Australia: Australia´s Carbon Pollution Reduction Scheme: An ETS By Any Other Name

Last Updated: 29 July 2008
Article by Brendan Bateman

Most Read Contributor in Australia, November 2017

Key Points

  • The Federal Government's Green Paper on the proposed Carbon Pollution Reduction Scheme promises the largest transformation of the Australian economy.
  • While in many respects the Green Paper adopts design elements for the Scheme similar to those advocated by Professor Ross Garnaut, there are also some significant departures.
  • The economic transformation will come at a price. What that price will be will not be known until later this year when the emissions cap and interim target will be revealed.

On Wednesday 16 July, Senator Penny Wong, the Minister for Climate Change, released the Government's widely anticipated Green Paper on the design of the proposed emissions trading scheme which will come into operation in Australia in 2010, the Carbon Pollution Reduction Scheme.

It sets out over its 516 pages the options which have been considered by the Government in respect of the various design elements of the Scheme including sectoral coverage, where in the supply chain the point of obligation will be imposed, the method of allocating permits and the contentious issue of compensation, particularly for the trade exposed emissions intensive and stationary energy sectors.

The Government has spent much of 2008 in extensive consultation with key stakeholders and the public generally on the design of the Scheme with the aim of releasing its White Paper on final Scheme design later this year. Despite this, the ambitious timetable that the Government has set to implement the Scheme suggests that the preferred options identified in the Green Paper will largely represent its key elements. This is likely to significantly influence the developing forward market for permits under the Scheme in advance of its commencement.

Key inputs into the Government's Green Paper, which we've previously commented on, were the Garnaut Climate Change Review's ETS Discussion Paper and most recently, its Draft Report. This is the first time that the Government has flagged its position in relation to some of the strong views expressed by Professor Ross Garnaut, such as his preference for full auctioning of permits, and denying compensation to the stationary energy sector, particularly, coal fired power stations, for any diminution in asset value.

Key design features

As part of its election policy, the Government committed to a 60% reduction in Australia's GHG emissions by 2050 and the implementation of an emissions trading scheme in Australia by 2010. This continues to represent the cornerstone of the Government's overall policy to respond to climate change. In the absence of any detailed design or analysis, the Government previously announced that the emissions trading scheme would be shaped by a number of key principles.

Those principles have set the framework for the Green Paper and explain many of the Government's preferred position on key design elements.

The key design elements of the Scheme are:

  • a cap and trade Scheme involving a limit or cap on the amount of emissions by covered sectors, and permits issued up to that cap. There will be an ability to trade permits for the right to emit covered greenhouse gases measured in carbon dioxide equivalent values (CO2-e);
  • the Scheme will have broad coverage applying to all sources and sectors but excluding agriculture (at least until 2015) and deforestation. Forestry included but on a voluntary "opt-in" basis. A threshold will be prescribed in respect of each sector or particular activities/sources within sectors. it is anticipated that the Scheme will cover 75% of all of Australia's GHG emisisons;
  • the point of obligation to acquit permits within any supply chain will be a combination of direct obligations on facilities with large emissions, and obligations on upstream fuel suppliers for indirect emissions. As a consequence, it is estimated that 1,000 entities will have obligations under the Scheme, or less than 1% of all registered businesses;
  • permits (called Australian Emission Units - AEUs) will be personal property capable of being held by any person (even those with no obligation to acquire and surrender AEUs under the Scheme) and fully transferable. AEUs will be a financial product under the Corporations Act 2001;
  • unlimited banking of permits will be permitted and limited borrowing;
  • reporting under the Scheme will be under the National Greenhouse and Energy Reporting Scheme with a single report to be lodged on or before 31 October each year in respect of the preceding financial year. AEUs equivalent to emissions must be acquitted within six weeks of lodgement of the report;
  • large emitters (125,000 tonnes of CO2-e or more) will be required to have their annual emission reports assured by an independent accredited third party;
  • allocation of AEUs at least in the first phase will be through a combination of free allocation to eligible Emission Intensive - Trade Exposed Industries (EITEIs), subject to a limit, possible free allocation to "strongly affected sectors", with the rest to be auctioned. Allocation will progressively move to 100% auctioning with auctions to be held quarterly with four vintages of AEUs available for auction at any one time;
  • all money raised through the Scheme will be used to help households and business adjust to the Scheme and invest in clean energy options;
  • eligible EITEIs to receive free allocations at the beginning of each compliance period, in respect of part of emissions depending on certain thresholds, subject to an overall cap of 20% of available AEUs, or 30% if agriculture is included from 2015;
  • coal-fired electricity generators likely to fall with the "strongly affected sector" category. Electricity Sector Adjustment Scheme will be used to provide assistance with possible "once and for all" payment or allocation of AEUs;
  • a cap on the price of AEUs will be imposed during the initial phase of the Scheme (2010-11 to 2014-15, with the cap set high above the expected price of AEUs to minimise risk of application. Cap will be reviewed;
  • limited scope for domestic offsets given broad sectoral coverage. Government will consider scope for domestic offsets from non-covered sectors in 2013. Liable entities will be able to meet their Scheme obligations using Kyoto units subject to limits.

A table summarising in more detail the Government's preferred options in respect of the salient design features of the Scheme is here. The table contrasts these preferred positions with those advocated by Professor Garnaut in his Draft Report.


In many respects the Green Paper represents a balanced approach between the urgent need to reduce emission of greenhouse gases through broad sectoral coverage and early Scheme commencement, against the international uncertainty that presently exists regarding future emission commitments by both developed and developing countries post 2012.

By providing transitional assistance for TEEIIs and a price cap, the Government has sought to reduce price uncertainty for liable entities and thus foster broad cooperation for the introduction of the Scheme. In addition, by providing support for the coal-fired electricity generators, even if only a one-off, there is a recognition that Australia's energy security is presently guaranteed by our large coal reserves and existing energy infrastructure stock.

Ultimately, the making or unmaking of the Scheme will be the determined by the price that business and the broader community will be made to bear and that precise liability will not become clear for several months yet.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions