Will Australia's emissions policy encourage global action?

This ‘international linkage’ effect reduces emissions costs for high-price countries and increases their effective emissions ‘caps’. They lose emissions permit revenue, however. This is a zero-sum game. Low-price countries incur increased emissions costs and reduced effective emissions ‘caps’.  They receive increased emissions permit revenue, however. 

If all emissions ‘caps’ are binding, this permit trade means tougher restrictions on developing country growth than they planned, matched by above-target growth capacity in developed countries.

Permit trade shifts production capacity complying with emissions ‘caps’ from poorer to richer countries.  

Could their permit revenue finance enough lower-emissions technology transfer to offset this additional restriction on poorer countries’ production growth?

This is an empirical question. Higher permit prices might help, but they will also constrain the number of permits developing countries can sell. Lower prices don’t help but sales volumes might be higher.

More importantly, developing countries are likely to have much higher short term priorities for spending net permit revenue – as indeed has been the case in Australia.  Household support and industry assistance are examples.

This suggests any developing country compliance with emissions ‘caps’ under this hypothetical world ETS will further limit their growth.

I doubt developing countries, heavily pressured to maximize their own growth, will buy this ETS deal.

Other schemes are supposed to help poorer countries. The Clean Development Mechanism (CDM) and Reducing Emissions from Deforestation and Degradation (REDD) provide finance to poorer countries reducing their emissions, and ‘credits’ (extra emissions permits) to those financing them. These schemes already have been corrupted and rorted.

ETS incentives will collide over time. 

Businesses want to buy emissions permits or ‘credits’ under ETS, CDM and REDD at least cost. 

But governments are supposed to make emissions permits and credits costlier to meet emissions reduction targets. Will they, when push comes to shove? Speculation on permit prices is inevitable.