I read two articles today that got me thinking about the different methods that can be used to reduce CO2 emissions: an emissions trading scheme, a carbon tax, and regulations. First, we have James Hanson of NASA’s GISS who hopes Copenhagen will fail because he thinks that ETS is a “fundamentally wrong” approach (he prefers a carbon tax):Then we have Tony Abbott giving his first indications of what he sees as the Liberal policy on climate change: no tax, just regulations.So I thought I’d start a discussion on different methods to reduce CO2. If you don’t think we need to reduce CO2 at all because global warming isn’t happening, there are plenty of threads out there for you to share your views. But if you’re interested in debating which methods are most effective, or what policy you’d propose if you were in government, here’s the place to do it.

First, a quick overview. The big three players are an ETS, a carbon tax, or regulations.

An emissions trading scheme (ETS) begins with a government putting a limit or “cap” on the amount of carbon the nation can emit. They give or sell carbon “permits” to companies that add up to this cap. If a company pollutes less than their permits allow, they’re allowed to sell the extra permits to the highest bidder. If a company starts to pollute more than their permit allows, they must buy extra permits from another company. In theory, this sets up a free market system of buying and selling where the price of carbon emissions is set by demand. In time, a government can reduce the cap, forcing overall reductions.

A carbon tax is theoretically simpler. CO2 emissions are given a price and taxed accordingly. Heavily-polluting goods (coal power, red meat, cement, petrol) would become more expensive whereas less-polluting goods would become less expensive in relative terms. Carbon taxes must be balanced by reducing other taxes such as income taxes so that the overall tax burden remains the same and individual households who pollute less will actually end up paying less tax than before. Like the ETS, this system also relies on market forces to reduce emissions. However unlike an ETS there's no cap, so theoretically if market forces fail pollution will continue to rise.

Finally we have the regulation and/or subsidy alternative. Both an ETS and carbon tax are combined with regulations and even subsidies, but some such as Abbott think that regulation alone is the answer. For example policy may dictate a freeze on new coal plants, or allot extra funding to research into clean coal, or subsidize solar power, or fund lots of new public transport. However this system has only indirect control over emissions, it contains no free market forces and it must be entirely taxpayer-funded.

So which system, or combination of systems, do you think would be most economically and environmentally efficient at reducing greenhouse gas emissions?

Any ETS is a ponzi scheme designed to fill the .Gov coffers while doing nothing for the environment.

What is needed is a carrot and stick approch, IE sensible incentives to promote the use of alternate energy or make more efficient use of existing sources.

IE further take up of LPG/natural gas vehicles, encourage take up of building insulation.

IE Dropping of GST on goods/components that help acieive this.

Disincentives to discourage the use of carbon fuels and/or emmisions.

Review tax write off laws to disallow/discourage depreciation on inefficient goods/components/buildings.

Heaps more to write but I need to get to the rifle range for a shoot.

Funny, for someone who rejects Global Warming, you seem quite willing to accept a carbon tax. What a wanker!

Interesting start. You use the terms "incentive" and "disincentives" a lot, but how do you propose to do that? You mention dropping the GST for part of it, but what about the rest? Taxes, rebates, subsidies, hand-outs?

Oh and to clarify, I don't think the government would make money from an ETS alone, except if they auctioned off the first set of permits. Once the permits are in the hands of companies, the buying and selling is between companies.

Dev I don't really want debate about global warming in this thread, and that includes your own pointless contribution. How about you actually share your own best plan?

Personally, I prefer a carbon tax to an ETS. Although I do worry that a tax doesn't set a hard cap on emissions, if you really want market forces to be the driving force behind emission reductions than a tax is the simplest way to control it. You can always adjust the size of the carbon price as you go, as well as adjust other taxes to compensate. I like analogue's suggestion of lowering the GST overall at the same time you tax carbon - less-polluting items will then be cheaper overall. Or otherwise I'd suggest raising the income tax brackets again, so that the poorest Australians pay less income tax to make up for whatever extra they'll have to spend on energy.

But I'd also combine the tax with a package of funding programs into renewable energy, public transport, mandatory appliance efficiency standards, and the like. And jump-start Australia's nuclear industry so we could actually use that uranium we keep selling to other countries!

The one thing I can't figure out under a carbon tax, is how to encourage carbon offset programs like planting trees and encouraging farmers to capture carbon in their soils. Under an ETS, companies would have the option to pay for carbon offsets, but under a tax there's no incentive to do so.

The other big stumbling block for any plan is what to do about industries that are "trade-exposed". I'm not sure how many free trade agreements we have or how they work, but I'd be tempted to work out some kind of import tax based on the emissions of the country selling us their goods, or at least on the emissions from shipping the goods to Australia.

I dont think any sort of tax, trading or any other sort of scheme will reduce CO2 emissions. These schemes will only shuffle around large amounts of money better spent elswhere, employ armies of lawyers and regulators and produce lots of statistics and reports. They will have no effect at all on the manufacturing processes that produce CO2, or the consumer demand that drives these processes. The only viable alternative at the moment is nuclear power. Until a government finds the political will to proceed with nuclear power ther is absolutely nothing that will reduce Australias CO2 emissions.

Maybe in time this silly scam will go on
'The Australian Idiot's List'
1. The Year 2 Bug
2. The Hole in the Ozone layer
3. The Great Global Warming Hoax.
4. ????????????????????

When petrol prices rise, people drive less. So why do you think that if dirty-power prices rise, they will not reduce their power consumption?

Or change to suppliers of clearner, greener energy?

Neither of the above. The design of our cities means that many people have no alternative but to use cars to get to work, transport the kids, shop and all the other day to day routines. Putting the price of petrol up will not change the necessity here. The 'petrol crises' of the past may have had a short term effect, but in the long term people will just make cutbacks in other areas. Same with 'green energy'. This tends to cost more therefore people will not willingly change electicity suppliers. There may be a slight increase in the use of solarsytems etc, however these are expensive to set up and are not as efficient as the alternative energy gurus would have us believe.

In short, you can't change the demand for energy, therefore the only way to reduce emissions is to change the source of supply. Only when alternative motor transport and energy supply technology is as efficient and cheap as the current models will ther be any mass change to these sources. Any attempt to artificially increase the price of traditional sources in order to force a change is doomed to fail, as we have seen with the ETS.

Petrol is only a small part of the individual's carbon footprint. The use of coal to fire base load power stations accounts for far more. Once people have to start paying the real cost of carbon production, they'll make the switch.

It is interesting, from the people I have conversed with that if something must be done they all prefer a carbon tax.

For the simple reason they can understand it.

Curiously enough, I would be money that not a single one of could articulate why it is a better thing, except in as much as they understand paying tax...

I am also curious, if we are NOT doing anything harmful to our environment, why do we need either an ETS or a Carbon Tax?

Carbon Tax

It is easily understood and uses a broad base. Whilst there will probably be ways to minimise your carbon tax, it does not encourage a monopoly or an oligopoly that an ETS does.

However, my understanding is that Australia is to have an ETS because most of the rest of the world is and that makes it easier to trade.