The development of a scheme to regulate carbon emissions in the Australian economy has progressed over several years, culminating in the delivery of the Green Paper (in July 2008) and the White Paper (in December 2008). The White Paper represents the final policy position document and outlines the framework for the “Carbon Pollution Reduction Scheme”. Some amendments to policy positions have been presented since the release of the White Paper. The scheme presented in the White Paper is an emissions trading scheme, which effectively places a cap on the total emissions allowed by the Australian economy and allows parties to trade the rights to emissions permits, thus allowing least cost adjustment, as permits will be directed to the areas of the economy for which they hold the greatest value. The key parameters of the CPRS are summarised as below.
The scheme will commence on 1 July 2011 and operate on a financial year basis with annual compliance obligations. For the first year of the scheme, the price of permits will be fixed at $10/tonne. From 2012, permits will be tradeable without no fixed price. Permits will be created and will reflect a cap on total Australian greenhouse gas emissions.
- Scheme obligations will apply to entities that have direct emissions of more than 25,000 t CO2-e. Businesses will be required to purchase permits for each tonne of greenhouse gases emitted.
- All six Kyoto greenhouse gases (methane, carbon dioxide, nitrous oxide, sulphur hexafluoride, perfluorocarbons and hydrofluorocarbons) will be covered.
- The scheme regulator will have the power to impose a penalty for non-compliance (i.e. failure to surrender sufficient permits).
- Covered sectors will include: waste; stationary energy; industrial processes, transport; fugitive emissions; and forestry sectors. The Government will determine in 2013 if agriculture will be included from 2015.
The White Paper outlines three fixed targets commencing at 109% of 2000 levels in 2010/11 and declining by one percentage point a year to 107% of 2000 levels in 2012/13. The remaining fixed targets for 2013/14-2014/15 will be announced in early 2010. The final two targets (2013/14 and 2014/15) will be announced in early 2010. The Government has also announced a “gateway” of a 5-15% reduction of emissions relative to 2000 levels by 2020. This has been revised to include a target of 25% should a comprehensive global agreement be reached.
Based upon the longer-term gateway of 5-15% reductions in emissions, the price determined by Treasury modelling would commence at around $23/tonne and increase to $35/tonne in 2020 (2005 dollars). Treasury modelling has not been released for a 25% reduction scenario.
The National Greenhouse and Energy Reporting Act (NGERS) will provide the starting framework for monitoring, reporting and assurance under the scheme. Permits (Australian emission units – AEUs) will be created under the scheme legislation and will be personal property, transferable and defined as a financial product for the purposes of the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001, but with some minor adjustments to fit the characteristics of the permits.
Gateways (higher and lower bounds of potential targets) will be provided for 2025 at the beginning of the scheme. The “gateways” will be extended by five years after each five year period.
Liable parties will be able to surrender international Kyoto compliant credits for compliance purposes: Joint Implementation (JI) Emission Reduction Units (ERUs); and Clean Development Mechanism Certified Emission Reductions (CERs) except CERs from forestry based projects. There is no limit on the number of these certificates that can be surrendered for compliance purposes.
Some permits will be provided to emissions intensive trade exposed (EITE) and electricity generators at the beginning of the scheme and the remaining permits will be auctioned with progression towards 100 percent auctioning as the scheme matures. Auctions will be held monthly with the first auction to be held early in 2011.
EITEs will receive an allocation of permits at the beginning of each compliance period, contingent on production. Initial assistance to eligible activities will be set at: 90 percent of an allocative baseline for activities that have an emissions intensity above 2000t/$million revenue or 6000 t/$million valued added; and 60 percent of an allocative baseline for activities that have an emissions intensity between 1000t/$million revenue and 1999t/$million revenue or between 3000t/$million revenue and 5999t/$million revenue. The allocative baselines will reflect the costs associated with direct emissions and generic factors (one permit per MWh and State-based gas emission factors) for electricity and gas consumption to reflect higher energy costs. Over time the rate of assistance will decline by the carbon productivity contribution of 1.3 percent a year. In May 2009, the CPRS was revised to include an additional Global Recession Buffer (GRB) to the EITE industries of an additional relative 10% (to the 60% category) and an additional relative 5% (to the 90% category).
Only coal-fired electricity generators in existence at 3 June 2007 will be eligible for the Electricity Sector Adjustment Scheme (ESAS). The Government will deliver a fixed quantity of permits (up to 130.7 million) over the first five years of the scheme to impacted generators. These permits have a nominal value based upon modelling of $3.9 billion and equate to approximately 5% of total permits. The quantity of permits provided will be determined using the individual generators emissions intensity relative to a benchmark of 0.86 tonnes per MWh and capacity and output.
The Government has committed to introducing a Climate Change Action Fund to provide information to business and the community about the scheme; provide grants and incentives for business to invest in energy efficiency and technology; provide structural assistance to impacted communities; and structural assistance to coal mines with high fugitive emissions.
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