| LONDON, Sept 11
LONDON, Sept 11 Australia's proposal to ditch
cap and trade market in favour of a weakened scheme follows
reduced or abandoned carbon markets in Europe and the United
States and does not bode well for planned schemes around the
One advantage of cap and trade was always supposed to be the
fact that it is not a tax.
As a complicated policy instrument, it was something that
the public would struggle to understand or care about.
The European Union only introduced an emissions trading
scheme, in 2005, after failing to agree a carbon tax.
As the carbon trading lobby, the International Emissions
Trading Association, says: "The EU tried and failed to implement
a carbon tax in the early 1990s. The political stigma of
'another tax' significantly stacks the argument in favour of a
It seems that the architects of cap and trade were correct
in thinking that something so complicated would not enthuse the
public, but not with the intended effect.
In Europe, the European Union Emissions Trading Scheme (EU
ETS) has handed tens of billions of dollars in windfall profits
to electricity utilities, with barely a flicker of interest from
energy consumers who footed the bill.
That lack of public engagement has left room for opposition
from a combination of industry and conservative politicians,
with only self-interested carbon traders and a handful of green
NGOs in support.
It is hard to think of a successful scheme, with the
European and two regional U.S. markets facing an oversupply of
emissions allowances, while U.S. President Barack Obama will not
re-introduce federal cap and trade legislation which failed in
the Senate four years ago.
It may be time for the leading proponent of carbon trading,
the World Bank, to mobilise global support for a carbon tax
instead, as a simpler, more transparent alternative.
Australia announced plans for a carbon market in 2011.
New Prime Minister Tony Abbott will now do his best to
unwind the scheme, due to launch next July.
He has a long way to go, given that he will need the support
of newly elected independents in the Senate upper house who do
not take their seats until next year.
Nevertheless, the Australian scheme risks extinction.
Harvard University political scientist Theda Skocpol
provided the most detailed dissection yet of the failure of cap
and trade legislation in the United States, in her analysis,
"Naming the Problem: What It Will Take to Counter Extremism and
Engage Americans in the Fight against Global Warming", published
Skocpol showed how Republican grass roots groups and notably
the Tea Party, playing on feared job losses from higher energy
prices, out-flanked environmentalists' fragile
consensus-building of industry and lawmakers in Washington.
The lesson for environmentalists in the EU and Australia is
that only grass roots support can overcome conservative and
industry opposition, which may be easier for a carbon tax which
voters can at least understand.
In Europe, opposition to cap and trade reform has been led
by Germany's economy ministry, Business Europe (Europe's biggest
industry lobby) and Poland, voicing similar concerns to the U.S.
Tea Party; and in Australia by the mining industry.
MARKET VS TAX
Abbott has proposed a weakened carbon scheme to replace cap
and trade, after the previous government - in its death throes -
favoured an accelerated switch to cap and trade from an existing
Two separate governments within weeks have proposed to phase
out both a carbon tax and cap and trade, the two main options
for putting a price on carbon emissions.
Under cap and trade, polluters have to submit carbon
allowances equivalent to their annual emissions or face a fine.
The total supply of allowances is capped; polluters may have
to buy allowances equivalent to each tonne of emissions, or may
get some allowances for free.
Abbott has proposed a less onerous scheme similar to
existing project-based carbon markets in developing countries,
where companies earn carbon offsets if they cut their emissions
below a certain baseline.
A carbon tax is simpler, and is usually applied at a fixed
rate to all emissions.
Abbott is still working up his Direct Action Plan.
It seems that polluters would have to stay below a certain
baseline of "business as usual" emissions or face fines.
Meanwhile, the government would invite bids for emissions
reductions from project developers including farmers offering to
sequester carbon in the soil, by using best grazing practices,
and possibly from energy efficiency projects or polluters which
undercut their baseline emissions.
The government would purchase least-cost emissions
reductions, spending up to a maximum of A$300 million ($279
million) in the first year, A$500 million in the second and
A$750 million in the third.
The funding cap implies that the policy is determined first
by budgetary discipline and second climate concerns.
This hybrid approach, neither tax nor market, illustrates a
familiar squirming of politicians trying to implement modest
carbon emissions cuts which keep both voters and industry happy.
Cap and trade is a rather complicated answer to the simple
question of how to put a price on carbon emissions.
The central problem has been to forecast correctly demand
for allowances, given influences ranging from the weather to
There are several proposed cap and trade schemes in the
pipeline, notably in South Korea and Chinese cities, and others
encouraged by the World Bank's "Partnership for Market
Readiness", but these are delayed or pilots.
The expected bonus of a complicated scheme which bores
voters compared with a carbon tax which triggers debate has
The best economic tool for emissions cuts is a carbon tax
levied on the extraction of coal, oil and gas.
That will require public engagement and a global political
consensus which may be a decade or more off.
Carbon markets have served a purpose in raising money for
carbon cuts and establishing a framework for emissions
monitoring, but it is difficult to imagine them making much
(Editing by Jason Neely)