Low Carbon Incentive Scheme

I have been reviewing the Garnaut Emission Trading Scheme (ETS) Discussions paper, and am concerned of the potential failure of this policy to encourge low carbon (C) technology development as part of writing my Implications chapter of my PhD thesis (www.valman.blogspot.com).

I would encourage you to comment on my DRAFT submission (brief) below, and the attached key documents, from Garnaut, Foxon (Imperial College) which is excellent [technological lock in, technology trajectory], and Rayner (Nature - thanks ANDREW).

While the submissions are not due until next week, I am seeking comments from industry (Holden, Toyota, Electric vehicles mfger), consumers (my PhD interviewees), Govt (Vic summit 04.04.08, and QG), and academia (yourselves). This is an early draft, and I will insert innovation references, from my thesis in the next few days and recirculate. But thought a brief, but early draft would give you more time to comment.

I am sure you will be all very busy, and hence PhD students can give such matters more time, but I would encourage you to participate in this important process. Each generation has its problems to address, and I believe, for now, ours is climate change.

Any time and comments you could contribute would be much appreciated.
Thanks and regards
Richard Ferrers
University of Qld/Melbourne

Here are the four problems I see with the ETS, encouraging low C technology (also below):

Firstly, the ETS will encourage incremental innovation in power stations, and transfer from coal to gas, however it will not encourage radical or disruptive innovation, which is likely to come from small firms operating outside of the power and car/oil industries. Disruptors who do not hold C certificates have less incentive from the ETS to innovate.

Secondly, disruptive innovation can decrease the value of C certificates, giving certificate holders an incentive to resist such technology to protect the value of their investment in C certificates.

Thirdly, oil companies who purchase certificates, rather than petrol consumers, to keep the ETS simple, are more likely to pass C prices onto consumers, than to create or buy low C technology, which is outside their competencies, and would reduce their profits.

Fourthly, to protect their C lock in, the coal and oil industries have incentive to undermine the processes, and distract funding away from other low C technologies eg QLD $900M clean coal investments vs $26M Centre for Low Emission Technology, VIC $187M Energy technology innovation strategy (including $103.5M clean coal) vs $12M for renewable energy support fund,

Please see my suggested solution, a Low Carbon Incentive Scheme outlined below.
Thank you...

-----Original Message-----
From: Premier of Victoria [mailto:no-reply@premier.vic.gov.au]
Sent: Wed 02/04/2008 15:23
To: Richard Ferrers
Subject: Share Your Ideas

Thank you for your email to the Premier. A response will be sent to you as soon as possible.
Richard Ferrers
5/83 Park St
St Kilda West 3182
r.ferrers@business.uq.edu.au
03 9534 4830
0422 268 061

Idea:
Goals to transition to a low Carbon (C) economy:
- low C transport
- low C power
- low C exports
- low C workforce

The emission trading scheme (ETS) is a good start to get C prices into products, but greater incentive is needed to encourage success in low C technology, if we want to do so fast. The ETS is likely to take perhaps some 10-15 years to achieve this.

Some problems exist with the ETS encouraging low C technology. Firstly, the ETS will encourage incremental innovation in power stations, and transfer from coal to gas, however it will not encourage radical or disruptive innovation, which is likely to come from small firms operating outside of the power and car/oil industries. Disruptors who do not hold C certificates have less incentive from the ETS to innovate.

Secondly, disruptive innovation can decrease the value of C certificates, giving certificate holders an incentive to resist such technology to protect the value of their investment in C certificates.

Thirdly, oil companies who purchase certificates, rather than petrol consumers, to keep the ETS simple, are more likely to pass C prices onto consumers, than to create or buy low C technology, which is outside their competencies, and would reduce their profits.

Fourthly, to protect their C lock in, the coal and oil industries have incentive to undermine the processes, and distract funding away from other low C technologies eg QLD $900M clean coal investments vs $26M Centre for Low Emission Technology, VIC $187M Energy technology innovation strategy (including $103.5M clean coal) vs $12M for renewable energy support fund,

Therefore, to avoid these ETS problems, I suggest a Low C Incentive scheme, which collects funds and pays low C users and producers to encourage such use and production. Funding should be not at the expense of other government services (revenue neutral), and should encourage market solutions to low C needs. But the incentive should be paid 50% to producers and 50% to consumers to reward both parties.

Funds could be raised through a levy on petrol prices, and electricity bills. But consumers have told me, during a process of consultation, that this could place too heavy a burden on already stressed households. This could be a transitional arrangement (say two years) to be replaced by a broad ranging, but small, consumption tax. A level of 2%, added to GST, and collected in the same way, and with the same rules, could be collected by the ATO, then forwarded to the Carbon Bank (see Garnaut) for distribution to low C users and producers. Low income families would be protected as food would not be levied. And at a low 2% the impact would be slight on individual transactions. Also, business would not be levied, only consumers, reducing political issues, in selling the scheme to business. At 2%, funds of around $1B per month could be raised. Significantly ahead of Victoria\'s $200M action plan or Qld $900M investment in clean coal over ten years.

Payments should be made for results, not for R&D, so low C MWh of electricity would be paid from the fund, up to 50% of capital costs. Low C vehicles would be paid for out of the fund eg Toyota Prius, if they save 50% over normal vehicles.


Each month, receipts would be balanced with payments, so the fastest developers of low C technology were paid, starting a low C development race - a gold rush. Unspent receipts, would go to other C offset, such as planting trees, a portion could be saved (say 40%) for low C loans to buy solar heating, or fund low C R&D. A small proportion could fund R&D alone (say 20%), and administration (say 5%).

Funding could also come from sales of C certificates.

The fund should be spent on low C power (1/3), low C transport (1/3) and compensation to workers transitioning from high C to low C jobs(1/3). An incentive to leave high C jobs (say $10,000 per year of service, payable from fund in month of leaving or pro rata from funds available) and for employers to take on workers from high C jobs (say $10,000, payable half on hiring, and half on one year anniversary), into low C industries (ie receiving incentive payments).

See full details in submission to Garnaut review (April 11).
Richard Ferrers
Innovation Researcher
University of Queensland
Centre for Global Innovation and Entrpreneurship
University of Melbourne