Additional Action Reserve: A proposed mechanism to facilitate additional voluntary and policy emission reductions efforts in emissions trading schemes

An Additional Action Reserve (AAR) is proposed as a mechanism to allow for initiatives by government and voluntary private interests to make additional emissions reductions beyond a nationally set cap. The key idea of the AAR is to annually set aside a proportion of the Australian Emission Units (AEUs) which can then be retired if state or local government, businesses or individuals take specific emission reduction measures which go beyond those expected to be driven by the CPRS. AEUs allocated to the reserve that are not retired through additional activities would then be made available to CPRS participants. By providing an upper bound to such actions, the scheme would limit the uncertainty as to the quantity of available permits for emitters and provide a limit to the potential losses of auctioning revenue from AEU retirements. Compared to some other options to allow for additional action (such as buying-and-retiring of permits or future reductions of the national cap) the scheme combines the favorable features of accounting for tangible, psychologically-satisfying actions (such as installing a home solar PV system) with a transparent process that assures the participant that such actions are having an immediate effect in reducing national emissions. Elements of this approach have already been seen in the Regional Greenhouse Gas Initiative (RGGI), an inter-state emissions trading scheme which began in the United States in 2009.