On one level, the scheme makes good sense. Producers buy permits from the government to cover their carbon emissions. This makes products with higher carbon emissions – like petroleum and coal-based products – more expensive. Consumers will therefore shift demand to products where carbon emissions are lower because these products become relatively cheaper.

Over time, producers are encouraged to lower their costs by shifting to production methods or products that generate fewer carbon emissions. The bonus is that they can sell their emissions permits to a laggard producer and so re-coup some of the costs of their investments.

In the real world, though, away from the stages of dancing angels, there are substantial problems in making the Garnaut scheme work.

Consider the important case of petrol consumption.

The effect of an emissions trading scheme on petrol consumption should go like this: refineries are forced to purchase carbon emissions permits; they raise the price of petrol at the bowser to recover the costs; commuters then choose public transport to get to work rather than drive, as public transport becomes relatively cheaper compared to using the car; and, over time, the motor vehicle industry is forced to develop cars that run with lower levels of carbon emissions.

The obvious flaw in this scenario, however, is that that public transport is not an option for most Australian commuters.

Eighty percent of western Sydney’s full time workers, travel to work by car. Most lack the option of using public transport. Decades of failure by governments to provide proper transport infrastructure will leave commuters with no choice but to wear the higher petrol prices.

Higher petrol prices will not drive commuters from their cars. Instead they will have to make do by cutting back on other household expenses, perhaps items (like health care) that have no carbon emissions at all.