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"Dad, what's a CPRS?" the boy asked his father.
"CPRS stands for Carbon Pollution Reduction Scheme," Geoff replied. "It's how Australia intends to cut its greenhouse emissions. Why do you ask, son?"
"Well, we were discussing it in class and Johnno says it seriously sucks. His dad reckons if it happens he'll lose his job and they'll have to move somewhere else."
Johnno's dad is a coal miner, Geoff thought. Maybe he's right. If you believe what the coal industry is saying in the papers, this CPRS could shut down the local mine. That'd solve a few of the valley's environmental problems. Of course, it might also throttle the local economy.
"Then Johnno almost got in a fight with Sinbad," continued the boy. "Sinbad reckons coal is killing the planet and the CPRS has to be stronger or this drought we're suffering will go on forever."
That'd be right, thought Geoff. Sinbad's parents are dyed-in-the-wool greenies. They may not be so happy if the village becomes a ghost town after the CPRS comes into effect.
"So, who's right Dad?" asked the boy. "Why is the CPRS causing fights? And will it affect our family too?" "I'm not sure, son."
The CPRS fog
Geoff's not the only one who's a bit unsure about the CPRS. A recent Green-Tracker survey by the Mobium Group found that one third of Australians surveyed had not heard of the CPRS, two thirds could not name the scheme's initial reduction target and fewer than one in 10 people had a good understanding of how it works.
Now the Federal Government claims the CPRS is "one of the largest and most important structural reforms to our economy in a generation". But how can something so important be so obscure to the average Australian?
The answer, in part, lies in the complexity of the scheme itself. But it also relates to the nature of the problem that the CPRS is attempting to deal with - climate change.
The concept is not that difficult to understand, but it has been cloaked in a fog of changing details, rhetoric and hyperbole. The details seem to be changing almost daily, so let's just ponder the basics of how the CPRS works.
How to reduce carbon emissions?
Currently, industry and consumers pay nothing to emit greenhouse gas pollution. There is no incentive to avoid emissions, nor to develop less polluting alternatives. And Australia has the highest greenhouse emissions per person of any industrialised country. So how do we reduce our carbon emissions to a safe level without wrecking the economy?
One incentive, more of a disincentive really, is simply to tax emissions to make them more expensive. A number of countries, including Norway, Sweden, Germany, Japan and the UK have already introduced such measures.
Unlike taxes on drinking or smoking, which aim to reduce consumption in general, the aim of carbon pollution reduction is to achieve a specific target, a level of emissions below which it is hoped we might be spared the scarier consequences of climate change. If the tax is too little there won't be sufficient reduction in carbon emissions and the government will then have to raise it (which is politically difficult). If the tax is too much it may well cripple large sectors of the economy (political suicide).
Instead of attempting to walk this fine line, the Australian Government has instead put forward a 'cap and trade' system, which basically sets the total amount of carbon emissions allowed and then leaves the market to decide what those emissions might be worth.
Cap and trade
The scheme works by setting a national limit, or 'cap', on the number of tonnes of greenhouse gases that polluters can emit. A limited number of 'permits' - valued at one tonne of greenhouse pollution each - will be issued.
Australia's biggest carbon emitters, those top 1,000 companies responsible for about 75 per cent of all of Australia's emissions, must take part in the scheme. That means for each tonne of carbon emissions released into the atmosphere in a given year, a permit will need to be presented.
But permits can be bought and sold and this encourages companies to find the cheapest possible ways to cut their emissions. Some companies will find it cheaper to reduce the amount of pollution they emit by installing new technologies or changing their behaviours to become more efficient. By cutting their pollution, they won't have to buy as many permits.
Firms with the lowest abatement costs have an incentive to control emissions, but those with high abatement costs have an incentive to buy permits instead of outlaying funds to control pollution. The market then determines, in theory, the most efficient way to control emissions within a regulatory framework.
The number of tradable carbon pollution permits will be equal to the scheme cap - if the cap were to limit emissions to 100 million tonnes of carbon-dioxide-equivalent in a particular year, 100 million emissions permits would be issued for that year. Regardless of who's doing the work at cutting pollution, the overall target level of pollution will still be met.
And, in so doing, the Carbon Pollution Reduction Scheme will put a price on carbon in a systematic way throughout the economy - for the first time ever.
Target tantrums
At its core, the cap and trade approach (known as an Emissions Trading Scheme or ETS) is relatively straightforward, if a little more complicated than a straight carbon tax. But, of course, the devil is in the detail. What's the level of the cap? When do you start? How do you set it up without sending some sectors of the economy to the wall? How much compensation do you afford consumers on the street who will ultimately have to absorb costs passed on by carbon emitting?
If the cap is too low we won't achieve reductions that matter in terms of the devastating impacts from climate change. The general scientific consensus is that developed countries need to reduce their emissions by between 25 and 40 per cent by 2020 to avoid catastrophic climate change. (Note: the long-term target is a 60 per cent reduction by 2050.)Set the 2020 target too high, however, and companies fold, people are out of work, governments are voted out of office.
Releasing details on the initial CPRS last December, the government noted that, without a CPRS, emissions would grow by around 20 per cent between 2000 and 2020. The initial aim was to reduce Australia's carbon pollution by a minimum 5 per cent below 2000 levels, and as much as 15 per cent if all major economies committed to substantially restrain their emissions.
What other nations do is critical to this equation because if we impose a lower cap on our industry (lower emissions equals fewer and more expensive permits) than other countries, Aussie companies would then simply move overseas where it's cheaper to operate (or become uncompetitive).
