Saturday, March 22, 2008

Garnaut's Emissions Trading Scheme: I like it!

Faced with demands from business for a simple emissions trading system, Professor Ross Garnaut has come up with just about the most simple one possible.

And the key to its simplicity?

All Australian carbon emitters - every one - will have to pay for their permits.

As he told me, "the complications in most schemes are about free allocation of permits"...

"You need very elaborate processes to give things away."

Some polluters will be compensated for the cost of the permits - those
that are trade-exposed, such as aluminum producers that compete with
plants in nations where they're aren't emissions trading schemes.

But they will be paid in cash, and they are they are going to have to
front up each year and make a case for that cash. As more and more of
our competitors introduce trading schemes those cases will be harder
to make.

Garnaut is none too complementary about the ideas presented to the
previous Prime Minister by the head of his emissions trading taskforce
Dr Peter Shergold.

"The Howard-Shergold arrangement had some genius working out in
advance what the loss of profits was going to be through some
clairvoyant process and then handing out permits. I actually think
that would have been administratively impossible, but had it happened
it would have been some enormously long elaborate process."

Business also wanted certainty and Garnaut is keen to deliver.

He says right at the start the government would set out not only a
target for emissions reductions but also a trajectory outlining by how
much emissions will be introduced along the way.

Business had been worried that down the track the targets and
trajectories would be made tougher.

So Garnaut has proposing letting business know right at the start what
the tougher targets and trajectories would be. Businesses would know
for that for the moment they are operating on Trajectory A, but that
if (or when) other countries come on board Australia would move to
Trajectory B. They would be given five year's notice of the change.

As he told me, "businesses want information, I am proposing to give it
to them. They can make their commercial decisions accordingly".

Spelling out the future trajectories up front makes it hard for
businesses to later lobby for weaker trajectories than would otherwise
be the case.

By spelling them out up front her saves them the bother, or as he
tells me, "reduces uncertainty".

Any by spelling out Australia's alternative trajectories to the world
we would be putting something valuable on the table in our
international negotiations.

The biggest problem in such discussions is that neither side knows
that it can trust the other. Garnaut has provided a way out. Under
the scheme he is proposing Australia would be able to say to China or
India, "look, we are telling the truth. If you sign up to an
emissions trading scheme, we will increase our target, and here's by
how much. It's already on our books."

Garnaut has also dealt with the unpleasant reality that Labor wouldn't
acknowledge as it stood for election in November: That the carbon
trading system it is planning to introduce will bring about much
higher energy prices.

He has asked the government to set aside some of the substantial sums
it will raise from auctioning carbon permits to compensate the
low-income households who are going to see their electricity bills

Climate change helped win the election for Kevin Rudd.

Appointing Ross Garnaut to advise him how to fight it looks like one
of the smartest decisions he has made.