The Battle for Emissions Trading Profits

March 2008

The debate on the design of the Australian Emissions Trading Scheme (ETS) has only just begun. There have been a few opening salvos but, as yet, the battle has hardly started. The fight will be hard because the design of the ETS will make or break individual companies and maybe even entire industries. We should expect the fight to get nasty!

One of the most contentious issues is whether or not emissions intensive industries should be given free permits. This was the approach adopted when the European Union ETS was introduced in an attempt to appease industry and get the scheme approved. Europe however is now back tracking. By their nature, the emissions intensive industries are the very ones that need to change the most for any serious emissions targets to be met. If market mechanisms are implemented that exempts these companies, then an ETS cannot possibly achieve its optimum outcome.

A system that is designed to reduce emissions must of course affect those that produce the most emissions.

The industry groups of the high emitters such as the Australian Industry Greenhouse Network have valid arguments. Why should regulations intervene in a free market? If consumers want to change to other products of better quality or lower price then that is a valid market risk. If Government intervenes, that is regulatory risk and there should be compensation for any losses.

The extent to which profits will be affected will be proportional to the extent to which individual companies have prepared for this moment. Emissions trading will not be a shock to any large company. The world has been moving towards it for many years and the well run companies will have recognised this risk and put contingency plans in place.

There should be no pretence that the introduction of an ETS will not have a dramatic impact on the Australian economy. There will be winners and losers and there is big money at stake. The aim of the scheme is to enable a transition to a low carbon economy with the least pain along the way. However, it is inevitable that there will be some local discomfort. However, the birth of the new economy will be eased by wisely spending the significant funds raised from the auction of the permits.

To provide the best outcome for Australia, and to demonstrate the most effective ETS for the world, the Government must adhere to its goal of achieving emissions targets in the most efficient way. It matters not in this context whether profits are lost by large emissions intensive industrial companies or are gained by investors in innovative low emissions companies. In addition, a long term solution requires that threats to jobs in specific sectors or regions have no impact on the policy framework. These emotive arguments must be ignored for the greatest benefit to all.

This is an edited extract of an article written by John O'Brien. Full a copy of the full article please contact info@auscleantech.com.au