The coal question that emissions trading has not answered

Can emissions trading assist with the task of placing a limit on coal production and consumption in Australia? This paper outlines a critical political economy perspective on coal and a flagship ‘market mechanism’ for emissions reduction. The prospects for an effective emissions trading scheme in coal-dominated economies are considered in light of its theoretical justifications as well as recent attempts to price carbon in Australia. Emissions trading is a weak instrument that does not address real-world failures of coal governance. At their theoretical best, carbon prices produce marginal changes to the cost structure of production. In practice, the Australian case demonstrates emissions trading is an attempt to displace the emissions reduction task away from coal, through compensation arrangements and offsetting. In light of the urgent need to rapidly reduce global emissions, direct regulation and democratisation of coal production and consumption should be flagship climate policy. •Emissions trading schemes (ETS) are weak instruments for placing a limit on coal.•Pre-existing failures of coal governance cannot be addressed by emissions trading.•Considerable transfers of public wealth to coal companies occurred as part of the Australian ETS.•Carbon offset arrangements spatially displace responsibility for reducing emissions away from coal.