In 1968 Canadian economist John Harkness Dales introduced a concept where the right to pollute was traded on the open market, arguing that it could achieve environmental goals more cost effectively than direct government regulation.
The system involves permits being issued to polluters that would represent a ceiling on the total quantity of pollution that they can emit under an emissions trading scheme (ETS), with each permit allowing its holder to emit one ton of waste. Those found to not have enough permits to cover their emissions at the end of each phase receive heavy financial penalties.
Initial permits can be auctioned to polluters, but are usually allocated for free due to industry’s influence over policy makers.
Because permits are tradeable, pollution is reduced where ever it is least costly i.e. polluters with low abatement costs have an incentive to keep their pollution levels low so that they can profit from selling their permits to polluters with high abatement costs who would use the permits to cover their pollution.
As permits are issued on historical emissions, reduction in pollution is guaranteed as long as there is full compliance amongst all participating polluters.
Emissions trading worldwide
Emissions trading received worldwide attention in the 1990s after the launch of a ‘cap-and-trade’ ETS in the US, which received credit for significantly reducing industrial air pollutants responsible for acid rain.
Since then emissions trading to reduce greenhouse gases and to slow climate change, has taken place within in companies (BP, Shell), nationally (UK) and regionally (European Union).
The EU ETS Emissions, possibly one of the most ambitious multinational environmental initiatives ever, has so far failed in making any significant reduction of greenhouse gas due in part to an over allocation of permits in its first few years.
Recently Japan kicked off their ETS to reduce carbon dioxide (C02) emissions by 6 percent from 1,400 energy intensive organizations by 2018.
The UK is also preparing another national ETS which will effect around 20,000 organizations and aim to reduce 4.4 million tonnes of C02 every year by 2020.
Emissions trading in Australia
Australia has one of the longest running emissions trading schemes in the world with the New South Wales Greenhouse Gas Abatement Scheme, which was introduced in January 2003 to reduce and maintain participants’ greenhouse gas emissions at a benchmark of 7.27 tonnes annually by 2020.
In 2008 the Federal Government introduced the Carbon Pollution Reduction Scheme (CPRS) – a national cap-and-trade ETS on 1,000 of Australia’s most significant polluting businesses, which was set to launch by July 2010 with the aim of reducing GHG by between 5percent-15percent by 2020.
In October 2008 72 percent of people supported the CPRS even though it placed an extra tax on businesses that would likely increase consumer goods by up to 1.5percent. However a recent poll conducted by The Australian showed that support for it had dropped to 57percent.
Opposition Leader Tony Abbott opposed the scheme preferring a tree planting initiative that would result in 20 million trees being planted by 2020, which he claimed would achieve the same goals at a lower economic cost at around £10 billion over 10 years compared to £114 billion.
On the 2nd December 2009 the Senate voted against the CPRS, 41 votes to 33.
Recently Prime Minister Kevin Rudd announced that due to the rejection of the CPRS and “the slow progress in the realization of global action on climate change” Australia won’t see a national ETS until the end of 2017.