After last week’s Garnaut extravaganza all eyes should now be focused on the released of the Federal Government’s Green Paper on climate change. The paper which should be released next week will canvass some of the options the Government is considering as a response to climate change.

Do not expect to see hard and fast policy positions enunciated in the paper. Nor should you expect the shape of the climate change regime that will be enacted next year to necessarily bear much resemblance to next week’s Green Paper. The Government’s position on these issues will be informed by the response from business and industry, the commentariat and importantly by the way in which public opinion coalesces around some of the specific initiatives on climate change (and the direct impact of these measures on households).

Key policy settings to look out for in the Green Paper:
• Start-date – while the Government is soft-pedalling on its election commitment to begin an emissions trading scheme (ETS) in 2010 – this is now the Prime Minister’s and Climate Change Minister’s ‘ambition’ – pushing back the date of commencement is unlikely. Look to see if ‘transition measures’ are put in place for the first few years of operation of an ETS, delaying some of the pain to households while also easing the business community and regulators into the scheme.

• Coverage – is petrol in or out? While this easy to grasp point has been built into one of the more totemic issues for the ETS, leaving out petrol would require a sustained economic argument to justify narrowing the base of our emissions reductions. Look out for other exemptions to the ETS in other sectors.

• Compensation for households – the operation of the ETS will provide Federal Governments a source of substantial revenue for years to come. However the establishment of an ETS does not bring unmitigated joy to Government as every Australian household will feel the impact across virtually every purchase they make. By definition compensation for households will be less than the pain suffered. The challenge for Government will be providing this compensation in a way that doesn’t diminish the pollution price signal that an ETS puts in place, but instead encourages the adoption of greener behaviours and greener consumption. Look for measures to low-income households, renters (with little incentive or capacity to make household energy savings) and other subsidies to stimulate the uptake of green technologies and behaviours. Also look for income thresholds on these measures and for cut-off points above $100,000.

• Compensation for business – to use the current jargon, Trade Exposed Emissions-Intensive Industries (TEEII’s) are keenly concerned to secure compensation for the disadvantage they will suffer under an ETS; as price-takers in global markets they argue that they have little capacity to pass on the costs to their international customers. Once again the Government is on the horns of a dilemma: the need to keep business on side (and jobs in Australia) has to be weighed against achieving the objective of an ETS - getting these heavy emitters to clean up their act. Look for transitional measures to help these industries re-tool and install lower-carbon technologies.

• MRET – some argue the operation of an ETS renders the imposition of other measures – such as a Mandatory Renewable Energy Target (MRET) – pointless if not counter-productive. The Government remains committed to some form of MRET and the debate is now on the structure of the scheme and its target. Look for a scheme that provides targets for a range of technologies rather than simply an overall target which favour using existing and lowest-cost technologies. Also look for support for R, D, D, C & D (research, development, demonstration, commercialisation and deployment) of new renewable technologies.