PRME Seminar “Responsible Management of GHG Emissions” Fri 14 October 2011 Gujji Muthuswamy Department of Management Faculty of Business and Economics.

PRME Seminar “Responsible Management of GHG Emissions”

Fri 14 October 2011Gujji Muthuswamy

Department of Management

Faculty of Business and Economics

The context for the presentation

• View Climate Change in three parts: – Climate Science (What is it, Why, How etc.) – Mitigation of Emissions (How shall we reduce it? Carbon pricing mechanism is

just one way of reducing Greenhouse gases (GHG)– Adaptation (How will we adapt to a more hostile climate?)

• Each part requires input from many disciplines: – Science / Engineering, – Economics / Finance / Accounting, – Law – Medicine, etc.

• The University has three major functions:– Research (building new knowledge)– Teaching (Disseminating knowledge and building new researchers)– Outreach ( contribution to public policy, consultancy, communication).

• Thus we have a 3-D matrix comprising 3 aspects, ‘n’ disciplines, and 3 functions.

The focus of this presentation

• It is a very broad canvass but provides a structure for our thinking both at the macro level (e.g. University’s overall strategy) and at Faculty / Department level ( e.g. what should XYZ Department do?).

• My presentation looks at a small part of this canvass:– A brief outline of the carbon pricing mechanism– Perspective of one Faculty, i.e. Business and Economics.

• A structure to look at the issue .

Pricing the carbon - Basics

• GHG emitted by many economic activities e.g. Power generation, transport, cement, steel, aluminium, chemical, refineries, agriculture, and households. – (e.g. burning coal in power station results in CO2 emissions from

the chimney).

• CO2 is now at zero cost So no economic incentive to reduce emissions Impact on Climate change.

• Australia burns coal for about 80% of its electricity needs.

• Electricity generation accounts for about 37% of our total GHG emissions.

This presentation is based on “Securing a clean energy future – The Australian Government’s Climate Change Plan”, July 2011

Pricing the carbon – (contd)

• If carbon is priced into the economic process:• Cost of power generation will go up; and hence• Cost of electricity to the consumer overall will go up • Also, cost of coal-fired electricity, now low, will go up more because

they emit more CO2 (compared to gas fired ), and • Renewable technologies will become even more competitive,

because they emit almost no CO2

• So, how do you create a price for carbon? – Direct mechanisms: Carbon Tax, Emissions Trading Scheme (ETS)– Indirect mechanisms: Regulations (e.g. Building and appliance

efficiency), Renewable Energy Target Scheme, Energy Efficiency Certificate scheme, Subsidies and incentives labelled “Direct Action” schemes.

Projections (Ref: Fig 2.4 “Securing a clean energy future”)

Top 500 emitting

businesses

Australian total emissions = 542 Mil Tonnes

Tax / ETS affects only the Top 500 emitters in:

Electricity, waste, rail, domestic aviation and shipping, industrial processes, fugitive emissions,

GHG

Customers & Householders

Top 500 emitting

businesses

GHG emissions

Demand for Products & services

Customer demand, e.g. for electricity, drives the supply side and hence the GHG emissions.

Government issues permits.

Fixed price: “Carbon tax”Variable price via ETS.

Gets $


Top 500 emitting

businesses

Permits

$

GHG emissions


All other businesses

Need 1 permit to emit 1 Tonne of GHG

July 12: Issue about 337 Mil permits at $ 23/Tonne (set by Govt)

Collect $ 7.740 Bil.in 2012/13

Collect $ 24.5 Bil in 3 years to 2015.

ETS from 2015. Price determined by market forces.



Gets $


Energy intensive trade exposed

Sector(EITE)

Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$


GHG emissions

Example of EITEs: Aluminium, Steel, Cement, Pulp & paper etc.

$ 9,2 Bil worth of free permits in 2012/15 period.



