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The debate about emissions trading is dividing the nation. But how many people actually understand the issue?
Political editor MARK KENNY explains the key points and what it means for your budget.
What is an emissions trading scheme?
Companies that emit carbon dioxide or C02 would be required to buy permits to do so.
With the establishment of that "price signal'', rational companies will seek to minimise their costs by polluting less and thus having to buy fewer permits.
Excess permits will be tradeable to companies needing to buy more. Thus a market in carbon permits, will be established. On top of this price incentive, the Government would also slowly ratchet down, the overall amount of carbon able to be produced. So ends the theory.
In practice, the proposed scheme is devilishly complex because it has to take into account myriad industries with varying carbon emissions impacts. Coal mining for example, does not of itself create much in the way of carbon dioxide, except for a small minority of ``gassy'' mines which produce so-called "fugitive emissions'' of methane. Electricity generation by contrast, where coal is used, is a heavy polluter.
Why act at all?
Scientists generally agree that rapid global warming is underway and that it is anthropogenic - caused by humans. Emissions trading schemes are planned for many economies to assist in abatement of C02 which has built up dramatically in the atmosphere leading to global warming.
However, reaching a global commitment, is extremely hard - not least because the developing world understandably wants to continue growing and improving its living standards just as developed countries already have.
What are the positions being taken?
GOVERNMENT:
To bring into law its Carbon Pollution Reduction Scheme before the UN Climate Change Conference in Copenhagen this December. Its range for C02 reductions is an unconditional 5 per cent cut on year 2000 levels by 2020 and, subject to international agreement, as much as 25 per cent.
OPPOSITION:
To support an emissions trading scheme in principle but not before the rest of the world act. Its holding position is to amend the CPRS. However, because a sizeable wedge of Coalition MPs are opposed to any scheme, the Opposition's final position is unclear. Possibly as many as two thirds of MPs will steadfastly oppose any parliamentary vote on the scheme before Copenhagen. This adds a whole new layer of uncertainty to current negotiations.
GREENS:
Opposed to both the Government and Opposition remedies as far too weak to turn around dangerous climate change. They want a 40 per cent reduction and dramatically reduced assistance to polluters.
HOW would the CPRS work?
The Government would set an annual cap on the total amount of carbon pollution that can be emitted in Australia - reducing it each year.
Two classes of companies will get some permits for free - these are the EITEs or "emissions-intensive, trade-exposed'' industries.
Depending on their carbon output and their level of exposure to international competitors, these companies will get either 66 per cent or 94.5 per cent of their permits for free initially.
However, some industries such as coal-fired power stations, would get only limited assistance. Agriculture would be excluded until 2015, due to difficulties in regulating and measuring emissions.
Higher transport costs would be offset by reducing petrol excise, and higher household electricity costs, for low and middle income earners would be compensated from monies raised by the sale of permits.
WHAT is the Opposition's position?
Not yet settled due to intense internal disagreement. Voted the CPRS down in Senate in August. Nationals remain opposed. Opposition, however, will seek to amend the CPRS to:
- Permanently exclude agriculture, and shield key industries, including coal mining, food processing, natural gas production and aluminium.
- Provide a single level of assistance for emissions intensive trade exposed (EITE) industries at 94.5 per cent until 2015 and 90 per cent thereafter.
- Increased assistance to coal-fired power generators for lost asset value due to the CPRS.
What will it cost me?
Treasury modelling suggest that household costs would rise by just over 1 per cent over two years - as measured by the consumer price index.
However, there would be specific price increases including household electricity rises of around 7 per cent ( $1.50 per week) in the first year of operation 2011/12. Gas prices will also rise by an estimated 4 per cent rising to 9 per cent in the second year and household food prices are also expected to rise due to increased costs of production and transport. That too is expected to add $1.50 per week to the average food weekly food bill.
However, the Government has claimed it will more than compensate low and middle income consumers for these costs - with an estimated 2.8 million households able to attract 120 per cent compensation for these cost increases. Middles income earners will also be compensated - the Government estimates some 97 per cent of all middle-income families will receive at least some compensation.
WHAT is the rest of the world doing?
While Europe has made some gains, its emissions trading scheme is regarded by environmentalists as poorly designed because among other things, it paid out too much in compensation to polluters.
The U.S. is currently considering a scheme but like Australia, its legislation is deadlocked in the Senate. Hopes of a breakthrough at the forthcoming UN Climate Change Conference in Copenhagen are fading because of a lack of agreement on the gap between the developed and developing world.
Large emitters like the U.S. and China and India need to reach agreement but that seems increasingly unlikely. Prime Minister Kevin Rudd wants Australia to act before then so as to show "developed world'' leadership and help drive others to strong action.
When will it start?
July 1, 2011 with a fixed carbon price of $10 a tonne and then a full market-set price from July, 2012.