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 that allows government and voluntary private interests to make additional emission reductions beyond a national cap. A proportion of Australian emission units (AEUs) is set aside each year. The units can then be retired if state or local government, businesses or individuals take specific emission reduction measures that go beyond those expected from the Carbon Pollution Reduction Scheme (CPRS). AEUs allocated to the reserve that are not retired through additional activities would be made available to CPRS participants. By providing an upper bound to such actions, the scheme would limit uncertainty about how many permits are available for emitters. The scheme would also provide a limit to the potential losses of auctioning revenue from AEU retirements. Compared with some other additional options (such as buying-and-retiring of permits or future national cap reductions) the scheme combines an open process with favourable accounting features for tangible, psychologically satisfying actions (such as installing a home solar PV system). These actions assure participants there is an immediate reduction in national emissions. Elements of this approach have already been seen in the Regional Greenhouse Gas Initiative (RGGI), an interstate emissions trading scheme that began in the United States in 2009.