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Wednesday 19 March 2008 (Updated Tue 25 March 08)

RAPID ROUNDUP: Garnaut Emissions Trading Scheme discussion paper - experts respond

Professor Ross Garnaut has released his much anticipated discussion paper on Australia’s Emissions Trading Scheme(ETS). This paper puts forward for community discussion a set of principles and design features for the delivery of an ETS. The discussion paper forms part of the Garnaut Climate Change Review which was commissioned by Australia's State and Territory Governments on 30 April 2007. The Prime Minister of Australia has confirmed the participation of the Commonwealth Government in the Review. This final report is due out later this year.

Copies of the discussion paper are available from the Garnaut Review website

Feel free to use these comments in your stories. If you would like to speak to one of these or other experts, please don’t hesitate to contact us on (08) 8207 7415 or by email.

Dr Mark Diesendorf is from the Institute of Environmental Studies at the University of New South Wales.

"This excellent discussion paper proposes an emissions trading scheme that could make an effective contribution to the reduction in Australia’s greenhouse gas emissions, while recognising the needs of low-income earners and trade-exposed emissions intensive industries and their employees. The paper correctly identifies the need for a simple scheme with broad coverage, independent governance and 100% auctioning of permits.

One of the virtues of this paper is its firm refutation of the fallacy, disseminated by some vested interests, that a free allocation of permits would somehow reduce the price of permits, electricity and other emissions-intensive products. As demonstrated by the European scheme, free allocations distort the market and undermine the effectiveness of the scheme.

Some aspects of the paper need further examination:

•  The notion that emissions reductions should follow a precisely defined trajectory, or set of trajectories, may be theoretically elegant, but needs to be supplemented with some firm interim targets between now and 2020 to provide greater practical effectiveness.

•  Upon a quick initial reading, it is unclear whether the paper is recommending that the emission permits would be temporary licences or permanent property rights. I’m opposed to the latter, because they would hinder a rapid tightening of targets if global warming continues to accelerate.

•  The notion that permits could be lent and borrowed could undermine the effectiveness of the scheme. This is not the kind of market ‘simplicity’ that would be helpful to the fundamental goal of the scheme.

Finally, I disagree with the stance of Professor Warwick McKibbin, who appears to support an ‘emissions trading scheme’ with a price target but no emissions target. Such a scheme is neither fish nor fowl and would not be effective in reducing emissions. If a price target is chosen, then a carbon tax is the simplest mechanism. I would support a carbon tax, but in the absence of choice, then an emissions trading scheme with emissions targets for various years and auctioned permits is the way to go. "

Professor Warwick McKibbin is Executive Director of the Centre for Applied Macroeconomic Analysis (CAMA) at the Australian National University. He is also a Board Member of the Reserve Bank of Australia.

“Much of the discussion in the ETS trading scheme discussion paper is very good. Unfortunately the core of theETS discussion paper proposals draw too heavily of the flawed design of the European trading system based on a cap for emissions. The fundamental uncertainty that underlies climate change is noted but then ignored in the basic design of the system.The ETS discussion paperassumes that there is known emission budget and starts from that base, yet the science only gives ballpark estimates of what this budget might be. A budget is better than an arbitrary emissions path but it still ignores a basic fact about climate uncertainty.This assumption of a given carbon budget then drives an approach that would be sensible if the initial premise was correct. But is it not. We know from the environmental economics literature that a price target rather than a quantity target is the best way to deal with the economic costs of climate change uncertainty - yet the draft report ignores the economics in preference tothe ideological. This is clear from the blanket ruling out of a short term price cap to reduce unnecessary short term price volatility as we learn about the cost of abatement and gather new information on climate change. What is needed isto create long term markets and property rights traded in those markets with clear long term price signals not a range of ambiguous revisions every five years along four possible discrete profiles.It is also important to balancethe revenue going to government with the need for a large part of the revenue to go to those who reduce emissions through direct trading of long term rights to carbonnot via large sums of money being channeled by government officials.There are other more technical issue of time consistency (i.e. how to prevent future governments from changing the policy) that are not dealt with in the approach in the paper but is dealt with in other approaches that are in the literature.

“The Prime Minister's Task Group on Emission Trading report in 2007 although with some flaws was much closer to the desirable permit market design than the ETS Scheme Discussion paper proposes.”

Dr Peter Cook, is Chief Executive of the Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC).

“The Report is welcomed in that it recognizes the need for Government to correct ongoing market failure associated with research, development and commercialization of low emission technologies. Put simply, some of the cash collected through an ETS would be used to meet the currently-high cost of deployment of technologies in order to produce real cuts in emissions at a realistic price. This approach is urgently needed if we are to get on with the task of large scale deployment of low emission electricity starting in 2015 or thereabouts, which is what is required if the Government’s targets for emission reductions are to be met. “

Mr Barney Foran is visiting fellow at the centre for Resource and Environmental Studies at the Australian National University. He led the Resource Futures Programme at CSIRO Sustainable Ecosystems and has a background in agriculture, ecology and physical economics.

