IF CARBON trading gets up, the Federal Government will "cap" or put a limit on how much greenhouse gas can be emitted in a given year. That much is reasonably widely understood.
What remains less well understood is that, in doing so, that cap will also put a limit on the cuts to emissions possible that year too.
Let's take a hypothetical example to see how it is all supposed to work.
Fast forward to 2011, and pretend that the Rudd Government's Carbon Pollution Reduction Scheme (CPRS) is up and running, and that there is now a cap on Australia's emissions for 2011 of 500 million tonnes.
We also have a target of a 5 per cent cut in emissions below this level by 2020. This means that by 2020, emissions need to have been cut to 475 million tonnes.
Permits allowing emissions up to 500 million tonnes have been issued to Australia's 1000 biggest industrial polluters, such as coal-fired power generators, through a series of auctions and free handouts.
If those companies cannot make emissions cuts here in Australia, they can simply buy "carbon credits" from overseas, guaranteeing that — on paper at least — we always achieve our targets.
Now let's say for argument's sake that Victoria has just finished building a giant new solar power plant, which was built with funding from the Brumby Government.
The idea of promoting renewable energy is to slow down the need for new gas and coal-fired power stations, cutting greenhouse emissions in the process.
But state-funded projects like that will not deliver any extra emission cuts under the CPRS.
The reason is that the Federal Government would still issue 500 million emission permits — one permit for every tonne that can legally be emitted.
So the State Government-backed solar power station would not cut national emissions in 2011.
The Federal Government will also set emissions five years in advance, so even if it decided to aim for tougher greenhouse targets, a new cap that was set in 2012 would not take effect until 2017.
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