Fixing the floor in the ETS


The Australian Government has announced its intention to introduce emissions trading in 2010 by establishing the Carbon Pollution Reduction Scheme (CPRS), which will set a ‘cap’ on greenhouse gas emissions. Permits equivalent to this cap will be auctioned or given away to the largest 1000 polluters. These permits will then be bought and sold between the large polluters depending on their desire to increase their output or invest in energy efficiency measures.

These basic elements of the CPRS are well-known. What is not clearly understood, however, is that emissions trading will impose a ‘floor’ below which emissions cannot fall as well as a ‘cap’ above which emissions cannot rise. That is, once the government has decided on an acceptable level of pollution, it will issue a corresponding number of pollution permits. If households use less energy and create less pollution, they will simply free up permits to allow other families or other industries to increase their own emissions.

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