MPE781 Australia's Greenhouse Gas Emissions Assignment Sample

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• Subject Code : MPE781
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• Subject Name : Economics

Economics for Managers

Abstract on Economics for Managers

Climate change is the greatest challenge facing Australia and the world. Over the last decade the failed Government policy has given way to increase in the national emissions to more than 10%, which may further rise to 17% by 2020. Australia is the world’s 10th largest greenhouse gas emitter in absolute terms. Australia had introduced Emissions Trading Scheme (ETS )in July 2012. The carbon tax scheme met the targets in the short term of 3 years but the policy failed to achieve its goals in the longer run owing to the economic downturn due to the over running taxes and power play among the critics in the Government . 

The document details the preference of tax over regulations by economics, with respect to measures to curb greenhouse gas emissions. Graphical representations of the global contribution in emission of gases and the measures taken to reduce them have also been elaborately covered. An overview of the successful implementation of carbon tax and other pollution permits in curtailing the emission in countries such as Sweden and Canada has been covered in the concluding part of the document.

Australia emission overview:

Eight of Australia’s major sectors are responsible for Australia’s rising emissions. Sectors such as electricity, transport, stationary energy, agriculture and industrial processes are the major contributors to emissions. The electricity sector is the biggest polluter accounting for 33% of our emissions. Australia’s share of the remaining global carbon budget is about 5,500 Mt CO2e. The costs of reduction for the country are estimated to be $35.5 billion from 2019 to 2030 which is equal to 0.14 per cent of GDP over this period.

Strategies used by Australia to tackle the climate change :

A careful study of the current scenario coupled with strong and effective tax caps will help Australia achieve the target emission control

• Introduce legislation that sets 2020 and 2050 targets to reduce greenhouse gas emissions by more than 60% by 2050.
• Establishing these targets also provides guidance to business on the long-term direction of climate change policy and helps them to be better informed and make wise decisions with respect to production and investment
• Setting a price on carbon pollution is the simplest and best measure to encourage business to invest in emission reductions. Setting a price would allow the market to find the most cost-effective technologies, provide incentives for innovation and create a level-playing field for business and consumers

The modelling assumes that Australia, in line with the rest of the world, will effectively reduce its emissions by 26% to meet the minimum Paris Agreement emissions target by 2030.

Schemes used to reduce Emission potentials across various sectors:

Under international climate agreements, Australia has two targets to reduce our greenhouse gas emissions:

• 5% below 2000 levels by 2020 (under the Kyoto Protocol) and
• 26-28% below 2005 levels by 2030 (under the Paris Agreement).

The Government is relying on the ERF, as well as a number of other policies, to reduce our greenhouse gas emissions, and meet our 2030 climate target. These policies are designed to reduce emissions, increase energy productivity, and boost the uptake of renewable energy. The Government is relying on the ERF, as well as a number of other policies, to reduce our greenhouse gas emissions, and meet our 2030 climate target. These policies are designed to reduce emissions, increase energy productivity, and boost the uptake of renewable energy.

Abatement Potential Across Various Sectors

Following the announcement of Australia’s INDC, an independent body was engaged by the department to review the type of processes that are likely to deliver the abatement necessary to achieve target.

This work involved the conveyance of three key outputs:

1. Using the latest technology an assessment of abatement could be delivered
2. An updated visual representation to offer effective abatement opportunities to achieve the emissions reduction target, 2030.
3. Commercially viable cumulative abatement measures from low emission technologies that can be applied to other firms too.

Australia’s Abatement to Achieve the Target

Australia’s 2030 emissions reduction target is substantial and while there are abatement options to choose from to ensure the 28 per cent emissions reduction target is met. 

• The ERF and the Safeguard Mechanism cannot alone deliver all of Australia’s abatement requirements without either significant additional funding, or significant amendment to the current proposed approach to establishing baselines.
• Abatement prospects with a negative extra often have non-market barriers preventing uptake that cannot be managed by only providing a financial incentive.

The ERF and the Safeguard Mechanism cannot alone deliver all of Australia’s abatement requirements without either significant additional funding, or significant amendment to the current proposed approach to establishing.

