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setting ones cap

Carbon Pollution Reduction Scheme

The Carbon Pollution Reduction Scheme is a cap-and-trade system of emissions trading for anthropogenic greenhouse gases, due to be introduced in Australia in 2010 by the Rudd government, as part of its climate change policy, marking a change in the Energy policy of Australia.

History

In the election year of 2007, both the Liberal-led Coalition government and the Labor opposition promised to introduce carbon trading. Opposition leader Rudd commissioned the Garnaut Climate Change Review on 30 April, while prime minister John Howard announced his own plan on 4 June, after the final report of the Prime Ministerial Task Group on Emissions Trading. Labor won the election on 24 November.

Green Paper

In response to Garnaut's draft report, issued on 4 July, the Labor government issued a "Green Paper" on 16 July, describing the intended design of the carbon trading scheme. Draft legislation will be released in December 2008, to become law in 2009.

The Carbon Pollution Reduction Scheme, as outlined in the Green Paper, is a market based approach to carbon pollution, to be implemented in 2010 (Department of Climate Change, 2008, 9). The main concern for the Australian government at present is getting the design of such a scheme correct, in order that it will complement the integrated economic policy framework, and need to be consistent with the Government’s commercial strategy (Department of Climate Change, 2008, 10).

The objective of the Carbon Pollution Reduction Scheme is to meet Australia’s emissions reduction targets in the most flexible and cost-effective way; to support an effective global response to climate change; and to provide for transitional assistance for the most affected households and firms (Department of Climate Change, 2008, 14).

The basis of a Carbon Pollution Reduction Scheme is a cap and trade system, and is a way of limiting greenhouse gas pollution, as well as giving individuals and businesses incentives to reduce their emissions (Department of Climate Change, 2008, 11). The first step for the Australian Government is to set a cap on carbon emissions, which must be consistent with longer term goals of reducing Australia’s emissions by 60% compared with 2000 levels by 2050 (Department of Climate Change, 2008, 11).

There are two definite elements of the cap and trade scheme- the cap itself, and the ability to trade (Department of Climate Change, 2008, 12). The cap is the limit on greenhouse gas emissions imposed by the Carbon Pollution Reduction Scheme. The system aims at achieving the environmental outcome of reducing greenhouse gas emissions, the idea being that capping emissions creates a price for carbon, and the ability to trade assures that emissions are reduced at the lowest possible price (Department of Climate Change, 2008, 12). Setting a limit means that the right to emit greenhouse gases becomes scarce—and scarcity entails a price. The Carbon Pollution Reduction Scheme will put a price on carbon in a systematic way throughout the economy (Department of Climate Change, 2008, 13).

The ‘covered’ sectors are emissions that are subject to the cap, which are specified by the Government under the Carbon Pollution Reduction Scheme (Department of Climate Change, 2008, 12). Once this is established, and after setting the cap, the Government then issues permits that are equal to the cap. The Green Paper gives the example “if the cap were to limit emissions to 100 million tonnes of Co2-e in a particular year, 100 million ‘permits’ would be issued that year” (2008, 12). With each tonne of emissions from a firm that is responsible for emissions covered by the Carbon Pollution Reduction Scheme, they are required to acquire and surrender a permit (Department of Climate Change, 2008, 12). As yet there are no limits or caps imposed on individual emitters or sectors.

There are around 1000 firms that are under obligations from the Scheme, which covers the bulk on national emissions. This means that 99% of all firms in Australia will not need to purchase permits for their emissions.

However, the price of emissions resulting from the Carbon Pollution Reduction Scheme will increase the cost of those goods and services that are most emissions intensive (Department of Climate Change, 2008, 13). This means that there will be a change across the prices of goods and services across the economy, reflecting how emission intensive the goods or service is. This therefore provides businesses and consumers with incentives to use and invest in low emissions technologies.

The second essential element of a cap and trade scheme is the ability to trade. Since carbon pollution permits will be tradeable, the price of permits will be determined by the market (Department of Climate Change, 2008, 13). The main idea behind this part of the scheme is that a firm who can undertake abatement more cheaply than the permit price will, and that a company will pay for permits if the cost for them is more to change than the cost of the permits. By trading amongst themselves, firms achieve the scheme cap at least cost to the economy (Department of Climate Change, 2008, 13).

The cap will only achieve the desired environmental objectives if it is enforced. This means that firms responsible for emissions covered by the Carbon Pollution Reduction Scheme must monitor their emissions and report to government (Department of Climate Change, 2008, 12). Arrangements for the assurance of reported emissions data are required.

See also

Notes

Bibliography

Department of Climate Change (2008), Carbon Pollution Reduction Scheme: The Green Paper
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