The Emissions Trading Scheme (ETS)
Under the ETS, emissions permits will be
auctioned off by the government.
Companies will initially have to bid and pay for their
original allocation of permits and then subsequently buy
permits from other companies if desired. Heavy polluting
companies may find the need to buy more permits than
light polluters while they work out strategies how to
cut their future emissions. Companies would also be
allowed to hold the permits for future trading or
setoffs.
A reduction or removal of emissions from activities in
one sector of the economy can be used to counter
balance, or offset, emissions in the other sectors.
Emissions reductions in sectors not covered by the
scheme could be eligible to create offset credits. These
offset credits would generally be treated as substitutes
for permits, and could be used by parties covered by the
scheme to meet their obligations.
The Government can also release permits by allocating
them free to a range of potential recipients. Revetec
believes that free permit allocations would be issued
to companies which can demonstrate the use or adoption
of emission reduction technologies.
The report states the ETS will operate in a similar
fashion like the gold market. |
Permits which will be traded with a “spot” price, or at
a price as judged by the market on that day or in the
short-term, but there will also be a “futures” price in
which traders can trade on the future price of the
permits. So if some unexpected environmental event
giving rise to a sudden increase in emissions occurs,
there will be a greater demand for the permits,
resulting in a sudden increase in the price of the
permits. The market force of supply and demand will be
the driving factor.
The report further says a free market approach should be
adopted to permit the ETS to operate with minimal
government regulations. But it also considers the need
to set up an independent regulator, the Independent
Carbon Bank to monitor the process. This independent
regulator will be utilized as a Central Bank for carbon,
issuing extra permits to control the price where
necessary, although the review says that any
intervention may result in problems.
Fines for non compliance of Emissions Trading
Scheme
It is envisaged that the independent regulator would
have the power to penalize Industries by imposing heavy
fines where they exceed their permitted level of
emissions. Such fines are expected to be substantial
enough to force compliance. As many sectors of Industry
will have difficulty adopting measures to reduce and
meet emissions targets wide spread business failures
will occur as a result of the huge fines. |