• Abatement opportunities with a negative externalities cost often have non-market hurdles preventing uptake that cannot be managed by only providing a financial incentive.

Outlook Towards Levels of Greenhouse Gas Emissions in The Economy Being Too High

1. Global perspective

Reduction of green gas emissions from various industrial sectors is significant to efforts to reduce overall emissions due to the inflow materials, their process and consumption of energy in alarming quantities. Greenhouse emissions in the agriculture sector come from the digestive processes of cows and sheep, clearance for new pastures and other land tilling processes. The other gases emitted by human activities are : Carbon dioxide, methane, Nitrous Oxide and Fluorinated Gases. Global emissions are broken down into sections based on the economic activities of each firm.

Economic Sector as of 2010	% of emission
Electricity sector - burning of coal	25
Chemical and metallurgical industries due to use of fossil fuels for energy	21
Agricultural, Forest and Other Land	24
Global Transportation emission	14
Buildings	10
Other Energy sectors such as extraction, refining, processing etc.	6

There is no one size fits all approach to reduce emissions. For every company, the tactic will involve initiatives to alleviate climate-related costs. In addition to understanding its emissions costs, every firm needs to evaluate its vulnerability cost to implementing the emission-sensitive practices.

Reducing Australia’s gas emissions

Two thirds of Australia’s methane releases come from farm animals. Increase in carbon footprint is due to tilling and clearing land for pastures. Other discharges such as nitrous oxide are released from animal waste, soil imbalance and nitrogen nourishments.

Potential damages to Australia due to climate change

• $584.5 billion in 2030
• $762 billion in 2050

Potential costs in case of transition to low-carbon economy

$35.5 billion 2019 - 2030.

Australia’s sector-wise practices to reduce the carbon emission:

1. Reduce methane emissions in Agricultural sector by almost 80%
   1. The major source of methane emissions are from sheep and cattle. The Meat and LiveStock, Australia has promised to reduce emissions by introducing different fodder types and dung beetles. A patented research conducted by James Cook University undertaken by CSIRO has developed a seaweed supplement which reduces the methane emissions by almost 80%.
   2. Reinstating natural territories by planting trees that absorb carbon releases
   3. Improving the productivity by adding carbon to the soil and reducing the soil disturbance by rotation of crops and no-till farming. Planting trees on the farm land to provide shade and reduce soil erosion
   4. These reductions accumulate carbon credits incentivizing the less-polluter with numerous benefits which can be quantified in terms of monetary gains.
2. Reduce emissions due to Electric vehicles by $35 per ton of carbon dioxide
   1. Transport, especially cars are responsible for 18% of carbon emissions in Australia. Electric vehicles will reduce the carbon discharges due to transportation.
   2. EVs will reduce the operating costs with an average saving of $810 per vehicle, resulting in health benefits of $270 to $375 per annum

3. Reduce emissions by introducing public transport by an average of 4.7 tons

Increase in usage of public and active transport will reduce carbon emissions, petrol consumption and congestion and in turn save travel time and reduce accidental costs. Usage of public transport will reduce an average of 4.7 tonnes of CO2 emissions per person/ year.

4. Reduce emissions by energy efficient buildings:
   2050. Switching to efficient and power saving insulations in newer to conserve energy in residential and commercial complexes by 2050.
5. Reduce emissions by green urban design: Green infrastructure will include tree plantations within the residential areas, trees along the street, increase number of public parks to reduce the emissions between buildings or complexes

Thus some new carbon emissions reduction technologies, if effectively applied sector-wide, promise to help societies to make progress in assuaging the growing climate change catastrophes.

Regulation Targets to Firm to Reduce Green Gas Emissions

Government implements the following measures to reduce pollution; tax, subsidy, pollution permits, regulations and efforts to change the consumer behavior. Government regulation is one approach to protecting the environment. Economics perspective says, the polluters are pushing some of their production costs to the society at a large, benefiting from paying low in comparison to the cost of lower emission equipment. Society bears the costs of pollution through reduced opportunities to a cleaner environment, potential long-term impairment to bio diversities around, as well as pollution-related health issues and their cumulative medical expenses. Economists denote these costs as a negative externality. Economists state that existence of negative externalities is due to the lack of ownership rights.

