Willingness Needed to Establish Emissions Trading Scheme

 

By Katie Lahey
Chief Executive
Business Council of Australia

The Prime Minister’s announcement that Australia will establish a comprehensive ‘cap-and-trade’ emissions trading scheme by no later than 2012 poses an important question: what are the necessary steps for government and business to establish an effective trading system by that deadline?

The Business Council of Australia is pleased the federal government has endorsed the importance of a market mechanism in addressing what is a long-term, complex economic and environmental problem. We are also confident that businesses will not be disadvantaged if they take early action to reduce their emissions between now and the start of trading.

As the BCA identified in April in its paper, Strategic Framework for Emissions Reduction, a cap-and-trade emissions trading scheme is the most effective way of reducing emissions over the long term while protecting our economic prosperity.

The fact that all major political parties, as well as all state and territory governments, now favour an emissions trading scheme that provides business with improved certainty as they make decisions about the operations of their business including location, investment in new plant, retooling options and future energy sources.

There is also an added opportunity for business to consider action to reduce their emissions before trading commences as they will not be penalised for early action.

The report of the Prime Minister’s Task Group on Emissions Trading, released last week, discussed several essential design criteria which will need to be put in place to ensure an effective trading scheme.

  • These included that the scheme: 
  • must be national in nature; 
  • have long term targets with short term caps on emissions and a series of gateway targets; broad coverage of industry sectors so as to capture 70 per cent of Australia's emissions;
  • permit allocation on the basis of disproportionate loss in value;
  • protect Australia’s trade-exposed, energy-intensive industries until they are on a level playing field;
  • a broad set of domestic and international offsets; and
  • a transparent review process.

Finally, the report also outlined a three-phase process to ensure the policies, structures and systems are in place so trading can commence as early as 2011 but no later than 2012.

While work has already begun to ensure Australia can model the information needed to help in deciding what should be Australia's long term emissions target, there are other significant actions that must begin quickly.

A critical next step, over the next 12 months, will be to start work on a range of practical but essential systems to underpin a trading scheme.

There will be a requirement to set up a national emissions and energy use reporting system able to provide the information to track emissions from businesses covered by the scheme and allow for the verification of this data. Businesses look forward to working with government on how best this might occur.

Such a recording and verifying system needs to be national given many of the large emitters have national operations. However this will require cooperation between the federal and state governments, given the states have announced commencement of work on their own reporting system. Business does not want to face complex and conflicting, multi-layered regulatory frameworks.

Work must also commence at federal and state government levels to wind up the current renewable energy targets, which are inconsistent with a national emissions trading scheme and must be phased out.

There will also need to be considerable work on how to allocate trading permits to businesses. Modelling and allocation tools will need to be developed by government and this will require significant information from businesses on their energy costs.

In the subsequent year institutional and governance structures will also need to be established to manage the allocation of permits and oversee the system.

To ensure this work can be undertaken it will be essential to build on the work already done in many forums, including the work of state governments on an emissions trading scheme. It will also be important to ensure governments and businesses provide the necessary resources to meet the challenge of the task ahead.

A well-designed emissions trading scheme will allow Australia to break new ground in reducing emissions and demonstrate to other nations a sensible and economically sustainable way forward on this complex issue.

The key to making this possible will be a willingness from governments and businesses to work together to ensure the scheme is established in a timely way that meets the common objective – to reduce Australia’s carbon emissions over the long term.

This opinion article by Katie Lahey appeared on www.abc.net.au.