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For more than a year, the Rudd government has been had a contentious issue with the process of introducing an Emission Trading Scheme (ETS). The Carbon Pollution Reduction Scheme (CPRS) was devised to reduce greenhouse gases and Australia’s carbon pollution (DCC 2009). However, the bills were passed by the House of Representatives but have been continually rejected by the Senate as politicians worry about the ways to deal with carbon pollution reduction and to manage the climate changes. The proposed legislation is planned to be implemented by ...view middle of the document...
The companies will pay for the amount of greenhouse gases that they emit, and the companies will charge more to the consumers to cover this cost. In such any tax rising price, demend would be decreased since consumer would choose the price that they can afford ,and this would make a deadweight loss in the short term(Garnaut 2008). As the demand of the energy reduced by the consumer, this will lower the amount of gases to be emitted and hence the quantity of permits.
The ETS will be greatly effected on the energy producers as they will be forced to buy many permits due to their materials such as gas and coal. What would hopefully happen is the creation of new forms of production of energy especially from the companies who already supply energy. Once this is accomplished, the energy producer can sell their allotment of permits to other companies who are emitting greenhouse gasses and the government increase the price of the permit, as the demand will decrease.
As there are not many substitutes for the energy producers and many consumers use electricity in their lives, the market of energy consumption is fairly inelastic. This means that the increase in price of energy will not greatly impact the overall consumption level of the energy. The producers will pass on the cost and effects of ETS to the consumers and the governments will develop alternative methods of producing the energy for the consumers with the revenue that they’ve generated from the permits.
Figure 2 - Elasticity and it's effect on Price and Quantity
Issues associated with the ETS
The Kerr and Taylor's article(2009a) discussed the plans of the Australian Labor Party, who proposed this idea, and as well as the opponents. There are many opponents for various reasons. The Liberal and National parties suggested a reduction of the effects of the plan or cancel the whole plan and an independent senator, Steve Fielding, is concerned about the level of jobs that are required once this is approved. On the other hand, the Greens party and Nick Xenephon, another independent senator, is concerned about the level of emissions reduction estimated by the governemnt (Taylor & article2009a).
At the new round of negoations with senators, the Australian Labor Party took the comments from the Liberal and National parties, as the government announced to introduce the carbon permits at a very low fixed price on their first year of the implemetnation. Furthermore, the government announced further assistance “for each of the two categories of so-called traded exposed industries” (Kerr & Taylor 2009a).
Thererfore, due to the new legistlation, the cost is $10 per tonned of carbon emitted for a period of 2011-2012 with the transition of a full, tradable market by 1 July 2012. In addition, the emissions intensive trade exposed industries will receive free permits for up to 95 percent of their carbon...