Wednesday, July 16, 2008

It's now called "Australia's Carbon Pollution Reduction Scheme"

And at first glance it looks pretty good.

The main thing missing as far as I can see is Garnaut's brilliant multiple-trajectory arrangement for helping get the rest of the world on board and adjusting to the new reality when it does.

The related thing that seems to be missing is any ability to strengthen (or weaken) the target in the light of genuinely new information. Even the scheme proposed by the previous prime minister's Emissions Trading Task Force had that.

Below the fold are some bits that I have cut and pasted to summarise today's Green Paper...

Mechanics of a cap and trade emissions trading scheme

Step 1: Significant emitters of greenhouse gases need to acquire a 'carbon pollution permit' for every tonne of greenhouse gas that they emit.

Step 2: The quantity of emissions produced by firms will be monitored and audited.

Step 3: At the end of each year, each liable firm would need to surrender a 'carbon pollution permit' for every tonne of emissions that they produced in that year.

The number of 'carbon pollution permits' issued by the Government in each year will be limited to the total carbon cap for the Australian economy.

Step 4: Firms compete to purchase the number of 'carbon pollution permits' that they require. Firms that value carbon permits most highly will be prepared to pay most for them, either at auction, or on a secondary trading market. For other firms it will be cheaper to reduce emissions than to buy 'permits'.

Certain categories of firms might receive some 'permits' for free, as a transitional assistance measure. These firms could use these or sell them.

What's in our scheme

The Government's commitment to reduce emissions by 60 per cent from 2000 levels by 2050 provides a longer term anchor for the emissions trajectory.

The Government proposes that scheme caps could be set for five years in advance, or longer in the event that international obligations extend beyond this. Scheme caps would be extended by one year, every year, to maintain a constant five-year cap horizon.

The Government proposes that beyond the five-year period of scheme caps it will identify a range within which future scheme caps will be set—a 'gateway'. As the Government extends caps, it must choose figures that lie within the gateway. Gateways are proposed to extend for 10 years beyond the scheme caps, and to be extended by another five years, every five years.

In 2008, the Government proposes to announce a methodology for setting scheme caps for the period 2010–11 to 2014–15, consistent with the national emissions trajectory. In early 2010, the Government will announce the finalised scheme caps for the first five years of the scheme (2010–11 to 2014–15) based on the decision rule.

The scheme is estimated to place obligations on around 1,000 liable firms, covering the bulk of national emissions. More than 99 per cent of all firms in Australia will not need to be directly involved in the regulation of emissions or be required to purchase permits.

The Government does not consider that it is practical at this stage to include agriculture emissions in the trading scheme at commencement. While the Government is disposed to eventually include agriculture, it has decided that the earliest that agriculture should enter the Carbon Pollution Reduction Scheme would be 2015, with a final decision on inclusion or exclusion to be made in 2013.

There will be an fixed maximum price of permits to start with, making the scheme something like a McKibbin hybrid

The Government also proposes that there be a cap on the price that businesses would be required to pay for permits from the period 2010–11 to 2014–15. This would act to cap not only the costs of individual firms but also the costs of the scheme overall. The Government intends to set the price cap at a level that is above the estimated market price of permits. The intention is that this cap on compliance costs only be used in exceptional circumstances, but it would exist to counter circumstances that would not be consistent with a measured start to the scheme. The price cap would be reviewed at the first review point for the scheme.

Fuel gets special treatment

The Government will cut fuel taxes on a cent for cent basis to offset the initial price impact on fuel associated with the introduction of the Carbon Pollution Reduction Scheme. The Government will periodically assess the adequacy of this measure for three years and adjust this offset accordingly. At the end of the three year period the Government will review this adjustment mechanism.

For heavy vehicle road users, fuel taxes will be cut on a cent-for-cent basis to offset the initial price impact on fuel associated with the impact of the Carbon Pollution Reduction Scheme. The Government will review this measure after one year.

And the money raised goes to...

Every cent raised for the Australian Government from the Carbon Pollution Reduction Scheme will be used to help Australians – households and business – adjust to the scheme and to invest in clean energy options.

Based on currently available information, the Government's preferred position is to allocate up to around 30 per cent of carbon pollution permits to emissions-intensive trade-exposed activities.

To ameliorate the risk of adversely affecting the investment environment, the Government proposes to provide a limited amount of direct assistance to existing coal-fired electricity generators.