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OT: Skeptics vs Alarmist Cage Match unSpectacular! 27-Nov-2009 At 8:42:30 AM evanbb

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Good stuff, my chance to show my credentials as a policy wonk.

To curb emissions within an economy there are basically 2 ways of doing it; a flat tax on emissions, where anyone who emits pays per tonne; or Cap and Trade, where the Government issues a number of certificates each year, each one representing an amount of CO2 (or equivalent). Then, there's an auction each year for the permits, to allow companies to pollute. The idea being that this finds the lowest cost way to reduce emissions.

The tax has problems because it doesn't set a maximum amount of emissions to be worked underneath. The tax just relies on the price signal associated with emissions to drive emissions down. Cap and Trade has a maximum number of emissions, governed by how many certificates are issued each year. In both cases the goal is to change consumer behaviour by putting a price on emissions. The ETS is based on a Cap and Trade system.

Economists love the Cap and Trade model because it allows the market better flexibility to find this so called 'lowest cost abatement'. In theory, you just throw open the system, and the smartest companies win.

The proposed system, the actual Carbon Pollution Reduction Scheme (CPRS) is based on a Cap and Trade, but includes all sorts of sweeteners that distort the market ability to respond. The Government, whipped into submission by all sorts of modelling done by industry lobbyists has promised to give high emitters most (90-95%) of their credits for free. This is retarded. Further, the Govt has promised that no households are worse off under the scheme, so they get rebates on electricity and other things.

Also, the legislation actually is not designed to lower Australian emissions. Rather, they will use the sale of permits to offset our emissions in developing countries by protecting rainforest.

So the scheme will send no price signal to consumers, so they won't change their behaviour. There is no impact on emitters, because they get all their permits free.

Renewables only get assistance through the Mandatory Renewable Energy Target (MRET), which is a sliding scale up to 20% renewables by 2020. This mandates retailers purchase renewable power, even if it's more expensive. Garnaut and Stern are both opposed to the target, but with the distortions associated with the free permits, the Government realises it's necessary.