So, after almost two years of policy development, the government is set to announce the shape of its new emissions trading scheme on Thursday. It will be interesting to see what they've come up with. The broad shape we know - a staged implementation, with the electricity sector leading the way, and farmers getting a temporary reprieve to allow them to adapt (a reprieve which amounts to a $300 million a year subsidy for our worst climate polluters). But its the specifics I'll be interested in: will the government grandparent or auction, or punt the tricky question of allocation (and any chance of action) into the future again? Will there be a long-term plan that will see our cap sink towards carbon neutrality? Will they allow polluters to simply pay the credit price if they do not have enough permits - in effect making a mockery of the entire concept of a cap? And how will it interface with the government's proposed deforestation trading scheme (which I note is yet to be implemented)? I'll be waiting on Thursday to find out the answers to these questions. I'll also be waiting to see the reaction of the National Party - whether they're serious about climate change, or whether they'll rebel at the thought of farmers paying for their own pollution and use flaws in the government's policy as an excuse to delay acting, rather than accepting the lesson of the past seventeen years: that an imperfect policy implemented now is better and less costly than continued inaction.
Interestingly, the government seems to have caught on to the idea of revenue recycling, with Helen Clark declaring that there will be some form of compensation for low-income consumers affected by the inevitable rise in electricity and petrol prices. Unlike the Greens, I don't think this fundamentally undermines the scheme. While the purpose of market-based instruments is to change behaviour through the price mechanism, it is likely to affect only a small proportion of consumers, and in one key area - electricity - its not their behaviour which is the primary target anyway (rather, it is the behaviour of electricity companies and their decisions around what sorts of generation to construct). There are also interesting things the government could do with how it delivers such compensation - giving out house insulation, more efficient heaters, or free access to public transport rather than a cash payment - but they'll probably consider these to be too much work compared to simply hiking the accomodation supplement or other benefits by a couple of dollars a week.
