Last night on Insight the Assistant Treasurer refused to give any details; this says to me they're still muddling through and aren't sure of the details themselves.

Garnaut's draft:

"Gases: Six greenhouse gases as defined by the Kyoto Protocol. Sectors: Stationary energy, industrial processes, fugitives and transport from scheme outset. Waste and forestry to be included as soon as practicable. The inclusion of agriculture to be subject to progress on measurement and administration." [p.370 of pdf]

That is, basically just burning fossil fuels: waste, forestry and agriculture "maybe later" and things like the fluorine gases ignored (as Kyoto did). In other words, only half the problem.

"Permits released according to emissions reduction trajectory. All permits auctioned at regular intervals. (Note: Some permits may be used in lieu of cash in providing assistance to eligible firms that are in trade-exposed, emissions-intensive industries.)" [p.370]

Translation: free emissions permits for coal for export and mining.

"Price Controls: Not supported, except during transition period to end 2012." [p370]

Permit prices capped to begin with. Previous experience tells us that if you begin with capping the price, it'll stay capped... or everyone will howl.

Well, does he at least think we should spend the money on renewables and stuff? Nope.

"Auctioning of all permits would provide a substantial amount of government revenue. All revenue to be returned to households or businesses after administrative costs of system." [p371]

Exactly as I described about the gambling taxes replacing others.

We can also look at the EU ETS's results. Overall, EU emissions have not decreased, but increased at about 1% annually since the ETS started [source]
They might have increased more without one, but nature doesn't care whether our emissions could have been higher, all that matters is what actually goes into the system. And that's increasing for the EU.

Nevertheless, what happened in Europe does not necessarily have to do with their ETS, such as it is. A lot of their reductions or slowdown of growth of emissions have been simply in shutting down old extraordinarily inefficient machinery in the former Communist bloc EU countries, combined with a push for renewables. That would have happened regardless of any ETS.

The EU ETS is largely not an auction but a free allocation by country, and does not include nitrous oxides or fluorine gases, nor does it include the airline industry (about 5% of global emissions). The EU ETS covers about 40% of their total greenhouse emissions. As the BBC tells us,

"Nations have issued more permits to pollute than required in the first phase, which runs until the end of 2007.

"This has resulted in carbon prices falling as low as eight euros (£5) per tonne. This means that it has been cheaper for firms to buy spare permits than pay the 40-euro fine, or take steps to reduce their emissions."

So that the EU experience matches what I've said, that governments will issue an excess of permits to raise revenue and give a free lunch to high-emissions industries, and that the best we can hope is that emissions stay level rather than increasing; the EU emissions have increased by 1% annually.

Of course we may decide to learn from the EU experience and avoid their mistakes; but that would be unusual for Australia.