"Most of the countries around the world are moving in favour of Direct Action" and "not proceeding with emissions trading schemes or market based mechanisms".
Joe Hockey on Monday, October 28, 2013 in an interview on Channel Ten's The Project
Hockey says most countries are moving toward Direct Action and not proceeding with emissions trading
Plenty of speculation abounds regarding the fate of the carbon price. Reports in the Fairfax newspapers this week indicate senior Labor figures want to wave through the repeal of the "carbon tax" but block Direct Action while formulating an alternative policy for the 2016 election.
What appears increasingly certain is this: the carbon tax will go, and at some stage it will be replaced by Direct Action, though perhaps not until the Senate configuration changes in July and perhaps in a modified version.
This, according to Treasurer Joe Hockey, will bring us into line with the rest of the world. He told Channel Ten's "The Project" on Monday night:
"There is no other country in the world that has an economy wide carbon tax. Most of the countries around the world are moving in favour of Direct Action."
Then this exchange:
PRESENTER: Joe, isn't it erroneous to say that most countries are moving in the direction of Direct Action when most are going towards market based mechanisms which is what most economists suggest is the right way to go?
TREASURER: No. You are wrong. Actually, most of them are moving in the direction of Direct Action. Most of them are not proceeding with Emissions Trading Schemes or market based mechanisms.
The capitalisation of "Direct Action" appears in the transcript on Hockey's ministerial website.
First, a brief digression. We note that Hockey doesn’t consider Direct Action to be a market-based mechanism for confronting climate change. He said most countries "are not proceeding with Emissions Trading Schemes or market based mechanisms".
That’s a very different tack to the one taken by Environment Minister Greg Hunt in an opinion piece earlier this month. Responding to an earlier piece by Labor’s Andrew Leigh, Hunt wrote the following:
"Andrew Leigh’s assertion in Tuesday’s Canberra Times that the Carbon Tax is the only type of market mechanism that can meet Australia’s emissions reduction targets is narrow and fundamentally flawed."
"The Emissions Reduction Fund is a market based mechanism which will pay for the lowest cost abatement in Australia."
"The Coalition's Direct Action plan will use the classic market mechanism of a reverse auction, a conventional method of finding the lowest cost way to achieve an aim."
Not just a market mechanism, but a classic market mechanism.
We’ll leave them to battle it out.
What of Hockey’s claim that most countries are enacting policies similar to Direct Action? We thought it was odd that he wasn’t asked to name any examples in the interview, so we emailed his media adviser Tony Ritchie for a list.
Ritchie suggested we ask the office of Environment Minister Greg Hunt, which we did, but didn't receive a response. But Hunt has, in the past, referred to the U.S. as evidence that the world is embracing direct action measures rather than carbon trading.
When U.S. President Barack Obama announced a package of climate change measures in June, Hunt told the ABC's AM program:
"We've seen very promising signs from the United States, most significantly not using a carbon tax or an emissions trading scheme, but using direct action measures where they are specifically focusing on energy efficiency, forestry and cleaning up power stations."
Those measures seek to use the Clean Air Act of 1970 to enable the Environmental Protection Agency to regulate emissions from various sectors, including electricity, oil and motor vehicles.
It's worth noting that the EPA's authority to regulate emissions from stationary sources (like power plants) will be tested by the Supreme Court first.
Hockey's statement is open to interpretation. "Direct Action" as it appears on his own transcript implies countries are using similar mechanisms, such as the reverse auction that lies at the heart of the Emissions Reduction Fund. A wider, lower-case interpretation of "direct action" could simply mean that countries are adopting government-led intervention measures rather than market-based mechanisms.
Hockey did not clarify the statement but we found a lack of substantiating evidence on both counts.
The sort of emissions limits and industry standards being imposed by Obama are regulatory but they are "nothing like a reverse auction", said Tony Wood, energy program director at the Grattan Institute.
"There are no countries that I’ve heard of that are using reverse auctions except at the margins...to develop renewable energy technology," Wood said. Those nations include India, Thailand, Malaysia and South Africa. Australia already uses the Renewable Energy Target to drive innovation and adoption of such technologies.
