Captured By Carbon: Why An Emissions Trading Scheme Needs a Floor Price

The Australian government plans to link its fixed-priced system for tackling climate change to the emissions trading scheme (ETS) of the European Union (EU). Meanwhile, the Europeans are wondering whether a straight and predictable carbon tax such as Australia's would not have been more efficient for them in the first place. The EU's floating carbon price has fallen to levels where it's more profitable for some businesses to keep polluting than to invest in green technology and it's apparent that too many emissions rights have been issued. Regina Betz, joint director at the Centre for Energy and Environmental Markets at the Australian School of Business, says an effective ETS needs to include a floor price for carbon to limit intervention from politicians and thereby provide certainty for business.