Call for genuine debate on which carbon reduction path best suits Australia

Australia urgently needs to have a genuine debate on the best path the country can take to reduce its carbon emissions, argues Professor John Sheehan in the latestDeakin University Law Review.

Professor Sheehan, who is Deputy Director of the Asia Pacific Centre for Complex Real Property Rights at the University of Technology Sydney and Chair of the Australian Property Institute's Carbon Property Rights Committee, said while there had been a lot of commentary and politicking on the two different carbon schemes there had been no informed discussion about which system was best suited for Australia.

"It is surprising that there has been so little debate on whether an Emissions Trading Scheme (ETS) system or a carbon tax regime would offer the better pathway to decarbonisation for Australia," he said in his note Carbon Taxation versus Emissions Trading Schemes.

Under a carbon tax, industries which are emissions intensive are taxed accordingly thus leading to the production of goods and services which are less emission intensive.

Under an ETS the Government issues tradable permits where the holder is allowed to emit a defined number of greenhouse gases into the atmosphere. The total number of permits or cap is the nation's emissions limit.

Professor Sheehan said much of the debate which had occurred since the Carbon Pollution Reduction Scheme Bill was released in late 2009 had focused on the assumed cost to carbon emitters of the introduction of an ETS, rather than the merits of either scheme.

"ETSs for instance are more difficult to monitor and administer," he said.

"They are speculative in nature and the lack of an open and transparent carbon offset market makes it difficult to prove offset claims.

"Conversely in British Columbia in Canada where a carbon tax scheme has been introduced, concerns have been raised about the costs of decarbonisation.

"However, evidence now suggests the cost of the carbon tax regime appears to be surprisingly small but doubts remain as to whether the scheme actually does significantly reduce carbon emissions.

"What is important about the British Colombia carbon tax regime is that land-based emissions offsets can be utilised, an understandable option given the significant forest plantations in that Canadian province.

"In Australia, it is not widely understood for instance that the ETS proposed in the bill tabled last year will actually operate in a similar manner to carbon tax schemes in that it will limit annual allowable emissions and increase the cost of goods and services which are emissions-intensive."

Professor Sheehan said the only difference under this particular ETS was that the quantity of permitted emissions was controlled by a cap.

"If it were a carbon tax, the tax would determine the price of emissions and the marketplace would decides the total number of emissions that are economically possible," he said.

"The complication in all this is that partly due to the Global Financial Crisis the price of carbon is now quite volatile, whilst markets likes stability being risk adverse.

"There is also a shortage of trading units for emissions – raising the very prospect of speculation such as currently occurring in the Australian water market.

"It may be that on balance, ETSs such as that contained in the bill is preferable because that is in harmony with what is being done internationally.

"But the question still remains do international preferences on this issue suit Australia?"