That's not to say that countries aren't taking direct action against climate change - but in most cases, they are doing it in addition to emissions trading, not instead.
In Norway, for example, a government "energy fund" has spent about AUD$1.9 billion since 2001 to fund emission reduction projects which would not otherwise occur. The Climate Institute estimates the fund has directly reduced carbon emissions by 1.5 megatonnes (Mt) since 2001, or 2.7-9.6 Mt indirectly, depending on how you calculate it.
But Norway is also part of the EU emissions trading scheme and independently has one of the world's most expensive carbon taxes. The Institute estimates the carbon tax to have reduced Norway's emissions by 5Mt in 2010 alone.
The Australian Capital Territory uses a reverse auction in its large-scale renewable energy program, which is widely regarded as a success. South Africa has funded around 3000MW worth of projects through its scheme.
So this is a mechanism which has been used in some quarters. But Wood says it is not a way in which to solve climate change.
"Where he [Hockey] is wrong is to suggest that anybody is using reverse auctions as the central plank of their climate policy, including the United States," he said. "Are lots of countries using other mechanisms other than market-based mechanisms? Yeah, that’s true. But to say that’s where the trend is is almost demonstrably not true."
This leads us toward the second part of Hockey's claim - that not only are most countries embracing direct action, they're not proceeding with emissions trading and market-based mechanisms.
We’ve looked at this question before. In a July press conference, Tony Abbott told journalists "the world is moving away from carbon taxes and emissions trading schemes".
This claim was based primarily on the US not embracing carbon trading, and the EU’s floating price faltering amid economic malaise. But we concluded that was not a sufficient basis on which to say that the whole world was "moving away" from emissions trading.
Particularly because there were six countries that are phasing in carbon pricing:
Canada – Quebec commenced a cap-and-trade system in January 2013, beginning with 80 industrial sites and expanding over the coming few years. Quebec is a member of the Western Climate Initiative, which joins states in the US and provinces in Canada in a "common approach to addressing climate change". British Columbia, which is also part of the Initiative, implemented a carbon tax in 2008. It started at $10/tonne and increased by $5 each year, as scheduled, to $30/tonne in 2012.
China – two of seven pilot emissions trading schemes have now commenced, ahead of a planned transition to a national scheme around 2015. China is the world's biggest polluter and with the United States accounts for 37 per cent of global emissions.
Japan – a mandatory cap-and-trade system started in Tokyo in 2010, administered by the Tokyo Metropolitan Government. It covers approximately 40 per cent of the city’s commercial carbon emissions and has reduced annual emissions by 23 per cent, according to a recent report.
New Zealand – began phasing in a trading scheme in 2008. Initially it covers 40 per cent of emissions and will increase to around 85 per cent, taking in waste, synthetic gases and agriculture.
South Korea – plans to begin an emissions trading scheme in 2015 which will cover the country’s 470 biggest polluters and 60 per cent of all greenhouse gas emissions.
United Kingdom - is placing a floor price on carbon to "ensure that the price paid for carbon by electricity producers in the UK is around £15.70/tonne CO2e in 2013 rising in a straight line to £30/tonne CO2e in 2020 and £70/tonne CO2e in 2030".
There’s also the U.S. state of California, which despite being only one state has the world’s ninth-largest economy and a population of 38 million. It commenced a cap-and-trade system in January 2013. When fully implemented, it will cover 85 per cent of the state’s carbon emissions. It has recently been linked with Quebec’s emissions trading scheme.
We sent this fact check to Ritchie, in Hockey’s office, and asked whether Hockey stood by his statement. We were told "he stands by his statement", and that no other economy is pursuing an economy-wide carbon price. More on this in a moment.
To our earlier fact check, we would also add Kazakhstan, which commenced an ETS in 2013. It is currently operating as a one-year pilot scheme. According to the Climate Commission, the scheme covers 77 per cent of the country's emissions, which would effectively make it the widest in the world - though the World Bank says it is closer to 55 per cent.
