In the Garnaut Climate Change Review’s Emissions Trading Scheme Discussion Paper, released in late March, Professor Garnaut said “An emissions trading scheme will be the centrepiece of Australia’s climate change policy. If we get the design right, it will help build a more resilient economy for the long term.”

The paper argues for the need to design the ETS on the basis that it will ultimately be part of a global agreement on greenhouse gas mitigation. It suggests fixed and clear limits on emissions through the establishment of defined emissions trajectories, which would transparently map the pathway to emissions reduction targets/commitments.

“A long-term, firm trajectory for emissions reduction – which could only be tightened, not loosened, in line with emerging international commitments – would provide greater investor confidence and strengthen the credibility of the scheme,” he said.

Professor Garnaut said that simplicity was the key to an effective ETS for Australia. He added that compromises to the simplicity of the ETS should not be made lightly as they inevitably result in increased uncertainty and transaction costs for market participants.

Article continues below…

Design features put forward in the paper include:

* Creation of an ‘Independent Carbon Bank’ to monitor and enforce compliance with the scheme * Auctioning of all permits in order to maintain the simplicity, credibility and transparency of the scheme * Allowing the unlimited banking, hoarding and lending of permits by the Independent Carbon Bank * No price controls for permits such as price caps or floors * Application of a penalty with a make-good provision, for non-compliance * Making the coverage as broad as possible, with a recommendation to include agriculture and forestry as soon as practicable * Usage of permit revenue to provide assistance to households, particularly low-income households, and adjustment assistance for communities and employees of impacted sectors * Provision of transitional assistance to trade-exposed emissions intensive firms.

Professor Garnaut said that the reforms suggested in the discussion paper will cost money, but that cost will be manageable if the simplicity and credibility of the market is safeguarded and the proceeds are used to transition Australia to a low-carbon economy.

“The design decisions made in the lead up to 2010 will affect every one of us and I encourage all Australians to take an interest in how the emissions trading scheme is drawn up. I hope that my paper will help stimulate a robust community discussion,” he said.