This is the basis of remarks I made to Red Symons today on 774 Melbourne ABC.
The CPRS is an Emissions Trading Scheme. Depending on the type of agreement reached in Copenhagen in December Australia has agreed to unconditionally cut its carbon emissions by 5% by 2020 which is equivalent to a 27% reduction in per capita terms. There are conditional targets to cut by much more if the rest-of-the-world agrees to do the same – so if the world targets a 450 ppm GGE target Australia will cut its emissions by 25%.
The CPRS will come into operation in July 2011 though, through to July 2012, there will be a fixed price of $10 per tonne CO2. After July 2012 permits to pollute greenhouse gases will be auctioned to the highest bidder. These emission permits will be in restricted availability so they should sell for $23 per tonne in 2010 with a 5% 2020 target.
These permits will be sold to businesses which emit more than 25,000 tonnes of CO2 annually – about 1,000 in all or 75% of Australia’s emissions. This will be a cost to these businesses some of which will be absorbed by firms and some of which will be past onto consumers.
At $23 per ton the overall effect on the CPI will be about 1.1% with much of this effect concentrated on electricity and other energy prices. Electricity prices should rise by around 20% in first 2 years of scheme.
Consumers will be compensated for income losses sustained because of the CPRS will be more than compensated via reduced tax payments provided their incomes are not large. For example, a couple earning a single income with 2 kids will be more than compensated provided their income does not exceed $100,000.
The agricultural sector has recently been permanently exempted from the scheme but cansell carbon credits.
Trade-exposed businesses that are emissions intensive gain a growing stock of emissions permits through time.
The idea is to provide signals to consumers and firms regarding the damage their carbon–based energy consumption is doing to the environment and to provide incentives to cut back on such energy use. Households will have incentives to use energy smart appliances and insulate their homes. Electricity producers will have incentives to provide non-fossil-fuel based electricity or to use fuels such as gas with lower carbon emissions.
Gradually the permissible level of emissions will be reduced. The government has committed to a reduction of 60% by 2050 but the reduction needs to be greater than this if we are to cut our emissions in a way that is consistent with the world limiting its emissions to 450 ppm.
What was the reaction harry, wasnt listening unfortunately would have been quite interesting ….
It was OK – I try to set out the facts – Red was convivial but just another interview for him.
A lot of people seem to confuse the cutting of emissions with the trading of emission permits and that they are quite separable. Did you explain that it is the cutting of emissions that will give us the environmental benefit while the trading of those emission permits will allow us to achieve that benefit at least cost?
Uncle Milton, No I didn’t and that is a shame. I always tell my environmental economics students to emphasise the ‘benefit at minimum cost’ line but, on this occasion forgot to do so myself.