Kazakhstan is the world's 18th biggest oil producer and the 31st biggest polluter.
Including the EU nations, there are now more than 40 countries with emissions trading schemes, and a further 20 sub-national jurisdictions (U.S. states such as California and Canadian provinces such as Quebec). Some of them are shown here in a graphic compiled by the World Bank:
As is represented above, Australia's carbon price covers a fair percentage of our emissions - 60 per cent. It's high, but the same as Korea and the Chinese city of Tianjin, and it's certainly not "economy wide". Plus, other jurisdictions are expanding their programs, including New Zealand and California.
John Connor, CEO of the Climate Institute, said the reality was that carbon pricing is "on the growth".
That is evident from a policy paper produced by the OECD on October 9, 2013 titled "Climate and carbon: aligning prices and policies".
The paper's key messages include the following: that "if governments are serious in their fight against climate change, the core message of this reform must be that the cost of CO2 emissions will gradually increase" and that "a central feature of such an approach is placing a price on carbon".
It furthermore said there would be little incentive to move away from fossil fuels without the certainty that the price of carbon will increase over time. The paper went so far as to tell governments they must "put an explicit price on carbon".
"The use of these mechanisms is expanding in developed, emerging and developing economies, but there is considerable scope for further uptake by governments," it said.
The take home from this OECD report is that pricing carbon is, and will continue to be, the prominent mechanism by which governments tackle climate change. It advocates the use of other measures in addition to carbon pricing, not as a substitute:
"While explicit pricing instruments should be the central policy instrument, they will need to be complemented by other policies where markets are not able to provide effective signals for reducing emissions," the report said.
And while the report does acknowledge some of the early problems with emissions trading, such as price volatility and design flaws, governments are not abandoning them. Each year, the number of trading schemes increases.
As Connor told PolitiFact: "Australia is set to be the first country in the world to dismantle a carbon market."
Joe Hockey didn't have to say what he said on The Project. He could have much more fairly claimed, for example, that the United States will not be implementing a carbon price and will instead choose to reduce emissions through regulatory measures. In a crude sense, Barack Obama is taking "direct action".
But the actual measures Obama is implementing don't bear any relation to the suite of policies that fall under Direct Action. And remember, Obama wanted a cap-and-trade system but couldn't get it through Congress.
We note that reverse auctions are being used in some jurisdictions, such as India and South Africa. But they are being used to drive investment in some parts of the energy market, not as the centrepiece of a climate change policy. And these are not the highly developed economies with which Australia is and should be compared.
At any rate, the idea that "most countries" are going down this path and not proceeding with emissions trading simply doesn't square with the facts. If there were any doubt, the OECD's October report makes this plain.
Each year the number of jurisdictions trading carbon grows. Australia would be the first to dismantle such a system. The government can make the case for that decision. But we don't see how a senior government figure could possibly argue that most countries are moving in that direction.
We rate the claim False.
Published: Friday, November 1, 2013 at 9:59 a.m.
Early domestic support for Obama's climate announcements, Will Ockenden, ABC AM, June 26, 2013
Climate and carbon: OECD environment policy paper, OECD, October 9, 2013
The Critical Decade: Global Action Building on Climate Change, Climate Commission, April 2013
Coalition Climate Policy and the National Climate Interest, Climate Institute, August 2013
Obama takes on power plant emissions as part of climate plan, Jeff Mason and Roberta Rampton, Reuters, June 26, 2013
ACT seeks 690MW of solar, wind to become green capital, Giles Parkinson, Renew Economy, August 20, 2013
Carbon markets of the world, World Bank infographic
Home alone: is the rest of the world moving away from carbon pricing?, PolitiFact Australia, July 11, 2013
Phone interview with Tony Wood from the Grattan Institute on October 31, 2013
Phone interview with John Connor from the Climate Institute on October 31, 2013
Phone interview with Tony Ritchie from Joe Hockey's office on October 29, 2013
Email exchange with Daniel Rockett at WWF Australia on October 29, 2013
Transcript of Joe Hockey interview on The Project, Channel 10 on October 28, 2013
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