…if a power station has been given all the permits it needs, those permits have an opportunity cost because they could be sold to some other company that needs them, at the market price for permits.
This leaves the power station with an incentive to switch to gas-fired generation, for instance, and sell the permits it no longer needs. And since its free permits are valuable, it will still raise its prices to customers, requiring them to compensate it for its opportunity cost in not selling its permits.
I cannot agree with Ross Gittins here. If the overall price of carbon is capped at $10 per tonne by the government and the households are compensated for the extra increase in prices how will they change their behaviour? Does not seem logical.
Rather than this half-cooked scheme Australia could have waited for a couple of years.