Fed: What on earth is emissions trading?
By 2020, almost half the permits in the system will be doled out free, to business.19 Dec 2008 3:15 PM
CANBERRA, Dec 19 AAP - Don't understand emissions trading? Never fear - you are in very good company.
This week the federal government released its plan for emissions trading, which is Australia's main weapon against climate change.
The plan weighs in at 4kg and is a torturous 800 pages long.
Many people might prefer a one-page, plain English summary.
Here's an attempt.
Scientists say humans are cooking the globe through pollution. We are burning things like coal and petrol to make energy. This releases carbon dioxide into the air, which is messing with the climate.
So the aim is to reduce the amount of carbon pollution we're pumping out.
How do you do that?
Well, you can ask people to stop polluting so much, for the good of the planet. That doesn't seem to be working very well.
Or you can make them pay to pollute.
At the moment, you can pump out all the carbon pollution you want and you don't pay a cent for it. Pollution is free.
That's about to change, and that's where emissions trading comes in.
Emissions trading is a fancy name for a carbon tax. Australia is due to start one in 2010.
The scheme makes companies and industries pay for every tonne of carbon pollution they pump out.
This will force up the price of "dirty" products. The idea is, people will use less of them as a result. "Clean" products will seem cheaper.
For example, coal-fired electricity is cheaper than solar and wind power at the moment. But there's a problem - coal releases plenty of carbon dioxide.
Under emissions trading, coal-fired electricity will become more expensive, but solar and wind power won't. This will drive investment in renewable energy.
Emissions trading is not technically a carbon tax; it's a lot more complicated.
Companies who pollute will have to buy permits, rather than pay a set tax. This system is more flexible; companies can trade their permits, and the market will take over and find the cheapest way to cut pollution.
When the government released its greenhouse plan this week, most of the fuss was about the target to reduce carbon pollution by 5-15 per cent by 2020. What's that got to do with emissions trading?
Emissions trading is the mechanism to cut carbon pollution, but the 2020 target determines how hard the scheme will work. It sets the prices.
Once the government sets its final 2020 target, it will then set "caps" on how much Australia can pollute each year. Those caps will strongly affect the permit price.
So that's the theory of emissions trading; you pollute, you pay. But there's emissions trading, and then there's emissions trading. How does the Australian version measure up?
There are brutal, uncompromising schemes which hit the polluters hard and give no special treatment.
Or there are softly, softly schemes which partly shield the polluters to ward off any rude shocks to the economy.
Australia has gone for the latter.
Prime Minister Kevin Rudd's scheme will give out quite a lot of free permits to polluting industries. Some will get 90 per cent of their permits for free.
Two of Australia's three largest sources of carbon pollution will be left out of the scheme. Electricity is the biggest polluter; that's in the scheme. But agriculture is second, and that's out until at least 2015.
Petrol is the third largest polluter, and that's out until at least 2013. Logging emissions are also out.
Mr Rudd's scheme gives out plenty of money in compensation. It will act as a kind of tax churn, taking $12 billion in revenue each year, then handing almost all of it back as compensation to households and businesses.
And don't forget that the government might go to all this trouble for a five per cent cut in emissions in 12 years' time.
All up, environmental groups are not happy. They say the scheme is compromised and the message of "you pollute, you pay" will not get through.
But Mr Rudd says he must act responsibly during the economic crisis. He says he has to balance the environment with protecting jobs and the economy.
He says the chances of the world forging a tough climate pact soon are very low, so there's no point in Australia going it alone by radically reducing emissions before 2020.
There's no denying that perfect emissions trading schemes are in short supply worldwide.
Very few countries have one at all. The European Union does, but theirs is softer than ours will be.
Australia will be one of the leaders in bringing in an emissions trading scheme. Australia is among the leaders in officially setting a 2020 pollution target.
Australia is acting early. But that action is quite modest, so there's a chance other countries could overtake it before too long.