To overcome this negative externality, the government imposed a tax worth polluter. This action would force the firm to make its production decisions based more efficient. A fixed tax is imposed on the unit of pollutants released, thereby incentivizing the firms to adopt methods to reduce pollution.

Economists prefer these types of schemes since they use market powers and lucrative incentives as a correction for the damaged caused.

Marketable pollution permits are a better substitute. In this case, the government can issue a specific number of permits, which are allotted to firms based on a justifiable green gas emission into the environment. Firms are permitted to pollute only as much their permits allow. This enables the government to set a cap on the amount of pollution emitted.

The incentive and monetary gain for the firms is that they can purchase and make a sale of the permits in an organized market at the price defined by the market. The tangible gain is that the firms that emit pollutants beyond their permissible limit must buy from them to offset their emissions.

The over-all number of permits can be reduced subsequently, thereby reducing the emission. Furthermore, these permits can be traded in an international market.

Imposing taxes on the goods may reduce demand and thereby pollution subject to the elasticity of the goods. Subsidy is more lucrative to consumers than taxes and can encourage them to switch to other alternatives. Pollution permits on the other hand opens room for a financial enticement because if one pollutes less, that firm can sell the excess permits to the one who pollutes more. 

On the contrary, regulations set strict limits on the number of pollutants in the atmosphere. The main drawback of a restriction is that they can be difficult to enforce. The economic aspect of regulation is firstly, it offers no incentive to emissions reduced and improved quality of environment. Secondly, the regulations are not flexible. The standard set for emission control is same for all polluters, so for large polluting firms such as cement and steel industries, regulations do not consider the phenomenal cost liabilities to reduce pollution. Moreover the regulations are chalked out by legislators and government agencies which are subject to compromises and lobbying. Owing to the above reasons, a pollution tax gives a profit-making firm an incentive to work out means to reduce its emissions.

Australia introduced Emissions Trading Scheme(ETS )in 2012 with a particular focus of protection of the environment. It works on the basis “cap and trade” where the Federal Government sets a yearly cap (limit) on emissions that can be released by the firm. The price of these permits is tradeable in the market. When a firm does not have the required permits it either has to (a) reduce its polluting units, (b) purchase a credit from the Carbon farming Initiative, or (c) purchase a permit from another firm or an authorized international market.

According to WWF the most effective way to tackle the environment concerns from Australia’s ETS is to escalate Australia’s 2020 target which will constrict the ETS’s cap. A strong ETS cap enables the government to have an upper over the industries emission units and in turn the quality of production. On the contrary, a weaker cap gives more room for firms to stay relaxed on the pollution. Currently there is dual-party support for Australia’s 2020 emission target to be set between 5 and 25 per cent based on certain transnational conditions. The Intergovernmental Panel on Climate Change (IPCC) commends that developed countries must cut their emissions > 40 per cent from 1900 till date.

Flexible carbon price coupled with stronger targets and domestic measures can strengthen Australia’s environmental protection reaping significant benefits to the ecosystem as a whole.

Technological developmental contributions for controlling Greenhouse gas:

If the technology were to find better ways to store renewable energy, the catastrophic effect of the emissions can be curbed.

Courtesy Source: Treasury estimates from MMRF

Garnaut -10 and Garnaut -25 — were developed jointly to take on emission

reduction obligations from 2013. The allocation of contributions are based on a reduction and merging approach to reduce emissions from current levels to equal per capita rights by 2050. If the targets are met then the emitters could sell the previously saved permits or emission rights in the global market. This will result in the national levels of emissions meeting the target of reducing the emissions.

Based on the principle, “the polluter pays”, carbon taxing is a uniform and global carbon price which is an ideal technique to reduce emissions. The imposition of tax will also help innovate to find cost effective but, less greenhouse gas-emitting ways of providing goods and services. This is the basic thesis for setting a price on greenhouse gas emitters using cautious policies.

