Green Paper is cautious politics

The great Emissions Trading Scheme Sell begins, and the Rudd Government opens by signalling that they ease the pain of introducing the EMT, or whatever they will call it.

HOUSEHOLDS earning up to $150,000 and the nation's heaviest polluters will be helped to cope with the introduction of an emissions trading scheme in 2010 that the Government says will be "calm and measured".

Sounds a bit soft to me. A price signal should function as a price signal. But I don't have to stay in power, and it looks as if the Liberals have decided against a bipartizan approach. That makes me grumpy.

Labor have to position themselves for a hasty implementation, be seen to do so, yet not expose themselves to the Opposition canard that it makes no sense moving before China, India and the US. Someone should blow that damn meme out the water.

So what's the damage?

Releasing the green paper outlining the shape of the scheme, the Minister for Climate Change, Penny Wong, confirmed that increases in petrol prices would be neutralised by corresponding reductions in fuel excise.

She refused to guarantee that this would continue beyond 2013 and said motorists should start considering what types of cars they would be driving by then.

On first impression, I have doubt that market behaviour would change much by watering down the medicine. Economically, it misses the point. But, there is satisfying logic in weaning the Government of this revenue and reducing their conflict of interest with the oil lobby. I believe the revenue is about $2 billion a years, and Rudd's 'fiscally conservative' government is sure to fund the shortfall from revenue raised from issuing carbon permits to industry.

In addition, horrible hikes in the cost of oil are predicted anyway. I've been reading suggestion that market pressures going to have more of an impact on the cost of fuel, than a carbon tax.

Back to the question of damage:

When the scheme begins, electricity and gas prices will rise immediately. Under a $20-a-unit carbon price, electricity bills would increase by 16 per cent, gas bills by 8 per cent and the overall cost of living by 0.9 per cent.

Using some of the billions in revenue the scheme will generate, low-income households - those earning up to $53,000 a year - will receive full compensation through either the tax or family payments system.

Middle-income households - earning up to $150,000 - will receive partial compensation. Pensioners, carers, the elderly and others will have their pensions increased to compensate fully.

The payments will start either when or before the scheme begins and will help insulate Labor against expected electoral fallout.

So how are they going to fund this electoral fire-break?

A cap will be put on the amount of carbon that can be emitted. Within this cap, 1000 of the nation's biggest polluters will have to buy permits for each tonne of carbon they produce. The costs will be passed on to consumers and companies can trade unwanted permits. These are designed to act as incentives to reduce emissions.

The carbon price - the cost of each permit - will depend on the level of emissions.

UPDATE

Reaction (and a growing round-up of of reactions) from Not a Hedgehog: "Piss.Weak."

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