“A reputable and robust opening for the Garnaut team on the emissions trading scheme. The most important issues flagged are imposing an aggressive but flexible long term reductions trajectory, the auctioning of permits, forming an independent carbon bank, the ability to hoard permits long term, and finally thecomprehensive coverage of sectors and emissions types.

“Three key issues are left unresolved to date. The first is the use of a revenue bonanzabya Federal Government of whatever persuasion, who will attempt spend their way to electoral acclaim and thusundo greenhouse savings. Today's press is already full of industry freeloaders making their ambit claims. The second is the signal that coal miners and traditional electricity generators need special closeting to help them implement the unproven carbon capture and storage technologies. These sectors should be seen first as energy producerswho havea wide array of cost efficient options available to supply low carbon energy services. Let market rule.....finally. Thirdly, the review team must know by nowhow aggressive reductions will impact on the volume and composition of our affluent and physical lifestyles. Some clear signals will be helpful toprod political leaders on from theirfetishes forlight bulbs and plastic bags.”

Ben McNeil is a Senior Research Fellow at the University of New South Wales' Climate Change Research Centre.

"The emissions trading scheme will be one of the most important mechanisms in driving Australia towards low carbon economy. It is encouraging to see that Professor Garnaut in this discussion paper, among other things, advocates an 'independent carbon bank' and the auctioning of pollution permits. If implemented, both these measures will substantially help in creating a bipartisan, broad-based and effective scheme which will give Australia an economic advantage in a century where the world will undoubtedly move to low carbon sources of energy."

Mr John Connor is the CEO of The Climate Institute

“This is a straight forward - and potentially effective - model, there are many positive initiatives outlined in the proposal – including recommendations to separate auctioning and operation, from adjustment assistance to affected families, workers and business. It is clear that the government will generate a multi-billion dollar revenue stream from emission trading.

“Further, Professor Garnaut recognises that helping low income communities into the low carbon economy should be a top priority for Government. However, The Climate Institute remains concerned with proposals that would see Australia putting in place softer short-term climate targets - which may weaken our international negotiating position.”

“The report makes stark Australia’s historic opportunity to demonstrate leadership in the lead up to the UN Conference on Climate Change, to be held in Copenhagen next year. This report recognises that implementing strong policies on climate change is now in Australia’s national interest. Unless we signal that we are prepared to turn around our emissions by 2012, it will be difficult to secure a favourable agreement.

“A transition to a low carbon economy will require bold leadership and meaningful targets.”.

David Pearce is Director & Principal Policy Analyst at the Centre for International Economics, Canberra

“As would be expected, Professor Garnaut has provided a reasoned and clear discussion of the broad principles that need to be taken into account when designing Australia’s emissions trading scheme. This discussion paper is one of many such broad papers that have been in the public domain for at least the last decade. What is sorely needed now is a practical outline of how the Australian scheme will really work. Will Minister Wong be able to take these principles into the real world of economics and politics? And will the government be able to communicate the subtleties of emission trading design to a public that will feel the costs of climate policy long before they feel the benefits?”

Professor Barry Brook is Sir Hubert Wilkins Chair of Climate Change and Director of the Research Institute for Climate Change and Sustainability at Adelaide University.

"An effective, workable and publicly supported Emissions Trading Scheme (ETS) is absolutely crucial. Without an effective top-down cap on emissions, meaningful carbon mitigation is a pipe dream. The full gamut of mandatory renewable energy targets, voluntary energy intensity goals and aspirational long-term emissions reduction goals are ultimately pointless unless the total amount of carbon entering the atmosphere is brought down rapidly and on a sustained basis. The Garnaut Climate Change Review's view on an ETS is that Australia must get this right, avoiding the mistakes of the past and putting Australia at the forefront of international carbon policy. But without well-planned structural changes to our economy and good governance, and ETS is doomed.

“A key point this report raises is the use of permit revenues. If these are used unwisely, they risk transferring wealth unfairly across socioeconomic groups, increasing pressure on inflation and doing nothing to help society adapt to already committed climate change. Garnaut recommends auctioning all permits (forget the free handouts to "special cases") and using the money raised by mitigation to tackle inevitable inequities and correct for market failures. I think some of these new funds should also be reserved for active adaptation measures, such as developing sustainable business practices with acknowledge the problem of "shifting baselines" and eroded natural capital, and building resilient infrastructure and public services to help people and industry cope with more frequent and intense extreme events. It presents a remarkable opportunity to make a rapid transition to a truly sustainable future, if we can just get the process on the right track and keep it sufficiently flexible to be able to deal with inevitable changes in future circumstances (including potentially more rapid climate change)."