World's biggest carbon tax to become even bigger

Bookmark and Share Climate Change | Tim Wilson
The Australian 3rd July, 2012

Changes to global carbon accounting standards will wipe out the average 20c weekly "overcompensation" by the year's end and add $230 million to the nation's annual carbon tax bill.

The carbon tax is applied to more than just carbon dioxide. Other gases taxed include the less prevalent but more potent methane, nitrous oxide and hydrofluorocarbons.

But not all greenhouse gases are equal. Some linger in the atmosphere longer and trap more heat than others.

As a result they are treated as having a higher global warming potential than carbon dioxide.

To ensure their environmental impact can be properly compared, all greenhouse gases are converted to their potency in carbon dioxide equivalence.

Under the Kyoto Protocol Australia is required to use Intergovernmental Panel on Climate Change data to calculate its emissions profile.

At present the rate of carbon dioxide equivalence for each gas is based on data published by the IPCC's 1995 Second Assessment report.Every country uses the same data so it can accurately compare its emissions.

Based on the IPCC's data, when methane is included in an emissions profile, a single tonne is calculated as 21 tonnes of carbon dioxide-equivalent gases.

Nitrous oxide is 310 times more potent than carbon dioxide. Sulphur hexafluoride is 23,900 times more potent.

Rightly, all of the government's emissions and carbon tax cost analysis is based on these conversion rates.

But at the Durban UN climate change conference last December, governments, including Australia, decided to update the conversion rates for greenhouse gases.

In a seemingly irrelevant decision for the operation of the Kyoto Protocol after the end of this year the data will be updated. Instead of using the 1995 IPCC Second Assessment report data to convert greenhouse gases, from the start of next year countries will use the rates in the 2007 Fourth Assessment report.

According to the updated report, the potency of some greenhouse gases has been revised down, but most have been increased and in some cases by quite a lot.

After carbon dioxide the two most emitted greenhouse gases are methane and nitrous oxide.

Nitrous oxide's profile was revised down by 4 per cent from an equivalence of 310 tonnes to 298 tonnes.

The highest upward revision was a 33 per cent increase in the comparatively poorly emitted hexafluoroethane.

But these gases are not as frequently emitted as methane. Methane's environmental impact was revised upwards by 20 per cent from 21 tonnes of carbon dioxide to 25 tonnes.

Based on 2009 and 2010 National Greenhouse Gas Inventory data, a simple 20 per cent upward recalculation of the environmental impact of methane increases Australia's emissions by about 21 million tonnes.

The downward revision of nitrous oxide's potency reduces our emissions by only 900,000 tonnes.

Even when methane emissions from agriculture are removed from these calculations, the IPCC's revision increases Australia's carbon-taxable emissions by 10 million tonnes.

Once the upward and downward revision of other publicly available emissions data is included, the increase in taxable emissions is just shy of 10 million tonnes, adding nearly $230m to Australia's annual carbon tax bill.

An additional $230m adds an average $30 carbon tax impost per household annually, or 52c a week. That may not appear to be much. But considering the Treasury's overly optimistic fairytale carbon tax modelling concludes that the average Australian household will be "overcompensated" by $10.40 a year or 20c a week, a simple upward recalculation will wipe out any household overcompensation by the end of the year.

And this upward revision may not be the only one that occurs.

The 2007 IPCC report data is being revised for the 2013-14 Fifth Assessment Report, which could further increase each country's emissions profile and with it Australia's carbon tax bill.

It's technically possible that the government won't use the updated IPCC data because the Gillard government does not intend to ratify the extension of the Kyoto Protocol after the end of this year.

If so, the Prime Minister and Climate Change Minister Greg Combet would be following the position of the Howard government in rejecting Kyoto because it was not in Australia's national interest.

They'd be right. It wasn't then and it isn't now. But rejecting a legally binding international treaty to cut greenhouse gases directly contradicts posturing on Australia's leadership role in cutting emissions.

Irrespective, Australia will eventually sign up to these higher calculations in an international agreement increasing the cost for households.

And with every upward increase in Australia's emissions profile there's a reciprocal increase in Australia's carbon tax bill.

The Gillard government is already imposing the most expensive and broadly applied carbon tax in the world.

Once the upward revision of Australia's emissions profile is completed, Australia's carbon tax bill will still be the world's largest with an extra $230m on top.