esaa supports the development of a sustainable, low-carbon emission stationary energy sector through measures that are efficient, least-cost, long term, national and complementary to competitive market arrangements.

A national greenhouse policy should provide a long term emissions reduction target.

A well-designed emissions trading system should be the primary policy measure for reducing emissions. Complementary measures should be used only where market failures have been identified, and should be coordinated nationally.

esaa’s responses to specific government policy proposals can be accessed in the papers and submissions section.

Emissions Trading Scheme Design Principles

esaa Emissions Trading Scheme Design Principles are guided by the over-arching principles of:

• Effectiveness and efficiency (particularly dynamic efficiency) - the scheme should promote efficient investment in, and use of, energy services to achieve the desired reliability, security of supply and abatement at least cost over the medium to long term. 
• Equity - affected parties should not be treated unfairly relative to others.

Targets and timing

A single long term, economy-wide, emissions abatement target should be established for 2050. An abatement trajectory should be fixed by setting firm short-term targets of 10 years duration and medium-term indicative targets for an additional 10 years.

The short-term targets should be set as soon as practical at a level that provides for a manageable economic transition and is informed by the availability of emissions reductions across covered sectors.

Coverage

The ETS should cover all significant greenhouse gas emitting sectors, sources and sinks, including the stationary energy, transport, industry and agriculture sectors.

Any excluded sectors should face emissions constraints at least equal to the covered sectors through alternative policies.

Permit allocation, forward markets and transitional arrangements

Allocation of permits should be undertaken by auction at a national level based on a single national target, after the provision of transitional assistance to disproportionately impacted industries. Auctions should be held at regular intervals to minimise impacts on cash flow.

A liquid forward market should be created through the allocation of future dated permits or equivalent means.

Transitional assistance should be provided to existing greenhouse gas emitting entities to compensate for any disproportionate loss of economic value suffered due to the introduction of the ETS. Economically efficient compensation should be calculated on an asset by asset basis, by an independent regulator using a transparent methodology, on commencement of the ETS.

Investments and/or contracts made in good faith under existing greenhouse abatement schemes to be transitioned into the ETS, or ended early, should be fully compensated.

Any additional compensation or subsidies that may be provided to trade exposed energy intensive sectors should minimise distortions to the ETS market and impacts on other industries.

Compliance penalty

The penalty should be set at a level that is above the expected marginal cost of abatement, but is not punitive. The penalty should be informed by, and no lower than, the implied cost of carbon of any pre-existing state based schemes to be transitioned into the national ETS.

An ETS should not contain a 'make good' provision in addition to financial penalties.

Offsets and linkage

To the extent that new low-cost abatement or sequestration opportunities arise (either domestically or internationally) these should be incorporated into the ETS.

Provided Australia is not disadvantaged by its participation, an Australian ETS should be linked (in some form) to complementary international schemes to lower the cost of abatement.

Cost transparency

Energy markets should be allowed to efficiently include the cost of carbon throughout the supply chain, free from regulatory inhibitors such as price controls.  To the extent that assistance is required to ameliorate the impact of the ETS on affected consumer groups, this should be funded and provided directly by Government.

Institutional arrangements

The ETS should be administered by a regulator that is independent of the policy and rule making authorities. The ETS should be supported by efficient measurement and reporting arrangements, and an efficient exchange to facilitate low-cost, transparent transactions.

Research and development

A significant proportion of revenues generated under the ETS should be invested in emissions abatement activities including research, development and deployment of low emissions energy technologies.

Tax

To maximise efficiency in emissions abatement, the tax system should not introduce distortions between purchasing permits and other options.

Taxation implications should be considered in the calculation and provision of transitional assistance.