Under the scheme, billions of dollars worth of free permits would have been given to major polluters, most egregiously to coal generators. Fuel excise was going to be cut to offset the impact of the scheme on transport fuels. Major sources of emissions were excluded from the scheme, including agriculture and deforestation that account for around 30 per cent of Australia’s emissions. These and other similar features of the CPRS ensured it could not achieve its stated objective of reducing emissions at least-cost. The loopholes and handouts were also inequitable – taxpayers’ money would have been given to prop up polluting businesses when it could have been used for more productive purposes.

In other circumstances, the demise of the CPRS may have been cause for optimism; a chance to find a cheaper and fairer way of reducing Australia’s emissions. Yet there are few positives to take from the decision. The Government has shut the door on carbon pricing for the short- to medium-term. And a change of government in the 2010 election – which only weeks ago was unimaginable but is now within the realms of the possible – would set the reform process back even further as the Liberal-National Coalition is staunchly opposed to any form of carbon price.

Putting aside the domestic political and economic issues, the decision to shelve the CPRS has important international implications. Australia is a middle power that is responsible for around 1.5 per cent of global greenhouse gas emissions. What it does domestically is unlikely to dramatically alter the course of the international climate negotiations or global warming more generally. However, the international negotiations are at a difficult juncture. The momentum for reform has waned since the Copenhagen Climate Conference in December 2009 and many major emitting countries are now slow- or back-peddling on mitigation measures.

France recently announced it was abandoning its plans to introduce a carbon tax. In the US, the proposed emissions trading scheme is bogged down in Congress and it looks like it will stay there for some time yet. Canada has also shelved its plans to introduce an emissions trading scheme, citing a desire to harmonise its measures with the US. Not all the news is negative. New Zealand is moving ahead with its emissions trading scheme. In mid-April, the Japanese Government tabled its Basic Anti-Global Warming Law in Parliament. Brazil has also made good progress on reducing deforestation emissions over recent years. Yet the good news has been overwhelmed by the bad, leaving the international negotiations in a precarious position. The last thing that was needed was for a major emitting country like Australia to signal that it had lost the stomach for reform.

The Rudd Government can claim it is still committed to the CPRS and that its decision was thrust upon it by an obstructionist Senate. It can maintain that it still has bipartisan support for its pledged targets of a 5-25 per cent reduction in emissions on 2000 levels by 2020. It can claim that it is spending billions on clean energy research and energy efficiency. But these arguments are likely to be lost in the noise of the international debate.

The message most countries will take away from the announcement is that Australia is no longer interested in an ambitious climate agreement. There is a risk that this will feed the perception that strong domestic mitigation is too hard. While there are a number of other factors shaping the course of the international negotiations, the Australian Government’s back-flip on the CPRS has made an already difficult task that much harder.

Andrew Macintosh is the Associate Director of the ANU Centre for Climate Law and Policy.