EMISSIONS TRADING SCHEME FOR AUSTRALIA

At last. The newly elected Australian government seems to be responding to climate change in a positive way after the release of the Climate Change Review report from Prof Ross Garnaut, a Climate Change Economist.

On the 7.30 Report on ABC TV tonight it appeared that the economics of not taking a forward-thinking stance on this was recognised by Penny Wong (minister for climate change) and the Government as ultimately costing the country more than bowing to the pressures of the big polluters, such as the coal-fired power stations that Australia has survived on for a century. An Emissions Trading Scheme (ETS) has been recommended by the review as the most efficient means by which to achieve the carbon reductions required as compared to other market instruments such as a carbon tax, as explained below:
"...To mitigate climate change effectively, a limit must be placed on rights to emit
greenhouse gases to the atmosphere, and this must be reduced over time to the level
that prevents any net accumulation in the atmosphere. Governments, with their coercive
powers, are the only bodies able to impose such a restriction.
Under the ETS, this supply-side constraint is imposed by governments creating “permits”
that allow the holder of the permit to emit a specified volume of greenhouse gases to the
atmosphere. The demand side of the market is established by the government requiring
emitters to acquit permits if they wish to release greenhouse gases to the atmosphere. In
so doing, the government must have the administrative machinery to enforce such a
requirement credibly, as the requirement only exists by virtue of government decree."

Interestingly, the coal-power electricity companies are saying that they have been providing power for Australia all these years and should be given free certificates, and not have to buy them on the open market. I expected the government minister for climate change to dodge this issue but she faced it head on, claiming that they have had plenty of time to research schemes to deal with the carbon emissions of burning coal, such as carbon sequestration (ie burying it in the ground) and cannot now claim they didn't know this was coming. Moreover, she was clear that this may mean that some coal-fired power stations may go out of business as a result of the ETS.

As for compensation, the report is well-written and clear. Basically, what I understand in a glance through the paper and from the TV interview is that those communities that suffer because of the loss of many jobs in these effected industries will be able to apply for structural adjustment assistance. This does not mean that the companies can claim foul play and be paid out but that the communities may be compensated for the fact that the companies did not make adequate changes to secure their employment. If I have understood this correctly, then this points the finger fair and square at industries to get on with getting prepared and to stop trying to change the policy!

This next paragraph explains why all governments into the future must adopt these recommendations and not promise any compromise:
"...The faith participants have in the enduring nature of the institutional behaviour will
fundamentally influence all aspects of the ETS. It depends on the ongoing commitment
of policy makers
Institutional credibility is often acquired through reputation based on a history of
demonstrated commitment to established rules and observed behaviours (especially in
crises), and therefore takes time to develop. In the case of climate change policy, it will
also be influenced by the actions of other governments and indications of their
commitment to reducing emissions. This will be the case regardless of whether it is a
domestic or international institution.
Should institutional arrangements lack sufficient credibility, the market agents will factor
into their decisions and actions risk premiums or discounts in anticipation of institutional
failure. As the price does not reflect the true scarcity value, this behaviour results in suboptimal
resource allocation decisions and a deadweight loss to society."

For more details, please read the report. I am sure this is the beginning of a significant change in the attitudes of Australia and may help us to be a leader in our geographic zone, which I see as a first step in bringing Asia into this with us. This is just one part of the total review and I look forward to reading and hearing about other aspects.

Just as an aside - I do not hold a particular political view but I am hoping to find some leadership emerging in environmental awareness and action that no other previous Australian government has ever shown to date.