Crikey asked three carbon trading experts to sketch out the key features of a workable, meaningful, and environment responsible carbon emissions trading system for Australia. Here are their responses:

Ian T Dunlop is a former senior executive in the oil, coal and gas industry. He chaired the Australian Greenhouse Office Experts Group on emissions trading from 1998-2000, and was CEO of the Australian Institute of Company Directors from 1997-2001.

The science in my view is saying that climate change starts at 450 parts per million (ppm) of carbon dioxide equivalent in the atmosphere, so the objective has to be to stabilise that figure. We’re now at 430ppm, and we’re currently increasing at 2ppm per annum, meaning we’ve got ten years — if we’re lucky — to turn these emissions down. Australian cannot hit that target on its own, but to play its role in the gobal effort, an Australian emissions trading scheme should aim to:

  • Help in contracting annual global carbon emissions from 8GTC today to 3.5 GTC by 2050, a reduction of 55%;
  • Reduce Australian emissions by 50% by 2025 and 90% by 2050.
  • Using a modified Kyoto Protocol to provide the framework for the contraction (ie, dropping global emissions) and convergence (ie, arrive at an equal per capita carbon allocation for everyone person on the planet) process, and for international emissions trading.
  • Meeting the national carbon reduction budget by a system of tradable energy quotas (TEQs) within Australia;
  • Negotiating a global Oil Depletion Protocol to allocate available oil equitably between nations, determining national oil descent budgets and providing for international trading;
  • Allocating oil domestically via a similar TEQ concept to emissions reduction.

Renee Garner, carbon trading policy expert

The eventual policy will need to take into account a complex range of issues, but here are three of the most crucial elements:

1. Deliver greenhouse gases reductions successfully and efficiently. Environmental integrity is essential. Binding emissions reduction obligations under the scheme must be such that emissions are reduced. The scheme should not provide some emitters with a free lunch, so to speak.

2. It needs to be compatible with international schemes and account for the varying political landscapes it will encounter overseas. Designing the scheme with the ability to link to other international schemes allows for a more frictionless entry into overseas markets in the future.

3. It needs to be economically sound in order to survive the vicissitudes of the global economic market. The amount and allocation of permits under the scheme must be seriously considered — over-allocation can result in a lower price per permit. Where over-allocation occurs, participants are not compelled to take action to reduce their own emissions more than business as usual.

To come back to the price of carbon, the system needs to be structured so the permits are valuable. If they are not, the bottom of the market could fall out, which will have a dampening effect on investor certainty. Many of these infrastructure projects are long term and have long term investment horizons. Certainty is absolutely necessary in that regard.

Steve Hatfield Dodds, Senior Policy Economist, CSIRO Division of Land and Water.

An Australia emissions trading system needs to balance two competing issues: We need a system that signals to the world and the Australian energy sector that we are serious about taking action, but that we are going to pay particular attention to our trade exposed industries. There’s a reasonable case for providing transitional insulation for aluminium and similar sectors, but that’s quite complicated. The task group’s response to the PM will need to consider that carefully.

The policy recommendations need to prepare Australia for any future engagement with a regional or international carbon trading system, and that relies primarily on having a scheme that bites. That is, a scheme must constrain emissions more than if you didn’t have a scheme at all. This is one of the key messages out of the Stern report. Although we need everybody playing on the same field, we don’t need everybody aiming for the same targets. China’s targets do not apply to the Australian system, but the Australian targets must provide for a meaningful abatement of our emissions. If we start the scheme by signalling we’re not going to cut emissions very much and then apply stricter emissions targets, that would have very large economic costs later on. Getting the balance right initially is crucial.

Then you’ve got criteria for assessing the policy recommendations. This forms the nuts and bolts of the scheme: Do they cover most emissions in Australia? Do they promote least cost abatement? Do they provide long term enough signal to really give business confidence for investment, given that power station last 50 or 60 years? These questions need to be applied to the final report.

The Prime Ministerial Task Group on Emissions Trading will deliver its report on Thursday, 31 May.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey