is Saudi Arabia, which raised its output to about 9.5 million barrels a day—the same rate as before the global recession.

Meanwhile, major Wall Street firms warned of rising oil prices over the rest of this year and into 2012. Goldman Sachs, for one, raised its forecast prices, and said “it is only a matter of time before inventories and OPEC spare capacity become effectively exhausted” and prices soar. A major reason for the gloomier outlook, Goldman Sachs said, is Saudi Arabia won’t be able to pump as much oil as many had expected.

Solar Purchasing

The company Groupon offers big discounts as long as a bunch of people will sign up to a particular deal, and now San Francisco is emulating this model to boost solar power installations. By forming buyers’ groups, they hope to get around some of the barriers to small-scale solar, such as high transaction costs and availability of credit.

In another effort to finance small-scale solar, some firms are emulating Wall Street’s bundling of mortgages, by creating “asset-backed securities”—bundles of leases on residential solar panels.

The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.

Ailing Economies Push Richer Countries to Tap Emergency Oil Reserves

The Nicholas Institute for Environmental Policy Solutions at Duke University

In a move that caught many by surprise, the world’s richer oil-importing countries will soon tap into emergency oil reserves, the International Energy Agency (IEA) announced, arguing: “Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”

In total, over the next 30 days, IEA member countries plan to release 60 million barrels of crude—less than one day’s worth of global consumption. Half that oil would come from the U.S., and the rest from a dozen other countries, including many European Union members, Turkey, Korea, and Japan. The IEA has coordinated a release of oil from its members’ reserves only twice before, in response to the 1991 U.S.-Iraq war and to Hurricanes Katrina and Rita in 2005.

U.S. Secretary of Energy Steven Chu said, “We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries.” However, the Obama administration began considering tapping the strategic oil reserve in January.

Speculation of Motives

Reactions to the oil release ran the gamut, with the chairman and the managing director of oil analysis firm IHS CERA saying the new release is “an unprecedented use of strategic reserves as an economic stimulus.” Some said the move is symbolic, to boost market optimism and to give the sense that the government is doing something about high gasoline prices while others said the real motivation was to hurt oil speculators by catching them by surprise.

Some speculators, it seems, may have gotten a jump on it: oil started trading suspiciously in the hours before the IEA announcement, driving prices down and prompting an investigation by the Commodity Futures Trading Commission. In fact, oil prices fell more than 5 percent in the day of the IEA announcement, but the following day rebounded, in part because of fears about supplies getting tighter later this year.

Spare a Barrel

Many members of the Organization of Petroleum Exporting Countries (OPEC) criticized the decision, saying the IEA had not given them time to boost their production. In late May, OPEC countries decided against formally raising their production quotas, but some members—in particular Saudi Arabia—signaled they would boost production anyway.

OPEC members in the Persian Gulf—such as Saudi Arabia and Kuwait—are widely considered to hold most of the world’s spare capacity for oil production. But oil expert Euan Mearns noted that despite a sharp rise in drilling activity in Gulf nations in February 2011, their production hasn’t risen much. He interprets this as a sign of goodwill, and as an indication that “usable spare capacity does not exist”—or that it must be of relatively undesirable heavy, sour crude.

A Natural Gas Bubble?

In the U.S., “fracking” to get natural gas out of underground shale has been booming—but the vast majority of fracking wells are “inherently unprofitable” and the fast-growing industry is a “Ponzi scheme,” according to industry e-mails obtained by the New York Times. Much of the shale gas activity has been financed by a rush of investment money into the sector, rather than by profits from production, the e-mails say.

In a companion article, the New York Times reported e-mails from the Energy Information Administration reveal internal doubts over their forecasts of shale gas production, such as projections it would triple from 2009 to 2035.

California Carbon Cap Stalled

California’s legislation for a cap-and-trade system for many of the state’s largest greenhouse gas emitters had faced a legal battle—but the court hearing the case ruled the state can go ahead. The project was scheduled to start in January 2012, but Air Resources Board Chairwoman Mary Nichols, who oversees the program, announced enforcement for major polluters would will be delayed until 2013.

Efficiency from Detroit to Afghanistan

The Obama administration is trying to cut demand for oil by boosting vehicle efficiency. In closed-door talks with Detroit’s big three—General Motors, Ford and Chrysler—officials called for average mileage for cars and light trucks to reach 56.2 miles per gallon by 2025.

Meanwhile, Obama announced plans for troop withdrawals from Afghanistan, prompting renewed discussion of the costs of the war—including NPR’s report that U.S. military operations in Afghanistan and Iraq spend an estimated $20 billion a year on air conditioning.

The Climate Post offers a rundown of the week in climate and energy news. It is produced each Thursday by Duke University’s Nicholas Institute for Environmental Policy Solutions.