The discussion paper sets out the context of the work to be undertaken by the group (which includes representatives from BHP Billiton, Australian Pipeline Trust, Xstrata, National Australia Bank and Qantas) before its final report to the Prime Minister in May.

Though fairly brief, it finally puts to rest any suggestion Australian industry will continue for much longer without significant carbon constraints.

It is unequivocal in its acceptance of the science of climate change and the need for Australia to take urgent action, including the implementation of market-based mechanisms (such as an emissions trading scheme) to address its consequences.

"Given the scale of the challenge faced there is no room for complacency. Market-based approaches will generally reduce emissions at a lower cost than other interventions," the report says.

While the paper is focused on the design of a "workable global emissions trading scheme", it does not rule out the prospect of a domestic scheme either prior to, or in the absence of, further international agreement.

Indeed, the limited scheme design elements so far set out by the group appear to be entirely consistent with the work by the National Emissions Trading Taskforce (NETT), established by state and territory governments to establish design propositions for a nation-wide, state-based emissions trading scheme.

The scheme proposed by the NETT has intentionally been designed so that it could be picked up by the Commonwealth, positioning Australia for emissions trading in the near future.

The issues paper also specifically canvasses the prospect of a global scheme evolving "from a set of national and regional schemes with different characteristics and rules linked by national decisions to accept a foreign permit or credit towards meeting a domestic emissions liability."

Under this type of global regime, Australia's own domestic trading scheme, designed to suit the needs and interests of Australian industry, could be unilaterally or bilaterally linked to other schemes to create a "bottom-up" global climate framework.

Increasing business certainty

In essence, however, the task group appears to have interpreted its terms of reference as a mandate to develop and refine Australia's negotiating position in relation to a post-2012 climate framework under the UN Framework Convention on Climate Change (UNFCCC).

It emphasises the importance of protecting Australian industry in any such framework. Such protection could be provided either through the careful design of any domestic scheme (the NETT, for example, has proposed compensation to trade-exposed, energy-intensive industries through free permit allocation), or through the adoption of binding emission reduction targets under the Kyoto Protocol (or a similar) by major developing countries, primarily China and India.

It will be interesting to see how effectively Australia can influence international climate policy development without participating in the current cornerstone of international climate policy, the Kyoto Protocol.

For Australian business, the issues paper provides a solid indicator that the task group (which is constituted largely of representatives from high-emitting industries such as the coal sector) supports serious consideration of a carbon price signal, including national emissions trading.

Certainty on the future "cost of carbon" at a national level is crucial for Australian industry and will influence long-term decisions. such as investment in new, low-emissions infrastructure.

The initial indications from the task group are that mainstream Australian industry would prefer to participate in building an international and domestic framework under which this much-needed certainty can be obtained, rather than simply commenting and criticizing from the sidelines.

Monique Willis is an associate with Baker & McKenzie and a member of the company's Environment and Environmental Markets group. Monique.Willis@BakerNet.com

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