A Comparison of the Australian and Tokyo Emissions Trading Schemes

As part of its response to climate change the 1997 Kyoto Protocol envisages the employment of emissions trading schemes (“ETS”) to provide a market based incentive to reduce emissions and to engage in carbon sequestration activities. Such schemes would also serve to encourage the creation of an industry focused on energy conservation and alternatives to energy production – so called “green” or “clean” energy.Whilst a number of jurisdictions have introduced ETSs there is no definitive model. In 2010 the Tokyo Metropolitan Government (“TMG”) established an ETS and currently Australia has had a comprehensive nationwide regime in place since 1 July 2012. Notably the approaches adopted in the two jurisdictions have marked differences.It is proposed to compare the two regimes with a view to identifying lessons for ETS design and implementation. It will be identified that the TMG regime might be properly described as a “reductions regime” emphasizing domestic emissions reductions with the market only playing a secondary function. On the other hand, the Australian regime is a true “allowances regime” designed to permit market forces to operate with less constraint and, thereby, encourage reductions in those (linked) jurisdictions where the marginal cost of abatement is lowest.Both regimes were implemented with a phase in period envisaged. The TMG regime was the culmination of ten years of information gathering, relationship building and the generation of expertise. The Australian regime initially established a fixed price period to avoid the possibility of price volatility with attendant negative implications for business investment decisions.However the future of the two regimes could not be more different. Whilst the TMG regime is being promoted as a blueprint for other jurisdictions and was not even an issue for consideration during the recent local government elections in Tokyo (where the government changed), the Australian regime was the primary issue in contention during the September 2013 Australian national election. With the election of a conservative government arguing a mandate to repeal the ETS its future rests with minority parties in the country’s upper house.