A difficult set of numbers

The Rudd Government has released its CPRS White Paper which will form the basis of its emissions trading policy until 2020. The headline figure is the setting of an emissions reduction target of 5% (on 2000 levels) rising to an 'absolute maximum' of 15% if an international agreement is put in place.

Given the previous policy platform outlined on matters such as renewable energy, it is not surprising that the target ceiling has been set at 15%. The Garnaut Report stressed the significance of per capita emissions in setting targets and with Australia's population projected to grow considerably due to higher immigration and birth rates than European nations; it is not surprising that the Australian approach has been to adopt a markedly lower target range than Europe.

The revised CPRS design is reminiscent of the 'action target' approach that had previously been advocated by Argentina. The action target theory sets a target range which is varied based on economic activity, thus ensuring any cost burdens do not place an excessive lag on industry in vulnerable times. As the global economy has tracked downwards dramatically since the initial mooting of the CPRS, the ambition of the scheme has been scaled back to reflect the difficult economic position.

The difficulty in setting a target is demonstrated by the need to balance an existential threat of future damage from climate change against the immediate threat of the global economic downturn, particularly as the most trade-exposed industries that are in the vanguard of carbon emissions are the ones whose immediate prospects have been severely affected by reduced demand in places such as China. The need to maintain consensus is vital in this situation and keep the majority on board. This has led to the increased insulation of both businesses and households from price rises.

The unfortunate byproduct of this is a reduced emphasis on energy efficiency programs. Ideally, using energy efficiency as a means to both lower individual costs and streamline the economic structure to encourage more efficient use of energy would have both short-term cost saving and economic stimulus benefits and long-term restructuring advantages. It is important to note that during the Asian economic crisis, energy efficiency procedures actually broke down as lower demand reduced costs. The result was a Chinese industrial sector beset with out-of-control emissions growth. The introduction of the CPRS will not take place until 2010, so it is imperative that energy efficiency is promoted strongly for the next tweleve to eighteen months to prevent a massive shock when the carbon price signal takes effect.