By Alex Dunnin
AS the Rudd Government prepares to launch the Australian emissions trading scheme as the centrepiece of our fight against climate change, one thing that is certain is we must not base it on the European ETS, which is an economic disaster.
An ETS is a scheme where companies either buy or are given permits to produce specified levels of greenhouse gas pollution. If they can operate producing less pollution they can sell the spare pollution-producing rights.
It’s called a “cap and trade” system because the amounts of pollution companies are allowed to produce is limited by a nationally agreed cap and the spare capacity is what they are allowed to trade.
In Europe, companies were given free permits to produce more greenhouse gas pollution than they actually output and it allowed them to trade their spare permits on the ETS and keep the proceeds as windfall profits.
This is one of the reasons why most European countries – unlike Australia – are nowhere near achieving their Kyoto emission-reduction targets.
Dr Nikki Williams, chief executive of the NSW Minerals Council, speaking at the Sydney Institute said that, by comparison with the European ETS, the Rudd Government’s ETS Green Paper is “positively breathtaking” in its attempt to match economic and political reality.
Williams said with coal remaining central to how we produce electricity, carbon capture and storage technology is going to be our major weapon for meeting the Rudd Government’s emissions reduction targets.
“It’s a technology that could enable us to reduce our emissions by 55 per cent,” she said.
“We need to think of CCS as a nation-building priority. It will be the Snowy Hydro of the low-carbon world.”
It could make coal and gas the Australian key to fighting climate change, particularly if partnered with other alternative energy options.
Illustrating the potential, the CSIRO is already involved in a carbon capture joint venture in China that is expected to reduce GHG electricity power plant emissions by 85 per cent. With coal the world’s most popular and cheapest way to produce electricity, Williams said, “fast tracking CCS in Australia could create significant export opportunities. CCS is arguably more important than an ETS.”
However, she said:  “If you don’t solve China and India’s coal energy production problem, you have no solution to climate change.”
These countries are so hungry for electricity that coal is still going to be the mainstay of how they produce electricity because it’s cheap and plentiful.
Australia has a similar problem because 80 per cent of our electricity is produced using coal and even dramatically ramping up government subsidies for alternative energies isn’t expected to noticeably change this mix, which is why ActewAGL gas power station is so important, not just for Canberra, but for our whole region.

Alex Dunnin is the director of research and editorial at the Rainmaker group.