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Client Update: Climate Change – 1 June 2007Prime Minister's Task Group on Emissions TradingIn brief: The Prime Minister's Task Group on
Emissions Trading has released its long-awaited findings. Partner John Greig The Task Group was commissioned by the Prime Minister on 10 December 2006 to advise on the form of an emissions trading scheme in Australia. Key observations and recommendations by the Task Group include the following. NeedIncreasing scientific consensus is that human action is contributing to climate change. Climate change requires a long-term global solution. Can we wait?There is already evidence that investment in key emissions – intensive industries and energy infrastructure is being deferred in Australia. It is unlikely that in the short to medium term international action will provide an adequate solution, notwithstanding much work and cooperation at the bilateral and regional levels. On balance, there is a benefit in Australia moving now to set post-2012 carbon constraints. In the medium to long term, a workable global emissions trading scheme is likely and Australia's response in the interim needs to be flexible enough to fit within that scheme, without undue transitional disruption.
The proposalIt is recommended that there be introduced a cap and trade scheme, with a carbon price set by the market. A carbon tax is not preferred. The emissions trading scheme would be based on an overall emissions trajectory that commences moderately, is progressively stabilised, then allows for deeper emissions reductions over time. It is also recommended that the scheme be national in scope and administration. In principle, all sectors should contribute to greenhouse gas reductions, though measurement uncertainties and compliance cost issues suggest that some (agricultural and land use emissions) be initially excluded and, further, that the practicality of inclusion of a small number of additional activities (including waste emissions) should be the subject of further investigation. There is a strong case therefore for all energy, industrial and fugitive emissions to be included in the scheme from the beginning. A 'long-term aspirational emissions abatement goal' should be set for reducing greenhouse gases. The Government would also set a series of shorter-term annual quantity caps. Careful modeling of the impact of various targets and their impact on Australia's economic growth and competitiveness will need to be undertaken before selecting longer-term emission reduction targets. Permits will be of three types:
The Task Group has not nominated a cost of carbon, indicating that it is preferable that the targeted reduction in emissions first be established and that the market establish the cost of carbon – albeit in a transitional period, within a trajectory geared to the rate at which the economy can adjust so as to ensure that the short to medium term costs are manageable.
And there's moreAn emissions trading scheme is not in itself enough. There remains a role for government in setting regulatory standards, supporting technological innovations (without championing particular technologies) and encouraging changes in household behaviour. The Task Group warns that favouring specific technologies or ruling out alternatives will simply make the task of fighting increasing emissions that much more difficult. The Report also strongly emphasises the importance of forests as a potential source of offsets. This will put Australia at odds with the EU Emissions Trading Scheme, which does not allow forestry as a legitimate source of abatement. Timing (and the difference)While accepting the urgency of moving to address climate change, the Task Group warns against precipitous action. It stresses that significant further study needs to be undertaken in order for the correct parameters to be identified. In a call for inclusiveness, the Task Group urges that further work build on that already undertaken by the Task Group and, where possible, the work of the states' and territories' National Emissions Trading Taskforce. In suggesting a timetable such that emissions trading would commence in 2012 (or possibly 2011 if a decision is made this calendar year) the Task Group recommendations fit neatly within the Commonwealth Government's stance that its policy objectives have been to meet its Kyoto Protocol target of restraining emissions in the period to 2012 to 108 per cent of 1990 levels. This is at odds with the states' proposals to press for schemes to commence earlier, in 2010. It remains to be seen whether the states press ahead with their proposals and the extent to which they can be made complementary, not only to the Commonwealth's proposals, but wider international schemes as they inevitably develop in the coming years. We will continue to keep you informed on developments in this area.
For further information, please contact:
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