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Australia in Need of a New Budget CharterThe Essential SMSF Guide 2012-13US Carbon Emissions Continue DeclineEmail Marketing For Planners
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US Carbon Emissions Continue Decline

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

Carbon emissions from energy use in the USA fell for the second consecutive year in 2012. A switch to natural gas has been important but businesses and consumers appear to have taken action in anticipation of laws to modify behaviour.

Carbon dioxide emissions from energy use in the USA fell 2.4% in 2012, according to the US Energy Information Agency (EIA) as the carbon intensity of U.S. output continued a 30 year downward trend. The 5,293 million tonnes of carbon dioxide emissions recorded in 2012 was the lowest level of emissions since 1994.

The EIA data for 2012 seem to show a more or less straight swap between electricity sourced from coal and electricity from natural gas. There was a reduction of 216 billion kilowatt hours of coal generated electricity and an additional 217 billion kilowatt hours of electricity generated from natural gas.

At first blush, that seems consistent with the substitution effect caused by a 60% fall in average natural gas prices between 2005 and 2012 while the cost of the equivalent amount of electricity from coal increased 60%.

However, the numbers need to take account of a 46 billion kilowatt hour reduction in total electricity generated in 2012. Natural gas seems to have replaced both hydro and nuclear power as electricity sources, as well as coal. Although the switch from coal to natural gas would have cut carbon emissions by around 80 million tonnes, there would have been an increase of nearly 25 million tonnes in carbon emissions from the switch to natural gas from hydro and nuclear power.

The energy intensity of the US economy has been declining for three decades. It is now about 54% of the level in 1980. But the carbon intensity of the economy has been declining at a faster rate. Since 2006, the amount of carbon per unit of energy has fallen by 5%. Behavioural changes must have also been playing a role in the pattern of energy use to effect a lower level of emissions.

Some of the US emission gains could be reversed by stronger economic growth, for example. Nonetheless, the US has been able to achieve carbon emission reductions well in excess of what was once thought possible. For less than enthusiastic legislators, this could tip the balance in favour of taking no further action posing a dilemma for those countries, like Australia, waiting for them to take the lead.

Boosting the cost of emissions through government charges could accelerate any move to lower US carbon emissions. The EIA has estimated that a $15 per tonne charge (escalated by 5% a year) would mean emissions 24% lower than they otherwise would have been by 2040 and 28% below the actual outcome in 2005. In this scenario, coal use is expected to decline by about two-thirds relative to 2011.

While politicians are being told that putting a tax on carbon pollution will be the most effective course, they would most likely welcome an excuse to avoid higher taxes or negative regional employment effects.

Some are counting on the Environmental Protection Agency (EPA) which has moved to define carbon dioxide emissions as a form of pollution. The EPA already has wide ranging powers to regulate pollution and a reputation for aggressive action to clean up dirty industries even to the extent of enforcing plant closures and employment losses.

The fear of EPA action alone may be enough to encourage some businesses, including power generators, to more effectively control their emissions without additional legislative incentives or penalties.

At the same time, a long history of invention and technical innovation motivated by profits from a large domestic market should encourage ways of stemming the flow of emissions. Since this is the way in which the US economy has worked successfully for over 150 years, there is no reason to believe it will fail to respond similarly to a modern need. Neither motor vehicles for the masses nor the iPad needed a cap and trade system to supplant the pre-existing technology.

People pursuing ideas based on profit, personal creative urges or simply good intentions can easily confound economists' modeling abilities. Measuring reactions to relative price movements is hard enough but the combination of innovation, fear and the desire to simply do good by protecting the environment is hard, if not impossible, to quantify in an economic model where there is little or no history of those factors working in combination under the same circumstances before.

It is possible that the variables with the greatest influence on carbon emissions will differ in the USA and a smaller economy such as that of Australia. The modeling is simply not good enough to know.

The nature of the U.S. economy might be sufficiently different that Australia's policy stance may need to differ from that of the USA if Australia's targeted result is to be achieved.
 
One of the arguments against Australia taking legislative action to raise the cost of carbon emissions has been the need to wait for other countries, such as the USA, to take stronger action to avoid incurring a self inflicted competitive disadvantage.

Since Australia has committed to reduce its emissions by 5% from 2000 levels and was running at 10% above its 2000 levels in 2011, according to the EIA, it is already falling well behind the US effort.

This widening difference in emissions outcomes raises a complex policy dilemma for Australia. What if existing policies and institutions in the USA elicit emission gains just big enough to continually alleviate the pressure for more substantial legislative changes? That will leave other countries, including Australia, to either customise policies to meet their own circumstances or abandon pursuit of lower emissions.


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