Basics of the Australian Emissions Trading Scheme

The Australian emissions trading scheme (carbon pollution reduction scheme) is a cap & trade system designed to reduce Australia’s carbon emissions in an economically feasible way. The system is still in its early phases with planning and public exposure in 2008, with a target commencement of the trading scheme in 2010.

How the Carbon Pollution Reduction Scheme Will Work

1. The Australian government will set a “cap” (or limit) on carbon emissions for the entire country.

2. Each tonne of carbon pollution will be equivalent to one “permit.”

3. The government will create / issue permits covering that national limit (as a very limited example, if a cap were set at ten tonnes of carbon pollution, the government would issue ten permits overall in the country).

4. If a business will generate carbon emissions, they must purchase these permits, and their emissions will be limited by the permits they have. If they use all of their permits, they will have to “trade” for more – buy them from companies which have not used all of their permits due to reduced emissions in a trading market.

5. Companies will surrender a permit for each tonne of carbon they have emitted at the end of each year.

6. The government, over time, will decrease the amount of permits released into circulation. This will drive up prices, but help the country cut emissions overall to reach long-term goals.

Free Permits

While companies will generally have to purchase permits for carbon emissions, the Australian government acknowledges that certain industries will be hit the hardest. As a means of transitioning the country’s economy into a carbon trading scheme, the government may offer assistance during this initial period through limited numbers of free permits given to firms or companies in specific industries.

There will be no set cost for permits – instead, prices will be driven by the forces of supply and demand in the market.

Cost of Living Increases

It’s expected that the carbon trading programme will result in higher energy costs and other forms of increased cost of living for individuals and businesses. To help alleviate these concerns, the government has committed to helping low- and middle-income households deal with increased costs by off-setting those costs with adjusted fuel taxes.

Australia’s Long-Term Emissions Reductions Goals

The government has set a long-term goal of reducing Australia’s carbon emissions to sixty percent below 2000 levels by 2050. A medium-term goal will be named late 2008. These emissions reduction goals will play a role in determining future permit caps.

Last updated 22 September 2008