What is emissions trading?
Greenhouse gases (such as carbon dioxide) produced by human activity are contributing to global warming. Because this pollution occurs without any economic penalty there is no disincentive to stop or reduce it. Placing a cost on carbon dioxide and other greenhouse gases makes it more expensive to pollute so that less and zero polluting industry and fuels are made more economically attractive. A cap (linked to reducing the environmental damage) is put on how much of this pollution can be emitted and this creates a market where some industries that can't avoid their pollution have to pay for it; or invest in new technology and practices; or buy ('trade') a 'permit' from another business that is emitting below its own cap (known as an 'offset'). This type of emissions trading scheme ('ETS') is known as 'cap and trade'.
Is it better than a carbon tax?
Yes, because a carbon tax is not connected to a pollution reduction cap. It is just a charge which some economists suggest will, through the workings of the market, increase prices and create an incentive for business and consumers to change their behaviour and switch to green products. However, the tax rate will become a political football and because it is not directly connected to the environmental goal of reducing greenhouse pollution, it (rightly) has less credibility with the community.
Why are environmentalists seeking a strong cap on pollution?
The scientific consensus is that we need to take significant steps to reduce pollution – and quickly – to avoid dangerous climate change. See the Intergovernmental Panel on Climate Change.
Should permits be given away for free?
It is important that permits are auctioned and not given away ('grandfathered'). This will mean that the pollution is given an economic cost, otherwise there will be no incentive for the polluters to change their ways, and no opening created for green industry and energy. Also the more free permits allowed (for example to the coal fired power sector) the more pressure on other sectors of the economy to meet the cap – this would be very inequitable. Finally as a result of auctioning, significant funds will be produced and these can be used to support energy efficiency, low income people, training for new green skills in the workforce and protection of biodiversity.
When will the ETS begin?
ETS legislation will incorporate the Garnaut Review, the Green Paper, the Wilkins Review, economic modeling by the Australian Treasury, and work already completed at the Federal, State and Territory levels. The draft ETS legislation is expected by the end of 2008. Federal Parliament will consider the Bill between March and June 2009. During 2009, consultation will be undertaken regarding emissions trading regulations. Around September 2009, the ETS Act is intended to enter into force and an ETS regulator established. The ETS will commence operation in 2010.
Who will have to pay for the ETS?
The introduction of a carbon price, through the ETS, will affect every company in Australia, boosting the cost of electricity, transport and fuel. It’s our investment in the future of the environment for ourselves and future generations.
What is an 'TEEI' industry?
'TEEI' stands for 'trade-exposed, emissions intensive'. The industries that meet the Government's definition of TEEI and are likely to be most impacted financially by the ETS may be entitled to compensation or protection because they will be competing with businesses that do not as yet come under an emissions trading scheme. However, it should be noted that many countries (eg, European Union) and American states are adopting an ETS. Currently, many companies are trying to prove that they are eligible for TEEI compensation.
Will my bills increase?
Under the ETS, it is expected that petrol and electricity prices will increase. However, a report by CSIRO and the Australian National University predicts that people will hardly notice the price rises because incomes will rise much more quickly, outstripping energy price rises. The ETS is likely to increase energy prices relatively slowly, over a long period of time. In the short term, however, low-income households could be worse off in the short term. Climate Change Minister Penny Wong has said the Government will include measures to assist Australian households to adjust to the impact of a carbon price.
Why do we need the mandatory renewable target (MRET) and energy efficiency schemes as well?
Even though an emissions trading scheme will come into operation in 2010, it will start slowly and prices will not rise steeply. This allows industry and the community to adjust, however it also means we may not reduce pollution fast enough. MRET will accelerate the introduction of wind, solar and other green power – which need to be pushed towards greater commercial viability by having a bigger market to service. By 2020 the government plans to have 20% of our energy being produced from renewable sources. Energy efficiency also needs to be pushed along (which will help protect all consumers from price rises) as it can give quick pollution reduction gains. State governments are introducing efficiency targets for electricity retailers and mandating energy savings plans on big business in the absence of equivalent federal programs. What is the Garnaut Review?
The Garnaut Climate Change Review is an independent study by Professor Ross Garnaut, which was commissioned by Australia's Commonwealth, State and Territory Governments on 30 April 2007. The Review is examining the impacts of climate change on the Australian economy, and will recommend medium to long-term policies and policy frameworks to limit Australia's greenhouse gas emissions. The Review's Draft Report is due by 4 July 2008, with the Final Report due on 30 September 2008. The Garnaut Review will be a significant source of input to the final ETS and associated legislation.
You can make a submission to this review. What is the Climate Change Minister’s Green Paper?
A Green Paper is a paper prepared by Government for public discussion and consultation purposes, and is usually followed by a White Paper that then forms the basis of a law to be presented to Parliament. A Green Paper outlining the form and structure of the ETS is expected from Minister Wong and the Department of Climate Change on July 16 2008, and will draw on preliminary consultations. The Green Paper will canvass options and preferred approaches on issues, such as which industry sectors will be covered and how emission caps will be set. It will also include ways to address the impacts of emissions trading on Australian households, emissions-intensive trade-exposed industries and other strongly affected sectors. Minister Wong has also stated that this Green Paper will propose measures to assist Australian households to adjust to the impact of a carbon price.
You can make a submission to the Green Paper. What is the Treasury modeling on ETS?
The Garnaut Review and the final design of emissions trading will also be informed by economic modeling currently being undertaken by the Australian Treasury. This is due for completion during August. What is the Wilkins Review?
Citigroup's Roger Wilkins, a former top NSW bureaucrat, was appointed by Climate Change Minister Penny Wong and Finance Minister Lindsay Tanner to lead a review to ensure Australia's climate change policies complement an emissions trading scheme. The Wilkins review is due to report to government in July 2008. Roger Wilkins has a record as a conservative economist. |
What is Emissions trading?
