ine will also incorporate a natural “trend toward lower emissions-intensive activity” which would reduce baseline emissions somewhat.
The ‘proposed emission reductions’ for each firm could be determined in a number of ways but presumably these are based on the Coalition’s target for carbon emission reductions, which are identical to the Government’s for 2020 – that is, 5% below 2000 levels by 2020. However, there appears to be a significant degree of flexibility for individual firms to bargain for higher or lower levels and this invites wasteful ‘rent seeking’ by firms – that is, the resources used to lobby governments to maintain extraordinary profit levels could be used elsewhere and achieve a greater social benefit.
The plan then relies on the following mechanism. If firms emit more than their business-as-usual level, they will be punished (with the penalty “set in consultation with industry”; see part 2). If they achieve lower emissions within their ‘proposed emission reduction’ levels, they “will be able to offer this CO2 abatement for sale to the government”.
Thus, the Coalition would set up a program and invite industry to participate, the definition of a ‘public voluntary program’. There is no requirement to participate and no cost to continuing at business as usual levels. This suggests the Coalition’s policy is subject to ‘regulatory capture’ which occurs when there is essentially no regulatory cost to firms.
Other factors suggest that the policy is a voluntary approach. For example, small business can ‘opt in’, and new entrants to an industry or business expansion at ‘best practice’ will not be penalised.
As discussed in the following post (part 2), amongst other issues, such voluntary approaches cannot achieve efficient pollution levels in theory unless there is a significant threat of stricter policy should the voluntary action fail to achieve the target. Ironically, this is in contrast to the Coalition’s starting point of repealing the carbon price.