In case Australia ForgETS: on the nature and implications of emissions trading in Australia

This thesis explores the Carbon Pollution Reduction Scheme, Australia’s proposed emissions trading regime. Following analysis of the international policy context which has led to climate mitigation scenarios both within Australia and abroad, the nature of Australia’s iron and steel industry is examined, as is its dynamic trade relationship with Chinese steel makers. Since Chinese participation is a critical component of post-Kyoto climate change mitigation, I analyse the role of China thus far in international negotiations. Within the context of iron and steel trade flows, the operation of the Carbon Pollution Reduction Scheme and its likely effects on this industry’s international competitiveness are discussed. Common critiques of the proposed emissions trading scheme (including but not limited to carbon leakage, emissions capture, and emissions-intensive, trade-exposed industry assistance thresholds) are identified and subsequently contextualised against the backdrop of iron ore mining and steel manufacture. I propose, in addition to emissions leakage addressed in the literature, that domestic, intra-industry permit leakage would appear to exist as a result of poorly designed assistance thresholds. There is potential for industries that receive no government assistance to export emissions onto industries that receive most permits free. \n \nOn the one hand, carbon leakage can act as a disincentive for net emissions reduction if trading partners are not forced to play by the same rules. On the other hand, inappropriate cost burdens could disadvantage Australian industries. If the Carbon Pollution Reduction Scheme is to be effective in the long run, it must address the tensions between comprehensive emissions control and administrative viability. If emissions capture is incomplete, mitigation efforts are notably ineffective. If certain industries beg concessions due to reduced competitiveness, then the cost burden on all other participating industries could reduce the scheme’s economic efficiency. In either case, the justification behind these claims is analysed in depth. Based on the findings of this thesis, I have concluded that the focus of critics on the tradeoffs between environmental effectiveness and economic efficiency sacrifices the ability of the proposed scheme to achieve maximum buy-in from industry interests and ignores the foreign policy implications of early climate policy action by Australia.