Gets $

GlobalCompetitors to

Aust EITEs

Overseas customer



Sector(EITE)

Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$


GHG emissions

Free permits to EITEs to minimise ‘carbon leakage’

94% for high intensity and 66% for moderate emission intensity activities.



Gets $


Aust EITEs

Overseas customer



Sector(EITE)

High emissions power stations

Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$

Pay $ to close some


GHG emissions GHG emissions

$ 5.5 Billion worth of free permits over 6 years to generators emitting more than 1 Tonne/MWh.

Aust average is 0.88 Tonnes/ MWh



Gets $


Aust EITEs

Overseas customer



Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$

Pay $ to close some

Prices go up Demand for

Products & services

GHG emissionsGHG emissions

Affected businesses will pass on costs to customers and householders.



Gets $


Aust EITEs

Overseas customer



Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$

Financial Compensation $$

Pay $ to close some


Products & services


About $14.9 Bil of assistance to householders out of $24.5 Bil permit revenue in 2012-15.

Tax reduction and cash assistance.

ASSISTANCE NOT LINKED TO PERMIT PRICES.



Gets $


Aust EITEs

Overseas customer


Investment in Renewable

Technologies----------

Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$

Uses permit revenue $$


Pay $ to close some


Products & services


Invest $ 10 Bil over 5 years plus other assistance



Gets $


Aust EITEs

Overseas customer




Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$



Pay $ to close some

Prices go up

Incentive to reduce permit costs by reducing GHG emissions.



Expect investment by industries in low emissions technologies



Gets $


Aust EITEs

Overseas customer




Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$



Pay $ to close some

Prices go up




Investment inEnergy

efficiency

Promotes energy efficiency

# 23 Mil over 5 years



Gets $


Aust EITEs

Overseas customer




Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$



Pay $ to close some

Prices go up




Investment inEnergy

efficiency


$

$



Gets $


Aust EITEs

Overseas customer




Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$



Pay $ to close some

Prices go up




Investment inEnergy

efficiency


$

$

Carbon Farming Initiative

(creates ACCU)

Promote carbon sinks

$ 1.2 Bil in 5 yrs



Gets $


Aust EITEs

Overseas customer




Investment in R&D


Sector(EITE)


Top 500 emitting

businesses


Permits

$

GHG emissions

MostlyFreePermits

No$

Maintain Exports

$



Pay $ to close some

Prices go up




Investment inEnergy

efficiency


$

$

Carbon Farming Initiative

Promote carbon sinks

Forward Estimates: Total for 2012-15 ($ Bil)Ref: Appendix C “Securing a clean energy future”

Permit + other revenue 27.3

Household assistance 15.4

Support for jobs (EITEs)

10.3

Clean Energy Finance Corporation

0.9

Energy security (assistance to generators)

3.1

Land & bio diversity 1.2

Governance 0.4 31.2

Net Impact (3.9)

Governance

• New regulatory agencies– The Climate Change Authority– Clean Energy Regulator– Productivity Commission Reviews– Energy Security Council– Australian Renewable Energy Agency

• Other agencies– Clean Energy Finance Corporation

• New programs– Carbon Farming Initiative (aimed at the farming sector)– Energy Savings Initiative (applies to energy retailers only)

• Existing major program– Renewable Energy Target Scheme (applies to energy retailers only) – Energy Efficiency Opportunities program (applies to all big energy users).

Implications for AcademiaMajor topic: GHG mitigation via Carbon pricing

Department : XYZ

Sub topics Research Teaching Outreach

GHG measurement & reporting

Investment in mitigation projects

Carbon and energy markets operation

Accounting, auditing

Compliance with regulations

Pricing and Risk Management

Cash flow management

PRME Seminar “Responsible Management of GHG Emissions” Fri 14 October 2011 Gujji Muthuswamy Department of Management Faculty of Business and Economics.

Documents

ghg slide

total ghg emissions

economics slide

fugitive emissions

emissions impact

mitigation of emissions

carbon basics ghg

carbon contd