The Demand for Emission Rights Depends on The Time Horizon

Determining the price of carbon tax is the most efficient way to reduce carbon emissions. Carbon pricing makes less carbon-emitting production and expensive consumption. The emitters and consumers can switch to less carbon emitting goods and services. If the demand is inelastic, the carbon tax pricing must be high to reduce the demand on emission rights. They may bear the additional costs and switch to less cost effective services to reduce emissions. But in the longer run, unable to maintain the services due to ever incurring costs, alternatives can availed. The firms may evade the tax by polluting the environment secretly. They may also shift their productions to other countries which do not have carbon tax.

The government of Australia launched a carbon pricing scheme through the Clean Energy Act on 1 July 2012 to control green gas emissions in the country. The basis of the tax a certain amount of tax was levied on the producers, per ton of carbon emitted into the air. The selected firms were supposed to surrender one emission unit / tonne of carbon, produced. In the first year these units could be bought from the CER for a fixed price i.e. $23AUD per unit in the year 2013-14. This created an opportunity for firms to submit the extra units under the scheme rather than pay higher tax. The policy did achieve its targets by decreasing the country’s carbon emissions by 1.4 percent in the very next year after the carbon price. However, in the long run, it caused an increase in electric energy costs for homes and firms, which subsequently led to business break down and other economic adversities for business firms:

• The tax apparently surged the cost of power for a regular family by 10 percent
• Nearly 75,000 firms happened to pay the carbon tax directly. They extended the negative externality costs to their clients, other dependent firms and homes, which paid higher prices “The average cost of households amplified by around AUD$9.90 / week and the CPI increased by 0.7 percent.
• Apparently reports of industry closures due to cost surges resulted in severe job cuts.

Overall, the outcome of the policy was not in line with the proposal. The government that implemented the policy could not reap the benefits of it, while the critics (legislators) propagated it as a liability that would puncture economic growth of firms and fall heavy in terms of cost on households.

The carbon tax policy can be a good policy in Australia:

The carbon tax implementation in Australia should be treated with caution. Historically, the tax was implemented in Australia in 2012, taking into account the recycling strategy on firms, households. The price on carbon of $23 per ton was set. The revenue raised was to be used for green spending on infrastructure, green building and green transportation. However the program failed due to lack of political credibility and inability to convince the legislators on its effect on the reduction of green gases.

The program can be implemented again by flooring the price for the first 3 years to encourage the investors. The ceiling price should also constrain to extreme volatility. The scheme should cover all the Australia’s largest polluters which accounts for 60% of the greenhouse gas emissions. Emissions from industries, agricultural sectors and transport must also be covered in the scheme through the fixed tax system. For most emission-intensive firms, free incentive permits should be provided. The emissions through household should be addressed in their income tax and welfare schemes.

Pros of Carbon Tax	Cons of Carbon Tax
Encourages firms to develop emission-sensitive goods or services	Cost of adhering to the tax may not be feasible to the firms
Adds tax revenue to the government which can then be used to produce green electricity or renewable sources of energy	Difficult to evaluate the external costs incurred by the firms to switch to less gas emitting goods and services
Firms bear the responsibility of paying the cost for pollution	In the longer run the firms may evade tax and secretly pollute the environment
Cleaner environment and socially responsible firms	The tax may curtail the growth of the polluting firms and they may adopt alternative methods.
Enables lower carbon emissions without hampering the economic growth	The firms may choose to produce in countries which do not have carbon tax.

Countries with Market Based Approach to Tackle Emissions

Sweden and Canada are the countries that have made the phenomenal efforts to implement carbon taxes and provide interesting insights over the past 30 years. Both the countries are comparatively affluent, with strong public consciousness of climate change and its effects.

Country	GDP growth from 1990 to 2017	Emissions
Sweden	2.2%/year	-26%
Canada	2.3%/year	+36%

GDP Growth and CO2 emissions

Carbon Tax Implementation Effects in Sweden

The energy related emissions was dominated by weight of oil consumptions (61% approx.). Large nuclear plant with 12 reactors explains the descent in the carbon emission reductions from 1970 – 1990. Switching to development of biomass energy used for heating systems reduced emissions further. Both these moves substantially reduced to 28% consumption by 2017. 

