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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

A few weeks ago, Energy Minister Angus Taylor made changes to the Australian carbon market - crashing the value of government-issued carbon credits.

The changes made it cheaper for big companies to pollute. They also cost the government as much as $3.5 billion.

Today, national correspondent for The Saturday Paper Mike Seccombe on why Taylor did it - and what it means.

It’s Thursday, March 24.

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RUBY:

Mike, there is a lot that's surprising about this story, but I think one of the first surprises for me was that Australia actually even has a carbon market because I thought that the government had dismantled that when they came to power.

MIKE:

Well, yes, I think most people make that assumption. And certainly, it's not widely understood that Australia does have a carbon market. And as you point out, the current government came to power with a promise to get rid of the Gillard government's emissions trading scheme.

Archival Tape -- Tony Abbott:

“Well, if I could address a few words to the Australian people, you voted to scrap the tax in September last year, and today the parliament finally listened.”

MIKE:

To axe the tax in inverted commas, as Tony Abbott was fond of saying.

Archival Tape -- Tony Abbott:

“A useless, destructive tax which damaged jobs, which hurt families, cost of living and which didn't actually help the environment is finally gone.”

MIKE:

But despite the fact that the government built an entire election campaign on the fact that there would be no price on carbon…the government has put a price on carbon emissions.

The difference from the labour plan is that the price is paid by taxpayers through the government's emissions reduction fund rather than by the free market. So essentially, we pay people not to pollute. And without getting too technical - what the government came up with is something called Australian carbon credit units or ACCUs and simply put ACCUs are issued by the government's clean energy regulator, and each unit represents one tonne of carbon dioxide or carbon dioxide equivalent that is either stored or is avoided - you know that isn’t omitted when it otherwise would have been.

RUBY:

OK, so Mike, how does this actually all work in practice? How does the carbon credit the ACCU market function?

MIKE:

All right. Well, let's use the farmers as an example, because most of them to date have gone to farmers. So call her Farmer Sarah. Okay, so Farmer Sarah has a big farm where she raises dairy cows, but half of the property is still covered in trees. So rather than level all those trees so she can have more cows. Sarah can be paid through this government scheme to not cut down the trees on her land and instead leave them growing and thereby storing carbon. And by doing this, she will be awarded ACCUs equal to the amount of carbon stored in those trees.

The principle is that you're storing the carbon there and you're getting credit for it.

RUBY:

So basically the government is paying people, people like farmers in exchange for doing things that would either cut down or store carbon. Is that right?

MIKE:

Yes. Yeah. Critics of the system, though, have complained that in many cases, landholders were getting credit for not cutting down trees that in many cases they weren't going to cut down anyway.

RUBY:

Right, ok… And so how much is it all worth Mike?

MIKE:

Well, since 2013, about 106 million ACCUs, of these units, each representing a tonnes, so 106 million tonnes nationally of abatement has been issued and the average price has been around $12 per unit. That is per tonne. So all that's pretty simple, right?

But then it gets interesting because two years ago, the Morrison government fiddled with the scheme. Before that time, if you contracted to deliver ACCUs, you had to sell them back to the government under what were called fixed delivery contracts.

But in March 2020, they began writing contracts called optional delivery contracts, where people like farmer Sarah were not required to sell back to the government but could sell them to other parties. And this proved very popular. Like since that time, about 95 per cent of the contracts written have been optional contracts. And so essentially this has set up a secondary market.

So we had two classes of ACCUs then we had those with fixed delivery that had to be sold back to the government at a fixed price. And those that didn't have a fixed delivery that could be traded at a floating price.
And the price of abating a tonne of greenhouse emissions suddenly took off over the past five or six months.
By the start of this year, ACCUs were being traded on the secondary market for close to $60. So, you know, we're talking 300 400 per cent rise in value.

RUBY:

Hmm. OK. But ultimately, though, Mike, this sounds like it would be a good thing because the price of these kind of units going up is it means obviously that there is less incentive to pollute, right?

MIKE:

Well, exactly right. It indicates something quite good, which is that the demand for schemes to abate carbon pollution has surged. Companies looking to clean up their acts were prepared to pay much higher prices to do it. So it's a very good thing unless, of course, you're one of those people locked into $12 a tonne contracts who can see others getting much, much more.

RUBY:

Right, okay. And so it sounds like the catalyst for these prices going up was this change that the government made, which meant that these credits could be sold on the private market. But is there anything else that is pushing the price up as well?

MIKE:

Well, yes, it was a number of things. I mean, one of them was the Glasgow Climate Conference. You know where the world started to get very serious about the threat posed by climate change.

Archival Tape -- David Attenborough:

“It’s easy to forget that ultimately, the emergency climate comes down to one number: the concentration of carbon in our atmosphere.”

MIKE:

Then there was public and investor pressure on companies to act on their emissions reduction promises,

Archival Tape -- Greta Thunberg:

“We must keep going into the streets, and we must keep demanding our leaders take real climate action.”

MIKE:

All around the world companies have been promising that they would aim for net zero and to do that, they want to buy abatement.

And behind it all, of course, are the dire warnings from the climate scientists

Archival Tape -- News:

“More than 15,000 scientists are sounding an alarm about climate change they call it a warning to humanity.”

Archival Tape -- News:

“Climate change is happening now, on an unprecedented scale and said rapid and sustained reductions of greenhouse gases are needed.”

Archival Tape -- News:

“Today the UN has said it is already too late to stop some of the devastating impacts of climate change.”

MIKE:

And of course, there was also the Morrison government's own belated promise to make Australia net zero by 2050.

