International action on carbon pricing

MCA Climate Change Briefing Note: International Developments.

Summary points
There are three clear trends emerging in international approaches to climate change policy around the world.

First, where emissions trading scheme are being implemented or planned, governments are adopting a phased approach to the introduction of a carbon price. In particular, the free (or virtually free) allocation of all permits is a common feature of the EU ETS, the proposed Korean scheme and the proposed US sub-national schemes including the Western Climate Initiative and the California AB-32 scheme. The only scheme around the world that has adopted a full auctioning approach is a sub-national scheme applying to power plants in 10 states of the Northeast of the US. In early March 2011, the carbon price operating in this scheme was just $US1.89 per tonne of CO2e.

The second feature of the global policy debate is the continued reluctance of many developed countries to move to carbon pricing. There is no prospect of a national scheme in the US (and therefore Canada) being legislated in the next 3 years, and Japan recently postponed consideration of a scheme until at least 2013. Korea has also delayed parliamentary consideration of its ETS.

A third element is broader recognition that the ?voluntary? offers made by developing economies in Copenhagen (and confirmed in Cancun) allow for exponential growth in emissions by 2020. For example, China?s Copenhagen ?offer? would see its CO2e emissions rise by 496 per cent by 2020 (on 1990 levels) 1, while India?s offer will allow its emissions to grow by 350 per cent by 2020 (on 1990 levels).

Implications for the Australian carbon-pricing debate

These developments underline two key points:

First, a new carbon pricing scheme in Australia must follow the international trend and adopt a phased approach to the auctioning of permits. It should not be based on the Carbon Pollution Reduction Scheme (CPRS) which offered only 25 to 30 per cent free allocation of permits.

Second, we need to be alert to exaggerated claims about the efforts underway in both developed and developing nations. It is important that we have an accurate understanding of trends in other developed nations. Moreover while some developing nations are taking important steps, their UNFCCC offers demonstrate that their focus (understandably) remains on industrialisation and urbanisation.

Further detail

Attached is a short summary of developments in major emitting nations with links to further details, as well as a table that shows the popularity of free/near free allocation approaches in emissions trading schemes.

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