There are some serious problems with Chapter 4 of the Carbon Pollution Reduction Scheme Green Paper: “Emissions targets and scheme caps”. The preferred positions are that the Government announce a minimum of five years of the indicative national emissions trajectory, and a minimum of five years of the scheme cap at any time. The Green Paper also discusses a number of different options, including both shorter and longer time periods of set caps.

4.3 Preferred position (Green Paper, p174)
The Government would announce a minimum of five years of the indicative national emissions trajectory, to be extended by one year, every year as required to maintain a minimum of five years of guidance at all times after commencement of the scheme.

4.5 Preferred position (Green Paper, p179)
Scheme caps would be set and announced for a minimum period of five years in advance at any one time.
In the event that Australia’s international commitment period extends beyond five years, scheme caps would be extended to the end of the commitment period.

Addressing climate change requires resolving the international prisoner’s dilemma and resolving it quickly. Setting a minimum five years before adjusting Australia’s emissions trajectory risks Australia dragging its feet when it comes to international cooperation on climate change.

We also need to be flexible enough to tighten the trajectory in the case that we approach any tipping points or the science proves to be worse than expected (which seems to be the case). Suppose that evidence emerges that it is likely that the Greenland or Antarctica ice sheets will melt and cause massive sea level rise. Suppose that evidence emerges that permafrost melting in Siberia will melt and release massive amounts of methane into the atmosphere. Will Australia continue along a five year trajectory that has already been set? Some would say that we are already too close to some of these tipping points. The risks are too high for five year delays.

The rationale for five years of scheme caps is that it increases investment certainty. The problem is that the risk and uncertainty are shifted elsewhere. We will have more certainty for investors over five years, but less certainty about achieving international cooperation and less certainty about whether dangerous climate change will be avoided. If the framework for an Emissions Trading Scheme fails to sufficiently reduce greenhouse gas emissions or if it prejudices Australia’s international negotiating position, then there is more uncertainty about whether the framework will be maintained. It would be better for investors to be informed by science and international negotiations than to be informed by an artificial emissions reduction trajectory.

An alternative to shorter periods where the trajectory would be for the weakest trajectory to be set for five years, but for there to always be the option of tightening the trajectory. This way Australia will have the ability to commit to a tighter reduction trajectory if other countries do, which could lead to a speedier resolution of the prisoner’s dilemma.