The good and the CPRS of emissions trading

Yesterday I went along to the Sustainable Living Festival to see Adjunct Professor Alan Pears of RMIT and the Australia Institute's Richard Denniss on the good and bad of emissions trading, which really does amount to the good and the CPRS of trading schemes as a way to reduce Australia's carbon emissions.

I can't capture everything that was said in this post (see the above website in a bit for the slides), but I was after a few simple gleanings to broaden out my knowledge of the scheme (or scam), which is certainly what I got.

The basics, of course, are that, once Australia sets a cap on carbon emissions, permits are issued to cover those emissions, and are surrendered by emitters to cover the level of emissions they make. Ideally the cap should be science-based, and the permits should be auctioned, not largely given away, as is currently proposed in many cases under the Rudd Government's Carbon Pollution Reduction Scheme.

Professor Pears observed that a carbon price was necessary because we're currently subsidising the pollution of our global atmospheric commons by not pricing emissions appropriately. He said that, while the impact on general prices of a carbon price was generally overplayed, the basic idea was that prices be sensitive to the level of greenhouse intensity - the more emissions in the production of a particular product, the greater the price should be as carbon permits are purchased and surrendered to cover them.

The effect of a carbon price should therefore be to make less carbon-intensive products more attractive through better pricing, with a reduction in emissions the desired result.

A good point Pears made was that the cost of an effective scheme could in fact be negative - if the value of the businesses encouraged (because they're less carbon-intensive) was greater than the value of the businesses discouraged (because they're too carbon intensive). However, the compensation to big polluters currently being offered under the scheme undermined abatement, according to the professor. I gathered this could take the form of insufficient incentives for green energy production, or energy efficient appliances, for example, due to the lack of revenue in this direction because of compensation to polluters.

Professor Pears also noted that fixed caps in the current scheme limited its ability to respond to emerging science. So, if, as Professor Will Steffen recently pointed out, climate impacts are shown by emerging research to be more likely at lower levels of warming, you may well want to reduce your emissions cap consistent with what is recognised by the science as a safer level of warming.

To an external musical accompaniment (!), Richard Denniss' fundamental points were that "targets have been set with no regard to the science of the underlying problem" and that the Rudd Government appears "to believe the science about the problem but ignores the science about the solution".

There was also an incentive to increase emissions, Denniss noted, because the number of free permits allowed to some emitters - to cover 95 per cent of their emissions in some cases - would rise with any rise in their absolute emissions.

The proposed cap on the carbon price ($40 per tonne) was also set at the level where it was likely to begin driving change. He also confirmed that personal abatement measures would also have the effect of freeing up more permits for the big polluters.

What I found very useful in Denniss' presentation was his explanation of the relationship between any domestic scheme we adopt and a potential international agreement to reduce carbon emissions.

Firstly, Denniss explained that the world doesn't care how we achieve domestically any international commitment we make, and therefore a CPRS wasn't a precondition of taking part in such an agreement. He then noted that if the world adopts a more ambitious target than we allow for domestically, we'd have to make up the balance by importing billions of dollars of permits, and this was indeed an assumption of the Government's scheme. According to Denniss, the proposed scheme would not reduce Australia's emissions before 2035 and not a single coal-fired power station would be shut down.

Finally, a very interesting point was made by Denniss in response to a question from the audience about the relationship between a carbon price and the drive to achieve zero net emissions being pursued by climate groups. Denniss said that this could not be achieved through a carbon price alone, but needed to be combined with other actions - for example, in pushing green energy.

He had earlier said that the debate between trading and "direct action" was a false one, and that the Rudd government had actually been pursuing a combined approach through renewable energy targets, home insulation etc. The point seemed to be that we could, in fact, have a lower carbon price if we were prepared to take much stronger complementary measures.

Well worth sitting in a somewhat steamy "Think Tent" at the Sustainable Living Festival.

Comments welcome.