Amid the continuing focus on the politics of the Carbon Pollution Reduction Scheme, there remains the small problem that we need to work out how we’re going to reduce our CO2-equivalent emissions.  This major economic reform issue will only worsen the longer it remains unaddressed.

In fact the first challenge will be prevent our emissions rising further, rather than reducing them by 5, 10 or 25%.

The Coalition’s “direct inaction” plan, which relies heavily on soil carbon initiatives, won’t have much impact.  Even in the unlikely event that farmers find it economic to undertake carbon sequestration measures at a cost of $8-10 a tonne of CO2-e (when the actual cost is likely to be $20-40), the first task will be to prevent soil carbon levels in some areas from declining further, rather than increasing sufficient to lock away tens of megatonnes of emissions.

The political risks of direct subsidies and rebates have been on vivid display over the last fortnight, with ministers linked, however tenuously, to anything that happens during the roll-out of an energy efficiency program, even when the relevant industry is safer after the program than before.

Last week, I met with David Vincent, projects director of the UK Carbon Trust, a not-for-profit company established by the UK Government that helps fund business investment in energy efficiency and the development of low carbon technologies.  Last year the trust, which has been running since 2002, received funding of about £165 million for investments such as interest-free loans to SMEs for energy efficiency expenditure and the provision of assistance for renewable/no-carbon technology start-ups.

Rather than winner-picking or swamping boutique industries with large scale investment, the Carbon Trust is partly aimed at a more subtle form of “direct action” by Government.  Many of its activities are aimed at critical information gaps across a range of areas: what special heavy manufacturing requirements do deep-water offshore wind farms have?  What do new technology manufacturers need to know about British industry standards?  How do you help start-ups learn how to write a business plan that will make sense to venture capitalists? Information issues such as emissions measurement, and standards for measurement, require significant work before businesses can integrate them into production and planning processes.

The Carbon Trust has also launched a carbon labelling scheme for consumer goods based on a standardised process for assessing the carbon footprint of the manufacturing process.  Indeed, the trust last year even rolled the scheme out in Australia in co-operation with Planet Ark (which prompted The Australian to say consumers would be confused by carbon labels).

There’s a far smaller scale version of the Carbon Trust here as part of the Government’s efforts to address criticism of the CPRS.  The Australian Carbon Trust, proposed to deflect criticisms that voluntary action would have no point under the CPRS, is partly intended to “demonstrate innovative approaches to energy efficiency investment by business with the aim of showcasing and mainstreaming these approaches across the private sector.”  It’s got $50 million in “seed funding” for showcasing technologies, although not for assisting their commercialisation or for assisting business with uptake.

The inevitable criticism of the UK model is that it funds businesses to undertake the sort of investment they should undertake by themselves, given the bottom-line benefits of reduced energy-related expenditure.  But that’s one of the problems of subsidies of any kind, no matter how they’re provided.

If we’re unable to take climate change seriously enough to cap CO2-e emissions, then we’re stuck with the problem of how to minimise the distortionary impacts of the next policy option, large-scale direct government investment in low-carbon industries of any kind. The Brits are working on building the capacity of industry sectors to drive the transition to a low-carbon economy.  We’re still working out that you can’t just wade into these sectors and throw taxpayers’ dollars around and hope it will do the trick.