Emissions projections indicate Australia won’t need carryover credits to meet Paris targets

Michelle Grattan, University of Canberra

Australia is on track to meet its 2030 Paris climate targets without resorting to carryover credits and could exceed them with the aid of the recently-announced technology roadmap, according to projections to be released on Thursday.

Australia has pledged to reduce emissions by 26-28% on 2005 levels by 2030.

The annual update of emissions projections shows that to meet the 26% cut, without using carryover credits, a further reduction of 56 million tonnes would be needed over the decade to 2030.

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To reach the higher target of a 28% cut without the credits, a reduction of 123 million tonnes would be required over the decade.

Neither of these scenarios includes the technology investment roadmap – which is the government’s policy to support new and emerging energy technologies to a price that is comparable with higher emitting alternatives.

The Minister for Emissions Reduction, Angus Taylor, said if the roadmap was taken into account, “Australia is projected to beat its 2030 target by 145 million tonnes”.

This would be without relying on the credits which have been gained from exceeding earlier targets.

“Under this scenario, Australia’s emissions are projected to be 29% below 2005 levels by 2030,” Taylor said.

Scott Morrison has flagged the government won’t use the carryovers if they are not necessary to meet Australia’s commitments.

He is set to confirm this when he addresses a Pacific Islands Forum virtual climate summit on Friday. This precedes the Climate Ambition Summit hosted by Britain, France and the United Nations at the weekend to mark the fifth anniversary of the Paris accord.

The Pacific summit is aimed at putting pressure on the weekend meeting, which is being called “the sprint to Glasgow”, the delayed climate conference to be held in a year’s time.

There has been argy bargy over whether Morrison could get a speaking role at the weekend meeting, where leaders are being asked to make new commitments. As of Wednesday, he was not expected to be a speaker.

The update in the Australia’s emissions projections 2020 report shows Australia’s position against the 2030 target has improved by more than 300 million tonnes since the 2019 projections, and by 639 million tonnes since 2018.

The improvement since 2018 is equivalent to taking all of the country’s passenger vehicles off the road for 15 years.

Emissions are projected to decline to 478 million tonnes in 2030 which is 22% below 2005 levels. Incorporating the technology investment roadmap, emissions are forecast to be 436 million tonnes in 2030 – 29% below 2005 levels.

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The update says the downward revision in the 2020 projections reflects:

• the inclusion of new measures to speed up the development and deployment of low emissions technologies in the recent budget

• a further reduction in projected emissions from the electricity sector due to continued strong uptake of renewables – especially small and mid-scale solar – by households and businesses; and

• the temporary effect of COVID-related restrictions on the economy.

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Victoria’s electric vehicle tax and the theory of the second-best

Alexandru Nika/Shutterstock

John Quiggin, The University of Queensland

One of the central ideas in tax policy is the principle of the second-best.

Economic theory gives us a good idea of what an ideal tax system would look like, given our objectives. But in real life, things fall short.

It might be thought that piecemeal reform, moving some taxes closer to the ideal, would be a step in the right direction.

But it needn’t be, if other taxes aren’t moved.

Here’s an example. Imagine that the goods and services tax exempted health products, both mainstream and alternative.

An ideal GST wouldn’t exempt health products (though the government might provide subsidised access to some products, as it does through the Pharmaceutical Benefits Scheme).

Imagine is administratively possible to remove the exemption for mainstream health products, which would bring it closer to the ideal.

Now imagine that for jurisdictional reasons it isn’t as easy to remove the exemption for alternative products.

Second-best can make things worse

Removing the exemption for mainstream products, which can be done straight away, seems like a good idea because it would be one step closer to removing all exemptions.

But if it is actually done straight away, without waiting the removal of the exemption on alternative products, it would have unintended (and perhaps dangerous) consequences.

People would be encouraged to switch from mainstream to alternative health products.

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Read more:
Think taxing electric vehicle use is a backward step? Here’s why it’s an important policy advance

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The same sort of issues arise with the plans to charge electric vehicles per kilometre driven in order to treat them more like conventionally-powered vehicles (which are taxed per kilometre driven through fuel excise).

South Australia and NSW have announced plans to do so. Victoria has announced details, and will introduce the charge from July 2021.

It will charge electric and other zero emission vehicles 2.5 cents per kilometre travelled and plug-in hybrids at cents per kilometre travelled.

Victoria justifies the charge this way:

Australian drivers pay fuel excise when they fill up their vehicle with petrol, diesel or liquefied petroleum gas. Zero and low emission vehicle owners currently pay little or no fuel excise but still use our roads.

Conventionally-powered car typically pay about 4.2 cents per kilometre through fuel excise and fuel-efficient cars about 2.1 cents.

This means Victoria will be charging electric vehicles as much or more than fuel-efficient vehicles, even though (at least when charged through rooftop solar) they won’t contribute to global warming.

Not only that, but conventionally-powered cars generate health and other costs through air and noise pollution, for which they are not charged.

What first-best would look like

The ideal system would include charges to cover the cost of

• building and maintaining the roads

• congestion

• the injury, death and damage caused by car crashes

• the health and other damage caused by air and noise pollution

• the global price of carbon emissions

Right now we charge through fuel taxes, registration fees and tolls (mostly paid to private firms, but this is irrelevant in economic terms) along with a variety of minor fees.

However, because fuel excise was frozen by the Howard government in 2001 (and only began increasing again in 2014) the revenue from it is barely enough to cover the cost of constructing and maintaining roads and grossly insufficient to cover the broader costs of conventional vehicle use.

Conventional vehicles get things for free

Although there is much debate about how carbon can or should be priced, any serious attempt to achieve the goals of the Paris Agreement is likely to require a carbon price of $100/tonne, which corresponds to 23 cents a litre.

Estimates for local air pollution costs (including the cost of deaths from cancer and asthma) start at 10 cents a litre. Noise pollution costs are extra.

Electric vehicles powered by renewable energy generate hardly of these costs.

Put simply, just as much (or more than) the owners of electric vehicles, the owners of conventional vehicles pay a mere fraction of what they should.

Second-best would be worse

Increasing what the owners of electric-powered vehicles pay is a second-best solution that might move us further away from first best.

It might discourage the takeup of vehicles that impose fewer costs on society.

To end on a positive note, the 1997 decisions of the High Court that effectively prohibited states from taxing petrol forced the Commonwealth to collect the tax and pass it on to the states, exacerbating the problems of an unbalanced federal tax system.

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Read more:
Wrong way, go back: a proposed new tax on electric vehicles is a bad idea

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There appears to be no constitutional impediment to a tax on kilometres travelled (and nor a privacy impediment, Victoria will implement it by asking for odometer readings once a year rather than monitoring where cars travel).

It would help redress the tax imbalance.

John Quiggin, Professor, School of Economics, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.