AUSTRALIA CUTS, DEFERS CCS FUNDING TO COVER EARLY ETS TRANSITION

Tamar Hallerman
GHG Monitor
7/19/13

Australia plans to transition from a flat carbon tax to a cap-and-trade system next summer—a year earlier than planned, newly installed Prime Minister Kevin Rudd announced this week. The Australian government plans to help fund the shift, in part, by cutting and deferring funding for carbon capture and storage research, Rudd said during a July 16 press conference. Rudd said that Australia would ditch its $24 per tonne carbon fee next summer in favor of an emissions trading system (ETS) a year earlier than planned by his predecessor Julia Gillard. “The government has decided to terminate the carbon tax, to help cost of living pressures for families and to reduce costs for small business,” Rudd said.

Rudd added that the early transition would cost the country $3.8 billion over the next four years, and that to offset the cost, his government would cut the lion’s share of funding from a tax scheme for employer-provided cars. However, a government fact sheet indicated that another $224 million worth of offsets would come from Australia’s CCS Flagships program, a scheme already hit hard under the government’s budget plan earlier this spring. Of that $224 million, $24 million would be cut from the Flagships program, which aims to fund up to two demonstration-scale CCS projects, while the remaining $200 million would be deferred from the program’s budget for several years in order to save money in the short-term.

‘Unlikely to be Ready’

Minister for Climate Change and Environment, Heritage and Water Mark Butler said this week that the two projects being funded under the Flagships program were still in their early feasibility phases and years away from coming online. He added that the money could be deferred with minimal harm, and underscored what he said is the government’s commitment to CCS. “Carbon capture and storage is a technology that has a lot of potential to contribute to our plan and our commitment to reduce carbon pollution. But we have taken advice that the projects that are currently going through a feasibility process are unlikely to be ready for the funding that’s currently profiled in the years in which it is profiled,” Butler said during the press conference. “So our advice has been the best thing to do is to defer that funding for years beyond the forward estimates which is likely to be when the projects will be ready for the sort of investment we’re talking about.”

Rudd was also quick to voice his support for CCS. The coal industry has “got a real future” in northeastern Australia, he said. “But if you’re supporting the coal industry, you also have to be investing in clean coal technologies. There are a number of available technologies … [but] these are coming slower to fruition than many of us would have liked, not just here but around the world. They are complex technologies. So carbon sequestration storage, this is important work, but we have got to be sensible about how long it is going to take to bring them on stream.” Rudd had been a strong supporter of the technology during his first stint as prime minister between 2007 and 2010, providing the Canberra, Australia-based Global CCS Institute with more than $400 million in seed money in 2008 as part of an effort to establish the country as a world-leader in CCS.

Gov’t Cut $500M from CCS in May

But the coffers for Australia’s federal CCS program, once one of the world’s most robust, have quickly shrunk in recent months as government officials have seemingly raided the accounts for easy money during a time of budget shortfalls. The government slashed more than $660 million from ‘clean coal’ programs in its budget earlier this spring, $500 million of that from the CCS Flagships program. While it’s unclear exactly how much the funding cuts and deferrals will impact the two projects remaining in the Flagships program—CarbonNet and the Collie South West Hub—it is becoming clearer that it may now take longer for those projects to come to fruition. A spokesman for the Collie South West Hub project said the announcement has “not impacted our timeframes or project activity.”

Meanwhile, a spokesman for the Victoria Government, which is overseeing the CarbonNet project, said the budget deferral “may impact potential future funding of CarbonNet,” but indicated that state-level commitments to the project remain in place. The federal government’s carbon tax “announcement does not change the state’s commitment to the CarbonNet Project,” the spokesman said.

The Australian government in May said it would now fund “at least one project to proceed beyond the feasibility stage” under the Flagships program, a noticeable downgrade from when the program was established in 2009 and tasked with funding up to four projects. “Because CCS has been relatively slow to develop here, as it has elsewhere, it has been an easy target” for budget cuts in Australia, John Connor, CEO of the Sydney-based Climate Institute said in an interview. “It’s certainly moved into the emergency ward.”

Some CCS Stakeholders Confident of Gov’t Commitment

Meanwhile, other CCS stakeholders in Australia said in interviews this week that they were still confident that the Australian government is committed to the technology. “The government is still clearly supportive of CCS. What is happening is that, just as in other parts of the world, projects in Australia are not proceeding quite as fast as had been expected when government funding programs were put in place, so the government is adjusting its spending profile to take account of that,” said Barry Jones, general manager for Asia Pacific at the Global CCS Institute, in an e-mail.

Tony Steeper, a spokesman for the Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC), a research group currently operating the Otway CCS project in southeastern Australia, pointed to a recent $51 million grant the group received from the government as indicative of its commitment to the technology. “We are confident of the current government’s support for CCS technology,” he told GHG Monitor.

Labor Hopes to Sway Public Opinion

Rudd and his deputies had announced the changes to the CCS funding scheme this week as they announced the early transition to an ETS, widely seen as an attempt by the Labor Party to gain support ahead of general elections in September. Ever since Gillard introduced the carbon tax last summer on Australia’s largest industrial emitters, the scheme has been deeply unpopular with voters, due in large part to a barrage of negative publicity from the opposition Liberal Party. Opposition Leader Tony Abbott, meanwhile, has campaigned to immediately repeal any price on carbon, if elected.

Rudd said transitioning to an ETS sooner would save the average family more than $150 a year on electricity bills. While the initial price for carbon credits on the cap-and-trade scheme has yet to be determined by the government, initial estimates have indicated that it will likely be near $6 per tonne initially. The ETS is set to eventually link with cap-and-trade schemes in place in New Zealand and the European Union. “The price is not the important thing from the environment’s point of view. From the environment’s point of view it just wants to know that there is less carbon pollution being spewed into the atmosphere and ours is the only scheme that has that legal limit,” Butler said this week.

The Australian Coal Association countered that even the reduced carbon price under the cap-and-trade system would still harm the country’s long-dominant coal industry. “The heart of our concerns remains the long-term competitiveness of the industry. A floating carbon price in an ETS does little to resolve our industry’s serious concerns given that Australia will remain the only country in the world that imposes a carbon tax on the greenhouse emissions generated from the mining of coal,” CEO Nikki William said in a statement following this week’s announcement. “Instead of headlines in the lead-up to an election, Australia needs practical, well-thought through carbon solutions at a juncture when we have entered a very challenging stage of the resources cycle.”