Market Mechanisms the Basis for a Global Solution to Climate Change Says BCA Submission

14 March 2007

The Business Council has outlined a series of principles around a ‘cap and trade’ scheme to tackle greenhouse emissions as part of a framework which it believes can provide the foundation for an integrated global solution to emissions reduction.

The Business Council’s submission to the Prime Minister’s Emissions Trading Task Group reiterates the BCA’s core position – outlined by BCA President Michael Chaney last November – that the only effective and sustainable way to reduce emissions is through a multifaceted approach which includes a global market-based scheme.

The submission also argues that, given a long-term solution to climate change effectively involves the transition from a high-emission to a low-emission global economy, no-one should be under any illusion about the enormity of the task or the possibility of a quick fix.

As the submission outlines, the BCA supports the overall direction of the task group’s terms of reference, which seeks to achieve a sustained balance between reducing emissions and preserving our economic advantages.

A critical element of any response will be the protection of Australia’s trade-exposed industries until competitors face a similar carbon price signal.

“The key challenge for Australia is to ensure our long-term economic prosperity, as it will be the strength of the Australian economy in the future – not its diminution – which will ensure Australia is able to address the potential risks associated with climate change,” the submission says.

The BCA argues in its submission that a clear and consistent set of principles to reduce emissions can provide the basis for countries to ‘link’ together their national schemes into a global trading framework to reduce emissions.

“While there has been significant discussion of a single, global market … it is more realistic to plan for a set of linked national schemes which allow for local economic conditions but provide the basis for trading emissions reduction and credits between each country,” the submission says.

The BCA’s principles for a global solution to emissions reduction include:

  • Setting ‘immediate and long-term’ global emissions reduction targets that can be differentiated to address the circumstances of individual economies and regularly review these targets.
  • Building global and national responses around a ‘cap-and-trade’ scheme, which effectively involves governments setting a cap on overall emissions and issuing a fixed amount of permits covering these emissions that can be traded by the market.
  • Bringing all economies into a global scheme by recognising that some economies, particularly developing nations, will need to increase their emissions to accommodate high growth before reducing them – but can still be subject to emission targets.

The submission also calls for a multifaceted approach to tackling emissions involving not only a market response, but continued investment in research and development of low-emission technologies, increasing the use of existing and emerging low-emission and renewable energy sources, and ensuring greater energy efficiency across all sections of the economy.

The BCA’s submission says the challenge for any national approach will be to ensure emissions reduction is achieved at the lowest cost so that Australia’s competitive advantage is not lost; that there are transition mechanisms for sectors and companies likely to be most impacted by a global carbon price; and that any national action provides investment certainty for business.

The BCA’s submission highlights the major issues to be addressed to maintain Australia’s competitiveness. Namely, they should:

  • Include both immediate and long-term targets for Australia.
  • Include an initial stage to develop and implement the appropriate monitoring, reporting and verification systems, registries and other governance mechanisms to underpin the operation of a trading scheme.
  • Include an initial cap on the price of permits and an appropriate permit allocation system to smooth the introduction of the scheme, protect trade-exposed industries and manage its costs until key milestones are met.
  • Ensure a domestic trading scheme can link in with likely emerging global responses.

Importantly, if a domestic emissions trading scheme is pursued, it will be essential to replace the current range of federal and state-based schemes and mechanisms that would be inconsistent with the principles of a global and national market-based trading mechanism.

The principles outlined in the submission will be further developed by the BCA and a comprehensive position on emissions reduction will be released by the council in April.

Submission to the Prime Minister’s Emissions Trading Task Group


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