The paper 'Australian Emissions Trading Scheme" is an outstanding example of a business case study. Climate change is currently attracting much business attention around the world (Preston & Jones 2007), with increased activity by government and other stakeholders since the adoption of the Kyoto Protocol in 1997 (Pinkse 2007). The Kyoto Protocol recognises emissions trading as a key instrument in mitigating the effects of greenhouse gases, resulting in an explosion of trading regimes and proposals (Grubb, Vrolijk & Brack 1999). Most notably, the European Union launched its own emissions trading scheme (ETS) in January 2005 (Baldwin 2008). In 2004, Australian state and territory governments established the National Emissions Trading Taskforce (NETT) to develop ideas for a multi-jurisdictional ETS.
Similarly, in 2006, the former Prime Minister, Mr John Howard, established a joint government-business Task Group on Emissions Trading (TGET) (Garnaut Climate Change Review 2008). There have been a number of concerns related to the implementation of these schemes. These have included debates about their cost as an abatement producer, the costs of electricity, transport and fuel, and most notably, their potentially negative effect on Australia’ s competitive advantage through its low-cost energy resources. This essay will consider the issues associated with the ETS concept.
These arguments will be discussed and supported by analysis of the relevant costs and benefits. Australian Emissions Trading Scheme To achieve emission reduction targets, the Australian Emissions Trading Scheme (AETS) is being developed, which will require businesses to reduce their carbon emissions (Hasan & Funston 2008). The policy may follow a ‘ cap-and-trade’ scheme, which involves the capping of emissions in addition to emissions trading. Under the AETS, the caps must be consistent with reducing national emissions by at least 25 to 40% by 2020 (compared to 1990 levels) (Total Environment Centre Inc.
2008). Initially, the AETS will target major polluters; however, some impact will also be seen in small and medium-sized industries. Important issues There are a number of issues to consider in relation to the proposed AETS, as outlined below. The AETS prohibits the trading of assigned amount units (AAU). As of now, only Certified Emission Reduction (CERs), Emission Reduction Units (EMUs) and Removal Units (RMUs) from outside would be allowed to trade. AAUs will be allowed to trade only after 2013 when there will be greater certainty on the prospects of a comprehensive international ETS.
(Wilson 2009). But the future of international ETS is itself in dark. It is questionable whether the scheme is compatible with international carbon markets. It is also unclear whether the scheme would be flexible enough to account for new climate science discoveries. By requiring emission-intensive industries to buy carbon permits to cover nearly all their business activities, the Australian government may be indirectly expropriating investor businesses and profits (Wilson 2009). The design of the AETS makes it impossible to impose a border measure, notably a carbon tariff; as a result, Australian products will be less competitive in Australian and export markets compared to those of countries that do not price carbon (Wilson 2009). The issue of the use of the new source of revenue from auctioning remains unclear.
Even if the permits were initially only allocated to the energy and transport sectors, this would raise some $700 million in public revenue. Existing companies have argued for compensation to the limit of the impact of price pressures on their goods in external markets, to reduce the pressure for increased efficiency (Christoff 2007). Implementation of the AETS will also require the resolution of issues relating to financial accounting standards and tax treatment (Emissions Trading 2007).
This will require avoiding distortion between the purchase of emissions permits and other options for meeting emissions targets; that is, pursuing tax neutrality between purchasing a permit, undertaking capital expenditure to reduce or sequester emissions, investing in research and development or reducing production (Garnaut Climate Change Review 2008, p. 14).
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