The impact of an Australian emissions trading scheme on the national economy has been widely discussed but a forum held at UNSW this week sought to include the country's most vulnerable households in the debate.

Experts from charitable organisations and environment groups joined with academic researchers to discuss the issues around the biggest challenge of an emissions trading scheme (ETS) - the manner in which permits to pollute are allocated.

Damian Sullivan, from the charitable group Brotherhood of St Laurence, said his organisation had examined the potential impacts of an ETS on low-income Australian households.

"Low-income households spend a greater proportion of their income on basic necessities such as electricity, petrol and goods and services with a higher carbon content, even though they use less carbon overall (compared with high-income earners)," Mr Sullivan said.

"Our concern is that there is a risk that new groups of disadvantaged Australians will be created as people are shifted into poverty as a result of the carbon price."

Conference convener Dr Regina Betz, Joint-Director of the UNSW Centre for Energy and Environmental Markets (CEEM), said the forum aimed to identify the potential impacts of different allocation methods of permits on different sections of the community and to discuss how best to use revenue from the auction of permits.

"We wanted to have a discussion that included the parties that usually have not been heard as much," Dr Betz said.

A number of approaches to an ETS are currently under discussion in Australia. The Garnaut Review of the challenges and opportunities created by climate change recommended auctioning all permits. Garnaut advocated using the revenue raised to compensate emissions-intensive, trade-exposed (EITE) industries such as aluminium smelting and fund measures such as innovation and social equity. The Federal Government's Green Paper has indicated a preference for free allocation of some permits to EITE industries in place of compensation, with some direct compensation for the electricity industry either by cash or free permits and auctioning of remaining permits.

Dr Betz said the allocation of permits is an issue that has to be carefully considered.

"The world's largest emissions trading scheme, which came into force in the European Union in 2005, was initially undermined by the combination of allocating a high proportion of free permits and excessive aggregate allocation," she said.

"This led to a massive movement of wealth from households to industry with little gain for the environment. This is a situation we would certainly like to avoid in Australia and the method of allocation of permits can lead to significant transfers of wealth between the members of the community."

Other speakers at the conference were Oxford University environmental economist Dr Cameron Hepburn, CEEM Joint-Director Dr Iain MacGill, Erwin Jackson from The Climate Institute, David Richardson of The Australia Institute, Dr Jack Pezzey of the Australian National University, Hugh Saddler from Energy Strategies and Owen Pasco from the Australian Conservation Foundation.

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