In Sweden, the carbon tax was introduced at a rate of 24Euros per ton of CO2 release, which was a high price to be paid in 1991. This tax has been increasing gradually increasing, to being 115 Euro as of 2019. This gradual and progressive increase in tax annually has let business and homes have their time to adjust to the extra debit of tax. Thus the new introduction of carbon tax has been accepted positively. Since revenue generated from this tax is not allocated for an earmarked expense thus reducing political influence on decision of implementing the tax.

Sweden has been a high-tax country which always loomed large on the marginal incomes of household. It also has a streamlined, simple and a popular tax system with broad tax bases and increased indirect taxation. The carbon tax was thus readily accepted. The strong trust in the political system and an unequal distribution of industries lead to the success of the carbon tax.

 The CO2 tax prices have over the years been gradually but significantly increased, with the resolution of accomplishing economical emission reductions, and still giving homes and firms time to find their feet. Tax increases on energy and carbon coupled with discount on other taxes, and with a political will has successfully allowed them to implement the measures to control emission without compromising on the economic growth. Sweden was appreciative to remove the CO2 tax within the industries that were a part of the EU ETS cap-and-trade program, since it inflicted double taxation which is not in line with the EU taxation principle. The long-term intention of the Swedish Government is zero unit greenhouse gas emissions by 2045. The carbon tax and other measures are projected contribute to reaching the objectives set.

Carbon Tax Implementation Effects in Canada

The energy profile and political dressing of Canada is quite dissimilar to that of Sweden. In spite of the implementation of in hydro, nuclear, and biomass energy producers, most of the energy consumption was done by natural gas, the consumption of which has more than doubled. This enormous consumption of natural gas is the main aspect behind the 36% rise in total emissions over the period.

The distribution of different and separate political powers in the Canadian federal system has overwhelmingly affected Canada’s carbon tax policy efforts. Both provincial governments and the federal government have power over the environment. Both also have widespread taxation authority, including energy consumption. However, only provincial governments can regulate energy sectors, Canada also has three sparsely occupied northern regions that have less political and economic sovereignty vis-à-vis the federal system.

Canada also shares the electoral system with the United States (and the United Kingdom), a political party can achieve a majority government without winning a majority of the votes.

Because of this uneven distribution of political power, a significant portion of Canadians disbelieved the evidence from government about the carbon pricing policies.

Carbon Tax Policies in Canada at Present

Two elections in 2015 changed the political landscape for carbon pricing in Canada. The Alberta government agreed to implement a carbon tax dedicated on the final consumption energy generated by petroleum and natural gas. It also implemented a coal phase out, cap on oil sands emissions and a modification of the industry regulation to an output-based pricing system The carbon pricing policy was projected to cause less than 5% of GHG reductions in the slate of Albertan climate policies.

The Canadian Liberal government of Justin Trudeau has chased several imperative policies, including a backstop national carbon prices that would increase to $50/tCO2 by 2022. At the same time, the national coal plant will be shut by 2030, methane emissions will be nationally regulated, and a clean energy standard that covers the same fossil fuels as the carbon pricing policy will be implemented. In 2019, a new Alberta Conservative government campaigned on eliminating the carbon tax, which it has now done. This has left the federal backstop carbon price as the only carbon price for most Canadian provinces. Thus the Canadian Liberal government has successfully implemented the carbon taxation along with the cap on the energy generated by petroleum oil.

Best policy to reduce greenhouse gas emissions in Australia:

1. Pollute permits and carbon tax should be reintroduced with tradable incentives such that the demand elasticity increases with time. Carbon tax should be added as another component in the whole gamut of taxes and not treated as a separate tax.
2. Tax rebates on other indirect taxes can reduce the tax burden on the firms and householders
3. Strong political will and credibility to implement taxes to reduce emission.

References for Economics for Managers

Climate Change Authority (CCA) 2014, Reducing Australia’s Greenhouse Gas Emissions—Targets and Progress Review, Final Report, Melbourne.

Treadgold, Tim. "Raging Bush Fires Dampen Australia's LNG Export Achievement". Forbes. Retrieved 2020-01-06.

AUSTRALIA'S RISING GREENHOUSE GAS EMISSIONS" (PDF). Climate Council of Australia. 2018.- March 2019

Australian Government (2018) Quarterly Update of Australia’s National Greenhouse Gas Inventory: December 2017. 18 May 2018

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