The green movement responded by branding the weak target a joke. "Prime Minister Rudd's five per cent target is a global embarrassment and a recipe for global catastrophe," said Australian Greens leader Bob Brown, announcing that the Greens would campaign for 40 per cent emissions reduction by 2020.
The Coalition and industry attacked the scheme as useless and a massive imposition on business.
The Australian Coal Association went even further with its own analysis, indicating that a 15 per cent target would result in the loss of at least 10,000 coal industry jobs and the closure of 16 coal mines as a direct impact of the CPRS.
Cushioning the blow
Sensitive to how industry reacted to the draft ETS, the government went to enormous lengths to ensure no one would suffer too much with the scheme's introduction.
Industries that produce significant amounts of carbon pollution and which face international competition (such as LNG production and petrol refining) were promised assistance and free permits to cover at least 60 per cent of average emissions in their industry. The most emissions-intensive activities (like aluminium smelting and steel production) would receive free permits to cover at least 90 per cent of average emissions in their industry, under this proposal.
At the launch of the ETS, Prime Minister Rudd acknowledged it would also cost the average consumer.
"While big businesses will need permits for their carbon pollution, households will ultimately face increases to the price of electricity, gas, petrol and other goods and services as the cost of those permits is passed on," he said.
"With a starting carbon price of $25 [per tonne], the impact on most households will be modest — resulting in an average increase in spending of $4 a week on electricity, $2 a week on gas and other fuels, and an estimated overall increase in the cost of living of 1.1 per cent in 2010-11."
And so the government proposed $6 billion a year in financial assistance for households, to be funded from the sale of carbon pollution permits. The impact for low- and middle-income earners would be offset with direct payments and tax relief. Any increase in petrol prices as a result of the CPRS was to be directly offset
by a cent-for-cent decrease in petrol tax (for the first three years).
So, that was the gist of the proposed CPRS at the end of 2008, with everything set to kick off in 2010. But it only took a few months and the ever-present pall of another scary acronym - the GFC (Global Financial Crisis) - for the doubt to grow, as countless critics came out of the woodwork.
Many questions arose. How can we possibly consider a CPRS in the time of the GFC? What's the point of an ETS with a target of only five to 15 per cent if that's patently inadequate? What about the efforts of the average householder to reduce their emissions? It seems our individual efforts count for naught in this scheme.
Moreover, further analysis revealed that, under the proposed scheme, the emissions savings didn't even have to be achieved in Australia; they could be 'outsourced' by preventing deforestation in Papua New Guinea or Indonesia (and at considerably cheaper prices than reducing our own emissions).
And the barrage of criticism, counter-criticism, analysis and counter-analysis kept coming as every lobby group sought to contest the economic, social and environmental dimensions of the proposed CPRS. As the detail and hyperbole grew ever more complex, much of the Australian public switched off.
Backflips and compromises
Given the parlous state of the economy with the GFC, the government decided to change the key parameters
of the scheme. It added a one-year delay until the kick off, so now it is set to begin in 2011.
Given the fragility of our big carbon polluting industries in these uncertain economic times, it was decided they should receive additional assistance. Those companies originally slated to receive 60 per cent of their permits free would now get an extra 10 per cent; those that were receiving 90 per cent free would get an extra 5 per cent.
Furthermore, the government announced its intention to fix the price of permits at $10 per tonne of carbon for the first year. As the Coalition pointed out this is, in essence, a carbon tax and not an ETS; the Greens asserted that $10 per tonne of carbon is simply too low a price to produce change.
These measures considerably softened the economic impact of what the green lobby already considered a too-soft CPRS, but the government made one more change to get them on side. The reduction target was lifted to 25 per cent - provided the world agrees to an ambitious global deal to stabilise levels of greenhouse gases in the atmosphere at 450 parts per million CO2-equivalent or lower by mid-century. By setting this higher target the hope is our contribution at international negotiations at Copenhagen this December will be much more effective.
However, the 25 per cent target has so many conditions attached to it in relation to other countries' commitments that few commentators expect it to be met.
And so the debate goes on, the details mount, the complexity grows and the disengagement of much of the Australian population continues.
But despite all that, two things cannot be denied. First, the CPRS has the potential to change the way we do business in Australia if we have to start paying for carbon emissions. And second, 2009 is a watershed year both in terms of passing the CPRS into law and the Copenhagen meeting setting a carbon path for the world.
Maybe the CPRS will succeed, maybe it won't. Either way, we'll look back on 2009 as the time we made decisions that changed the world.
The CPRS unravelled
"So Dad, will the CPRS save us?" the boy asked his father.
"Well, son, it all depends. If it helps Australia get the rest of the world to sign up to a 25 per cent reduction target at Copenhagen then it's an excellent start," Geoff replied.
"But if that's not achieved, and current betting is it won't be, and we instead aim for a five per cent reduction (which science tells us is totally inadequate) and the government gives away most of the permits and then only charges $10 each on what's left, and then delays the start of the scheme by a year - well, I can't see what the point of the CPRS is. The big polluters don't have to pay much for their pollution, they start later, they can outsource their requirements anyway, and there's no carbon mitigation or change for many years.
"If we can't or won't modify the way we do things in terms of carbon emissions, then the CPRS is just smoke and mirrors."
"That sounds bad, Dad," the boy said, not really understanding what his father had just told him.
"Oh, by the way, Dad, Johnno thumped Sinbad."
