The Australian government is set to introduce an emission trading scheme (ETS) which it plans to commence in 2010. Although the government has released a Green Paper outlining the parameters for the design of an emission trading scheme, one of the key debating points is around the caps on emissions, particularly over the medium term.

The Climate Pollution Reduction Scheme uses a cap and trade (or emissions trading)scheme as the cornerstone to achieve emissions reductions in Australia. This has significant benefits because it equalises abatement costs across the economy and thereby allows the market to find the lowest cost abatement opportunities.