Australia repealed its carbon tax — and emissions are now soaring

Back in 2011, Australia’s Labor Party enacted a national carbon tax as a way of tackling global warming. The tax took effect in 2012, and emissions promptly fell over the next two years. But the policy was also highly unpopular with voters.

The chart comes from Mike Sandiford, an energy expert at the University of Melbourne. He explains what happened: “During the years of carbon pricing [2012-‘14], hydro was being dispatched at unsustainable levels. Since repeal, the reduction in hydro output has been substantially picked up by brown coal generators in Victoria.” Let’s break that down:

In 2011, Australia’s Labor government first enacted a carbon tax that charged people $23 for every ton of carbon dioxide they emitted. It covered 60 percent of Australia’s economy — including its power plants. (The tax was then scheduled to transform into a cap-and-trade system with a flexible price by 2015.)

The tax went into effect in July 2012, and Australia’s electricity sector responded by reducing the amount of brown coal it burned and ramping up hydropower generation. Operators were squeezing more and more electricity out of existing dams. Carbon-dioxide emissions from the power sector dropped roughly 9 percent in the first six months after the tax went into effect.

But in a lot of ways, that drop was unsustainable. Many hydropower operators were simply depleting existing reservoirs to generate more electricity — reservoirs that would be hard to replenish if the country suffered more drought. Some of these utilities were essentially betting that the carbon tax would either be repealed or that the price would plummet when the cap-and-trade system appeared in 2015.

That bet paid off. The carbon tax proved highly controversial, the Labor Party lost power, and Tony Abbott’s Liberal Party repealed the tax in July 2014. All of the sudden, those utilities had incentive to stop using hydropower and ramp up production from brown coal generators in Victoria. As a result, power-sector emissions are expected to rise an unprecedented 9 percent this year.

“In effect we will have just about zeroed out the emissions reductions achieved over the last few years,” writes Sandiford.

In theory, Australia is still trying to reduce emissions to 5 percent below 2000 levels by 2020. The government recently set up a $2.25 billion fund from which it will pay companies to become more energy-efficient. But critics argue that this fund is too ineffective to make a difference — and that without carbon pricing, it will be much harder for Australia to meet its goals.