Carbon Pollution Carbon Pollution Reduction Scheme Reduction Scheme

(Australia)(Australia)

Lily Mu & Christina WuLily Mu & Christina Wu

Econ HLEcon HL

Background InfoBackground Info

AustraliaAustralia hottest and driest continents hottest and driest continents on earthon earth

Climate ChangeClimate Change Food productionFood production Water suppliesWater supplies Great Barrier ReefGreat Barrier Reef Tourism Industry and environmental Tourism Industry and environmental

challenges facing Australia and the rest of the challenges facing Australia and the rest of the world.world.

Science Behind Carbon Science Behind Carbon PollutionPollution

Carbon pollutionCarbon pollutionclimate change climate change Higher temp, droughts, extreme weatherHigher temp, droughts, extreme weather Human activityHuman activitygreenhouse gas increase greenhouse gas increase

rise in global mean temperature rise in global mean temperature

Green PaperGreen Paper

White PaperWhite Paper

Strategy and AimsStrategy and Aims

Mitigation Mitigation Reduce Australia’s greenhouse gas emissions Reduce Australia’s greenhouse gas emissions 60% emissions reduction (2050)60% emissions reduction (2050)

Adaptation Adaptation Adapt to climate change that cannot be avoided Adapt to climate change that cannot be avoided

International engagement International engagement

Achieve low carbon economy Achieve low carbon economy Households and business assistanceHouseholds and business assistance

adjust to carbon priceadjust to carbon price Ensure scheme achieves its central objectives Ensure scheme achieves its central objectives Use every cent raised to assist households and businessUse every cent raised to assist households and business

Scheme CoverageScheme Coverage

75% national emissions 75% national emissions 1000 firms 1000 firms 6 Kyoto gases6 Kyoto gases

StakeholdersStakeholders

Commitments to HouseholdsCommitments to Households

Increase payments to low-income Increase payments to low-income households, pensioner, senior households, pensioner, senior

Provide assistance to middle income Provide assistance to middle income householdshouseholds

Assistance to Business and Assistance to Business and WorkersWorkers

Climate Change Action Fund Climate Change Action Fund Investment in new low-emissions Investment in new low-emissions

technologies technologies spread of innovation and environment-spread of innovation and environment-

friendly practices among small/medium friendly practices among small/medium sized businessessized businesses

Provide assistance to regional workersProvide assistance to regional workers

Model – Negative Externality

(S)MPC

(D)MPB

Pp

Qp

(S)MSC

tax

Pso

Qso

Pt

(D)MSB

Quantity

PriceQt

Increase in Price

Decrease in Quantity

What is the Market Failure?What is the Market Failure?

Carbon pollutionCarbon pollution Too much produced at too low of a priceToo much produced at too low of a price No costNo cost

What is the proposed remedy?

“Carbon pollution reduction scheme”

Cap-and-trade system of emissions trading for greenhouse gases.

A central authority sets a limit/cap on amount of a pollutant that can be emitted. • Introduce in Australia in 2010 as part

of its climate change policy

Green Paper

Objectives:

Meet Australia’s emissions reduction targets in most flexible & cost-effective way

Support an effective global response to climate change

Provide for transitional assistance for the most affected households and firms

How does it work?

Buy a 'pollution permit' for each tonne of carbon they contribute to atmosphere.

Concentrate on biggest polluters : Around 1000 Australian companies that produce more than 25000 tonnes of carbon pollution each year.

99% of all firms in Australia will not need to purchase permits for their emissions.

Cap

Limit on greenhouse gas emissions Creates a price for carbon & ability to

trade assures that emissions are reduced at lowest possible price.

Must be consistent with longer term goals of reducing Australia’s emissions by 60% compared with 2000 levels by 2050

Trade

Price of permits will be determined by market.

By trading amongst themselves, firms achieve scheme cap at least cost to economy.

White Paper Government's targets for Greenhouse gas

emission reductions 5% below 2000 by 2020 on a one-sided basis

or up to 15% below 2000 by 2020 if also agreed

by other major emitters

Indicative national emissions path for first few years of scheme: In 2010-11, 109% of 2000 levels In 2011-12, 108% of 2000 levels In 2012-13, 107% of 2000 levels

Does it internalize the externality?

Yes Best way to reduce carbon pollution while

minimizing impact on business & households.

CitationCitation Department of Climate Change. "Australian Government." Department of Climate Change. "Australian Government." Carbon Pollution Carbon Pollution

Reduction Scheme. 13 Mar. 2009. Australian Government of Climate Reduction Scheme. 13 Mar. 2009. Australian Government of Climate Change. 14 Mar 2009 Change. 14 Mar 2009 <http://www.climatechange.gov.au/greenpaper/index.html>.<http://www.climatechange.gov.au/greenpaper/index.html>.

"Carbon Pollution Reduction Scheme." "Carbon Pollution Reduction Scheme." Wikipedia. USA: Wikimedia Wikipedia. USA: Wikimedia Foundation, Inc, 2009. Foundation, Inc, 2009.

. "Wikipedia." . "Wikipedia." Carbon Pollution Reduction Scheme. 12 Mar. 2009. Carbon Pollution Reduction Scheme. 12 Mar. 2009. Wikimedia Foundation. Inc. 11 Mar. 2009 Wikimedia Foundation. Inc. 11 Mar. 2009 <http://en.wikipedia.org/wiki/Carbon_Pollution_Reduction_Scheme>.<http://en.wikipedia.org/wiki/Carbon_Pollution_Reduction_Scheme>.

Socha, Tom. "Air Pollution Causes and Effects ." Socha, Tom. "Air Pollution Causes and Effects ." Health and Energy. 09 Health and Energy. 09 Nov. 2007. . 11 Mar. 2009 Nov. 2007. . 11 Mar. 2009 <http://healthandenergy.com/air_pollution_causes.htm>.<http://healthandenergy.com/air_pollution_causes.htm>.