A group of economists (including John Quiggin) have launched a call to radically alter the Government’s proposed ETS. Much of the issues are unobjectionable including the large compensation and free permits. I have long argued that the ETS alone is not enough. However, this statement is untrue:
… the Rudd government has designed a scheme in which every tonne of emissions saved by households frees up an extra permit for the aluminium or steel industry to expand their pollution. In addition to destroying the moral incentive for households to ‘do their bit’ to reduce emissions, this design feature renders all other policies aimed at reducing emissions pointless. For example, households who spend $7,000 installing photovoltaic solar panels might believe that they are helping to reduce emissions but in fact the only impact of such investment will be to slightly lower the demand, and in turn the price, of the fixed number of pollution permits issued by the government.
The point of an ETS is that you make home decision based on prices. If you happen to want to do more, it is easier to do that not harder if there is an ETS. Without an ETS, you install solar and save emissions. With an ETS, you don’t even have to do that to save emissions. All you have to do is buy permits and park them. The fact that installing solar without doing that doesn’t change Australia’s contribution means that that is a bad choice for would be volunteer pollution reducers. It is not a reason to object to the ETS.