Emission trading gets nod over tax

• Tom Arup and Adam Morton
• The Age, February 25, 2009
• http://www.theage.com.au/national/emission-trading-gets-nod-over-tax-20090224-8gwb.html?page=-1

THE Opposition's chief economic adviser on climate change will urge it to introduce a strong carbon price and warn against adopting a carbon tax.

David Pearce, executive director of the Centre for International Economics, will tell Opposition Leader Malcolm Turnbull that an emissions trading scheme was no more complicated than a carbon tax and should be preferred.

"When you sit down with legislation you still have to deal with a lot of the same issues that come up with a carbon tax," Mr Pearce told The Age.

"You still have to deal with how it intersects with the existing tax system, you still have the trade-exposed issues, you are still going to want transitional assistance — none of that is going away."

The comments came as a senior European environment official backed the Federal Government's plan to introduce an emissions trading scheme as a bold sign of leadership on the eve of crucial negotiations over a new global climate deal.

Matthias Machnig, state secretary for the German environment ministry and the country's chief climate negotiator, said it was vital that nations embraced emissions trading so they could link schemes to reduce the cost of cutting emissions.

Mr Machnig said Australia was sending an important message internationally by introducing emissions trading legislation as the world prepared for a crucial UN climate meeting in Copenhagen at the end of the year. The European Union has had a bumpy start to emissions trading since introducing a scheme in 2005.

"Hopefully it is a very bold and ambitious scheme, but to my mind the most important thing is to say that the Australian Government is going to go for emissions trading because it is a step towards the system that we need — a global carbon market," he told The Age.

If Mr Pearce's recommendations are adopted by the Opposition it will direct them towards developing an emissions trading scheme rather than emphasising solely other programs to achieve emissions cuts, such as biochar and building efficiency.

But signs coming from a Coalition joint party room meeting yesterday indicated unresolved tension surrounding emissions trading policy. Mr Turnbull has instead promised members a chance to speak on the topic once Mr Pearce's report is delivered tomorrow.

Mr Pearce said yesterday he would not reveal the exact details of his report, citing client confidentiality, but he pointed to a recent report he co-wrote with ANU economist Warwick McKibbin as a sign of his thinking.

The report supported a hybrid emissions trading system in which an independent carbon bank capped the price of carbon annually at a low rate but aimed for a strong market-determined carbon price over the long term.

Mr Pearce said he had concerns about the Government's timeline for emissions trading, including its 2010 start date.

The Opposition's position on emissions trading has become crucial for the Government after independent senator Nick Xenophon said he would vote against the Government's scheme even with amendments or other inducements.