You’d assume from today’s media coverage that the Government’s proposed emissions trading scheme was not about addressing the massive historical threat of global warming, but about maximising handouts to businesses and households. All the emphasis is on who will win, who will lose, and by how much. You can’t say the media aren’t focussed on the big issues.

But to an extent it’s fair enough, because whatever else the emissions trading scheme announced by Penny Wong yesterday will be, it won’t be very good at cutting our carbon emissions.

OK, we don’t know the carbon cap and therefore the likely price of “Australian emissions units” (I love how we need to be patriotic even about our carbon pollution). Apparently this is some grievous omission from the debate, but I can’t quite see how. In signing the Kyoto Protocol, Australia committed to 108% of its 1990 emissions by 2012.

Almost certainly, this will be the initial carbon cap, and in the absence of an international agreement, will probably remain in place beyond 2012. Because we have slowed, if not stopped, the rate at which a minority of farmers engage in wholesale destruction of native vegetation, we’re on track to meet this cap. That is, we’re looking at a business as usual scenario in the early years of the scheme.

But even with a lower cap to put serious pressure on carbon prices, the scheme is unlikely to have a significant impact. It is, at best, a two-thirds scheme, because up to 30% of Australian emissions units will be handed out free to our biggest polluters.

The very biggest polluters in trade-exposed sectors have been guaranteed at least 90% of their emissions — albeit based on an industry average calculation – free. After 2015, when agriculture is scheduled to be brought into the scheme, the scheme’s effectiveness will increase to 80% — at that point the proportion of permits available as freebies is intended to drop to 20%.

The biggest polluter of all, the coal-fired power industry, has been promised assistance and free permits. Wayne Swan was denying this yesterday, but the Paper clearly leaves the option of free permits to coal-fired power open, and it will be taken up under pressure from trade unions and industry.

Bear in mind that free permits mean no price signal. No price signal means no need to cut emissions. The Green Paper proposes a vague commitment, over time, to move to 100% auctioning of permits. A clear timetable for this process would at least provide an indication that, long term, the scheme will tighten the screws on big emitters, but even that was beyond the Government.

There’ll be no price signal, either, for motorists and heavy vehicles.

So, in essence, the three biggest carbon emitting sectors in Australia — stationary energy, transport and agriculture — will, along with the most polluting trade-exposed industries, be out of the scheme until the latter part of the next decade.

No wonder, when put on the spot by Chris Uhlmann on AM this morning about whether the scheme would actually cause a reduction in Australia’s carbon emissions, the Prime Minister ducked and weaved rather than give a straight answer. On the basis of what was announced yesterday, there’s no reason to believe other than that the scheme might slow the rate of growth of emissions, but in the absence of a dramatically lower carbon cap, it won’t reduce them.

The proposed framework allows unlimited banking and the purchase of permits for up to three years out from the date of auction. You can bet the likes of Macquarie Bank are already working out how to exploit this by buying large numbers of permits and becoming a carbon broker. Our river system is already infested with water brokers who have purchased rights from irrigators and are now making a fortune from selling them to desperate farmers or governments eager to buy environmental water.

Expect the same with emissions, especially if we eventually adopt a serious target. The system will favour those with lots of capital and a capacity to buy up permits for on-selling when they are more valuable.

And the scheme won’t be revenue-neutral, either. The scheme will only generate two-thirds of the revenue it should be generating, there’ll be no net revenue from the transport sector, and the Government has committed to full support for everyone below $53,000 a year, as well as extensive industry and regional assistance programs.

The scheme is likely to end up requiring more revenue than that raised by the scheme. Curiously, for a government that demanded the Opposition explain how it would fund its 5c a litre excise cut (presumably no longer the height of economic irresponsibility now that it has been adopted by the Government), there is no detail about the net cost to the budget of the scheme.

Most alarming of all is that this is likely to be as pure as the scheme gets. From here on, unions and industry will be pressing the government to scale back the few remaining negatives for them. We might hope that once the scheme is up and running, it can be strengthened as we realise the enormity of the problem we face. In fact, political reality suggests it will be diluted and weakened as politicians worry about their electoral fortunes and look after their mates.

Labor was elected, in part, because of its commitment to getting serious about climate change. Ever get the feeling you’ve been cheated?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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