Three ways to skin a cat: fiscal responses to climate change: Australia, California and Tokyo compared

Emissions reductions can be promoted through regulatory measures but most economists support placing a price on carbon as a complementary and, possibly, more effective measure. A pricing measure typically takes the form of either (or both) a carbon tax or an emissions trading scheme (ETS). Whilst both measures have their advantages and disadvantages an ETS might be preferred on the basis of the ability to set caps and link with other schemes. A number of ETSs are now operating around the globe but there is no one template. This paper will compare the different approaches adopted by the Californian and Tokyo ETSs with the Australian regime that operated for two years from 2012 until 2014 and the so-called emissions reduction fund (ERF) that replaced it. It will be demonstrated that fundamental points of difference reflected by these alternative arrangements are the extent to which the regimes focus on domestic rather than global emissions reductions and the primacy given to the market. The ETSs can also be contrasted to the voluntary nature of the ERF, at least as currently enacted, and how that system seeks to reward responsive businesses whilst the ETSs penalise non-responsive entities.