This paper argues that an emissions trading scheme has many drawbacks and needs to be carefully designed to meet its goals.
Economists and energy experts agree that a “price on carbon” is the most effective way to remove excessive fossil carbon from our energy system. But we need to ensure that the move towards a low carbon economy is done in a way that minimises damages to the economy and financial hardship for individuals. This paper does not advocate a particular mechanism for setting a price on carbon. But it does point out some important considerations that need to be addressed in the design of a suitable scheme and explains why an emissions trading scheme has many shortcomings.