Emissions Trading Scheme

The introduction of a Carbon Tax in Australia in 2012 is intended to be a catalyst for the launch of an Emissions Trading Scheme (ETS) in 2015.

Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

To start with, a regulatory body (Federal Government) sets a limit on the amount of CO2 and other greenhouse gasses that can be emitted.

This cap is allocated or sold to companies in the form of carbon credits which offset a specific volume of the greenhouse gas pollutant. These companies are required to hold a number of carbon credits equivalent to their emissions.

The total number of carbon credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission permits must buy permits from those who require fewer permits.

The transfer of credits is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. In theory, an Emissions Trading Scheme (ETS), enables those who can reduce emissions most cheaply to do so, achieving a reduction of emissions at the lowest cost to society.