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Climate change Australia takes a step towards Emissions Trading from 2010

7-Jul-2008

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On 4 July, the Draft Report of the Australian government-commissioned, independent Climate Change Review was released. The Draft does not make recommendations, but clearly advocates establishing an emissions trading system by 2010. It advocates the full auctioning of emissions permits and the return of all revenue to households and business. Transport – including aviation - is explicitly to be included in this process.

Produced at the request of the pre-election Labor Opposition leadership, now in government, the Review process is being headed by eminent economist, Professor Ross Garnaut. Professor Garnaut, who was significantly involved in 1980s Labor Government’s policy-making to remove trade barriers, described the issue of climate change as “a diabolical policy challenge”, which will be the subject of political horse-trading.

Responding to suggestions that certain sectors should be exempted from an emissions trading system, Professor Garnaut said on Friday that “it would be better to have a clean carbon tax than a deeply compromised emission trading scheme.”

The Draft addresses the potential issue of “carbon leakage”, where activities (such as aviation) can merely be shifted to other countries with no emissions reduction schemes and potentially worse levels of output. However, “shielding these industries from the effects of a carbon price either undermines attempts to limit national greenhouse gas emissions or it increases the adjustment burden elsewhere in the economy”. Professor Garnaut therefore suggested “that Australia will need to show global leadership in pursuing such arrangements.”

On aviation specifically, the Draft states: “Emissions (from aviation) should be included against national limits.” If, however, the prospect of carbon leakage occurred, then aviation “should be subject to a comparable carbon tax. Emissions would be attributed to countries on the basis of fuel purchase. Where a tax was in place, the fuel-supplying country would retain the revenue raised.” However, the Draft did recognise that any such “imposition of a fuel tax might require an amendment to the Convention on International Civil Aviation.”

Under the Garnaut vision, an ETS would be established in 2010 and phased in over a two year period.

The Final Report is due in late September. Meanwhile, the government itself is preparing a Green (discussion) Paper, to be issued later this month. This follows intensive sectoral discussions under the leadership of the Department of Climate Change and Water. The Green Paper is expected to be somewhat more circumspect about timing of an ETS (the next Federal election is to be held in 2010) and on the issue of exemptions. But the direction is set.

(The full text of the 500-page Draft Report is available here)


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