AN emissions trading scheme is the cheapest and most efficient way to achieve the greenhouse gas cuts the Federal Government is aiming for from the Copenhagen Accord, economists believe.
''Our view is that the direction has clearly been set by the Copenhagen Accord, and sooner or later we are going to need substantial emissions reductions,'' said Nathan Fabian, chief executive of the Investor Group on Climate Change, which represents institutional investors that collectively manage about $500 billion.
''This means that there has to be a price on carbon. To investors, the best way to do this is by emissions trading because it offers least-costs abatement.''
But some industry groups, and the Federal Opposition, say the lack of a binding deal in Copenhagen means the whole policy should be shelved.
''Until we see that there is going to be a realistic market for the global trading of carbon then it is a mistake for Australia to lock its position in,'' said the chief executive of the Australian Chamber of Commerce and Industry, Peter Anderson.
If Australia honours the accord, which seeks to stop global temperature rising above 2 degrees, it would need to commit to emissions cuts of 25 per cent on its year 2000 levels by 2020.
The Prime Minister, Kevin Rudd, yesterday refused to say if Australia would go to that level, although the conditions set in May for a 25 per cent cut mean all other developed countries would have to do the same, which is unlikely.
If Australia's support of the accord is to have any meaning, a 15 per cent cut would now become Australia's minimum 2020 commitment. The Minister for Climate Change, Penny Wong, would not speculate on targets yesterday.
Australia will consult other nations and submit its targets for 2020 to the UN by the end of January. It is set to introduce its emissions trading scheme into the Senate for a third time on February 2.
In theory, Australia's target range of 5 to 25 per cent cuts could be met with or without an emissions trading scheme. But without a scheme, government would have to intervene directly in industry to pick winners and losers - an unpalatable solution.
In practice, the higher a target is set, the harder it is to meet without either an emissions trading scheme or a carbon tax to raise enough revenue to be circulated back into emissions-cutting projects, said Professor Peter Kenyon, an economic policy researcher at Curtin University.
''There are some strategic gains for Australia to get into emissions trading early rather than late,'' he said. ''It will also help international negotiations - if everyone else is waiting for someone else to get in the lift first, possibly no one will get in.''
There is also a widespread view that the Government's preferred model - its carbon pollution reduction scheme - is a poor example of an emissions trading scheme.
''The carbon pollution reduction scheme in its current form won't do anything and the Government should admit it,'' said Richard Denniss, director of the Australia Institute think tank.