Archival Tape -- Scott Morrison:

“Australians want action on climate change, they’re taking action on climate change, but they also want to protect their jobs and their livelihoods and they also want to protec t the Australian way of life.”

MIKE:

So, you know, all of that was driving up the price of credits.

But Angus Taylor, the responsible minister, did something extraordinary about two weeks ago, and the consequence of it was that he basically crashed the whole carbon market in Australia.

RUBY:

We'll be back in a moment.

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RUBY:

Mike, what exactly did Angus Taylor do that crashed the carbon market in Australia?

MIKE:

Okay, so on March 4, Angus Taylor announced major changes to the way Australian carbon credit units would work. The change meant that anyone contracted by the government to deliver climate abatement through ACCUs, you know, for an average price of $12 a tonne would henceforth be able to sell their credits on the open market.

And so this decision by Angus Taylor achieved several things - by lowering the price it not only made it cheaper for big polluters to buy offsets against their emissions, it also ensured windfall gains for Australian carbon traders who are sort of the middlemen who who take a clip on the way through. And it meant that the taxpayers who you know would otherwise have notionally inherited carbon credits with 50 or 60 dollars would not get that money anymore.

RUBY:

OK. And so why did Angus Taylor make this decision two weeks ago, Mike?

MIKE:

Well, he was facing a problem. I guess that goes back to the previous changes that the Morrison government made that allowed this secondary market to spring up. For years, the market has grown so strong that there was an incentive for people to start breaking their contracts with the government and selling their abatement credits to private buyers.

So the government's previous changes, I guess, were not a big problem while the price of ACCUs use remained low enough, there was this major disincentive that a broken contract would attract a penalty. But suddenly, with the price at 40 50 $60, which is where it had got to very, very quickly in less than six months, suddenly it was worth breaking the contract.

So Taylor decided to intervene to open up the market. It was kind of forced on him by what was happening anyway. But this, of course, is a market the government had been fixing, which is a bit strange in itself, you know, for a notionally free-market coalition government to be controlling the carbon price through this sort of socialised mechanism.

By the estimation of Oliver Yates, the former chief executive of the Clean Energy Finance Corporation, this was very good news for the contractors and the aggregators who bundle up and sell these ACCUs, but not for the taxpayer, because we missed out on most of it.

Archival Tape -- Oliver Yates:

“Champagne bottles fly everywhere for everyone off the table because hang on… I've got a $12 contract and I’m only getting $12 a tonne for it and Dear Old Angus has just made an announcement that means I can pay him $24 to take my carbon back and then sell it on the market at fifty.”

MIKE:

So as he put it to me, if he were the Commonwealth, he'd be sitting there thinking, You know, great deal about all this carbon, 100 million tonnes of it at $12 and now it's worth $50.

Archival Tape -- Oliver Yates:

“What Angus Taylor has done is said you know that provision there, well, actually anybody can now decide that they don't want to deliver.”

MIKE:

And so most of that gain won't go to the government taxpayers. Instead, it will be shared by those who hold the contracts and buy the aggregators.

And that's how Yates arrives at his figure of $3.5 billion in value shifted from the taxpayers to the private sector.

Archival Tape -- Oliver Yates:

“So effectively, three point five billion dollars gets transferred from the value of value. Gets transferred from the taxpayer to the private sector by that statement.”

RUBY:

And so, Mike, ultimately, what does this actually mean for the environment? What is the effect of all of this on efforts to actually reduce emissions?

MIKE:

Well, we'll have to see to some extent how it plays out right now. If you're a big climate polluter wanting to buy offsets, it's just become cheaper to do so. But some in the sector believe that demand is so strong that the price will rebound. So on one side of the ledger, anything that imposes a cost on carbon is a good thing.
But we should also note that the government has promised to invest more money in creating more ACCUs, and there is a question about the quality of some of those accused. Late last year, for example, Taylor announced changes enabling carbon capture and storage projects to be registered as carbon credit projects. So, you know, carbon capture and storage is a pretty discredited technology, and they've already handed some out to gas miners, for example, giving them credits for projects that environmentalists say will yield only illusory reductions in pollution. They won't actually result in any carbon abatement at all.

So I guess the lingering question here is whether this extra liquidity in the market will buy real abatement or simply give cover to fossil fuel industries and other dirty enterprises to continue with business as usual.
And we shouldn't forget who's running this show. You know, it's Angus Taylor, it's Mr. Gas-led Recovery. His track record and that of the government is one of slow walking the shift from fossil fuels to renewables wherever they can.

And I should add here that Labor is is only a little better.

So in summary, yeah, I guess this is a small step in the right direction, but on its own, it's not nearly enough.

RUBY:

Hmm. Mike, thank you so much for your time.

MIKE:

Thank you.

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RUBY:

Also in the news today:

According to the Ukrainian government at least 100,000 people are trapped in Mariupol.

Ukraine’s president Volodymyr Zelensky said the continued Russian siege of the port city has left many residents without access to water, food or medicine.

Zelensky said ongoing peace talks with Russia were tough and confrontational but said quote "step by step, we are moving forward."

**

And, World number 1 tennis champion Ash Barty has announced her retirement from the sport at the age of 25.

The Australian tennis star delivered the news in a statement on Instagram on Wednesday, saying “Today is difficult and filled with emotion for me.”

In the statement Barty wrote that she was thankful for everything the sport had given her and that she would leave tennis feeling proud and fulfilled.

This is 7am, I’m Ruby Jones, see you tomorrow.