How does the ETS work?

16 Nov 2009, 2:05 pm   -   Source: SBS/Caroline Bayliss -- RMIT
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Caroline Bayliss, Director of the Global Sustainability Institute at RMIT University explains how the ETS works. (Getty Images)

Caroline Bayliss, Director of the Global Sustainability Institute at RMIT University explains how the ETS works. (Getty Images)

With so much debate about the federal government's Emission Trading Scheme, we take a look at how it actually works.

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So much debate about the federal government Emission Trading Scheme, but how does it work? Caroline Bayliss, Director of the Global Sustainability Institute at RMIT University explains.

"The Federal Government has established a “cap and trade” system, which means that the Federal government sets a mandatory total limit on emissions while providing those subject to the trading scheme with some flexibility in how they comply," Ms Bayliss explained.

"In other words, the entities within the scheme are allowed to trade amongst themselves to determine which sources actually emit the total pollution load and which find ways to reduce their emissions and therefore minimise their liability under the scheme.

"An emissions trading scheme is intended to promote an 'orderly transition to a low-carbon economy' by rewarding innovation, efficiency, and early action in reducing emissions without inhibiting economic growth".

Ms Bayliss says specifically, the objectives of an emissions trading scheme are to:

1) Provide market based penalties/incentives for countries and businesses to reduce overall their levels of greenhouse gas emissions, invest in innovative technologies and 'green energy' and create a market based “cost of carbon”.

2) Create a market based 'cost of carbon' to:

• Increase cost of fossil fuel based, non-renewable energy by putting a price on the environmental and social costs that have traditionally not been counted in the production, distribution, use and waste streams of fossil fuel based energy; and

• Facilitate research and development and uptake of renewable energy technologies through more competitive pricing that makes solar, wind, etc power viable against fossil fuel based energy.

Ms Bayliss says however, it is important to remember that an Emissions Trading Scheme is only one part of suite of policy options that are needed to transition to a low carbon economy.

"Other government measures include regulation, provision of incentives such as rebates, public education," she added.

"In a cap and trade system, the Government’s cap -- or overall limit to national emissions -- is based on a national target and trajectory of emissions reductions over a set period of time.

"Governments generally state that national targets and trajectories are based on scientific consensus -- for example the targets and trajectories that are claimed to keep global emissions below a certain point or concentration," Ms Bayliss said.

"But the reality is that this is a political exercise in balancing perceived expectations going into global negotiations at Copenhagen against what is palatable to the domestic electorate --broken down further into the circumstances and needs of many local constituencies -- in the lead up to a Federal election," she said.

The scheme works on the basis that one tonne of Co2 equivalent emissions = 1 permit.

So if, for example, total emissions were capped at 500 million tonnes of Co2 equivalent, then 500 million CPRS permits would be issued in the first period of operation of the scheme. A significant amount of permits will be given for free to big companies to address claims that:

• the CPRS will adversely impact them compared to their international competitors (which don’t operate in a carbon constrained market); or

• they may go out of business or be forced to go offshore. The remainder of permits will be auctioned -- details of precise operation or frequency of auctions are not yet finalised.

Ms Bayliss says 'Liable Parties', companies with very large emissions significant enough to be covered by the CPRS, will then compete with other liable parties to purchase and surrender the number of permits they need to comply with the scheme.

The price of permits, for example the “carbon price”, will be set according to the level of demand by liable parties, Ms Bayliss said in a briefing available for podcast on the Australian Science Media Centre's website.

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Your Comments

Bye bye Freedom, hello Socialism

Glyn Baker - from Traralgon VIC, 1 year

That Ms Bayliss, sure uses a lot of fancy words, I'm sure it works really well at confusing most people. But it doesn't confuse me, not one bit. It's nothing but a manipulative totalitarian socialist UN agenda, that attempts to impose it's will onto the Australian people, and rob us of our economic freedoms. I agree with Stuart, this will put Australia, in the hands of UN control (aka "extra-governmental"). Say goodbye to your sovereignty Australia, the socialist do-gooders are taking over.

Mr.

Erik - from Tecoma, 3 years ago

It's still only moving the deckchairs on the Titanic. The big emitters are power generation, steel, and cement industries, which still burn coal. That also spews hundreds of tonnes of super toxic mercury into the atmosphere annually. Instead of subsidising coal, we need to tax it most heavily, and feed all of that revenue into wind, geothermal, solar thermal, and even photovoltaic alternatives. Coal employs so very few now; alternatives provide many more jobs.

hmm

Stuart - from Canberra, 3 years ago

This 'professor' neglected to mention that the fiscal agreements reached at Copenhagen, and their subsequent ammendments are extra-governmental: Signatory Govenment's decisions are 'subservient to the agreements reached'. This could potentially hand the Australian and other economies to the pockets of international bankers and emmisions cartels.

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