The Federal Government's Carbon Pollution Reduction Scheme White Paper (White Paper) outlines the Government's climate change policy, having considered Treasury modelling, reports from Professor Ross Garnaut and over 1000 submissions from the public in response to the Government's Green Paper.
The highlights are:
- an un-conditional commitment to 5% reductions from 2000 emission levels by 2020;
- up to 15% reduction from 2000 emissions levels by 2020 pending a global agreement;
- a price cap of $40 for the first 5 years but with an initial expected price in 2010 of $23 per tonne;
- ability to surrender an unlimited number of international Kyoto units in addition to carbon pollution permits;
- assistance to emissions-intensive trade exposed (EITE) industries has been significantly increased; and
- Carbon Pollution Reduction Scheme (CPRS) to begin 1 July 2010.
The obligation threshold under the CPRS is 25,000 tonnes of CO2-e direct emissions in any of the following sectors: stationary energy, transport, fugitive emissions, industrial processes, waste and forestry. The Government estimates that 75% of Australian emissions will be covered, with around 1000 entities having mandatory obligations.
Agriculture is not included initially, though a decision will be made in 2013 if it will be included from 2015. Deforestation is not included either, but the scheme does include reforestation on a voluntary basis. The use of biofuels and biomass for energy will not be covered. Domestic offsets, other than in forestry, will not be available initially but will also be considered in 2013.
Upstream fuel suppliers may be able to transfer their obligations downstream in some cases through the Obligation Transfer Number mechanism.
Reporting and compliance
The National Greenhouse and Energy Reporting System (NGERS) will be the starting framework for the scheme, with a single report to satisfy both CPRS and NGERS obligations required for submission by 31 October following each financial year. Final surrender of permits is required no later than 15 December.
An operational control test will be the general test for covered facilities, with the controlling corporation of a corporate group having the obligation.
Large emitters (over 125,000 tonnes) are required to be audited by a registered independent third party annually.
Permits will be personal property and may not be extinguished without compensation (except in the case of misrepresentation or fraud). Carbon pollution permits and eligible Kyoto units will be financial products for the purposes of the Corporations Act 2001. ASIC will have powers to investigate and prosecute market manipulation.
Banking of permits is permitted indefinitely, but they will have a 'vintage' or start date. Borrowing of up to 5% of the following year's vintage permits is permitted.
Any of the following can be surrendered to meet CPRS obligations:
- carbon pollution permits; and
- an unrestricted quantity of the following Kyoto units:
- certified emission reductions (CERs) generated under the Clean Development Mechanism but not those with contingent obligations and high administrative costs;
- emission reduction units (ERUs) generated under Joint Implementation (JI) projects in developed countries other than Australia; and
- removal units (RMUs) generated by land use, land use change and forestry (LULUCF) activities.
The price of permits will be capped at $40 per tonne for the first 5 years. Assistance to business and households has been based on an assumed initial carbon price of $25 per tonne of CO2-e and will be reviewed annually.
Approximately 70% of permits will be auctioned, and these auctions will take place on a monthly basis. No export of carbon pollution permits will be allowed.
Assistance for emissions-intensive, trade-exposed (EITE) industries
Trade exposure will be defined by having a trade share (defined as the ratio of the value of imports and exports to the value of domestic production) of greater than 10% in any year between 2004-05 and 2007-08, or a demonstrated lack of capacity to pass through costs due to the potential for international competition.
Emissions intensity will be measured on the basis of the emissions-to-revenue or emissions-to-value-added of activities being above nominated thresholds. Allocations will be made on the basis of an entity's output according to the industry's historic average emissions intensity per unit of production.
There are two rates of assistance:
- 90% for activities that had at least 2,000 t CO2-e per $1 million of revenue
- 60% for activities that had at least 1,000 t CO2-e per $1 million of revenue.
An alternative value-added based measure of emissions intensity for assessment is also available.
Assistance will be provided in respect of an activity's direct emissions, for the indirect emissions associated with its use of electricity, emissions from the use of steam and emissions associated with the extraction and production of natural gas and its derivatives such as methane and ethane when used as a feedstock.
The period used for assessment of eligibility is from 1 July 2004 to 31 December 2008. All allocations will be made on the basis of production levels and growth in existing production and new investments will receive assistance at the same rate.
EITE industries allocation will be around 25% of total carbon pollution permits (35% if agriculture were included). If EITE industries grow at the same rate as the rest of the economy, this is likely to rise to around 45% by 2020. EITE assistance will reduce by 1.3% pa.
Assistance for strongly affected industries
Only coal-fired electricity generation will receive support as a strongly affected industry, but not all coal-fired electricity generators will receive assistance.
A "once-and-for-all" allocation of permits will be granted to the most emissions-intensive electricity generators under the Electricity Sector Adjustment Scheme (ESAS) totalling $3.9 billion based on initial price of $25 per tonne to be distributed over the first 5 years.
Where the regulator finds that windfall gains are likely, it can make a recommendation to the Minister to withhold all or part of the last two years of assistance.
Transforming the energy sector
The allocation of permits to coal-fired generators will be conditional on the recipient retaining the same level of generation capacity as at 3 June 2007.
No new funds have been allocated, but other existing measures for the energy sector include:
- the Renewable Energy Target (RET) which requires 20% of Australia's electricity to be sourced from renewable generators by 2020. Draft legislation of the expanded national RET was released on 17 December 2008. Legislative and regulatory amendments are expected to be in place by mid- 2009, with the revised targets commencing from 2010. The RET includes a multiplier provision so that small generation units will receive five times the benefit as their larger-scale siblings in the initial years. This will equal out over the first five years of the scheme.
- bringing forward the $500 million Renewable Energy Fund to the next 18 months rather than over the next 5 years.
- the Global Carbon Capture and Storage Initiative, with up to $100 million per annum towards a new Global CCS Institute.
- existing funding of $500 million over eight years to support the National Low Emissions Coal Initiative through the National Low Emissions Coal Fund.
- Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008, which passed in late 2008.
The total size of the assistance package for households is estimated to be $6 billion in 2011-12. Electricity prices are estimated to increase by around 18% and gas prices by 12%.
Pensioners, seniors, low and middle-income households, carers and people with disabilities will receive additional support to fully meet the expected overall increase in the cost of living flowing from the Scheme. Low and middle-income working households will also receive a tax cut.
Motorists will be protected from higher fuel costs from the Scheme by 'cent-for-cent' reductions in fuel tax for the first three years. Appropriate measures will be taken into account with businesses that do not pay the excise.
A Climate Change Action Fund will also be established to help businesses, community sector organisations, workers, regions and communities to adjust. An additional $300 million will be provided as part of the coal adjustment stream.
Scheme governance and implementation
Administration of the CPRS, NGERS and the RET will be combined under a single independent regulator to be called the Australian Climate Change Regulatory Authority. An interim regulator will be in place in the first half of 2009 to ensure key personnel and systems are in place well in advance of the scheme start.
A national registry is already under development and is expected to be fully operational in the first quarter of 2010.
Draft legislation for the CPRS is expected to be available for public comment in late February 2009, with Bills to be introduced into Parliament in the winter session of 2009. The CPRS will begin on 1 July 2010.
Almost half of the first reporting period of under NGERS has already past. The White Paper confirms the importance of having the right systems in place for recording your emissions. It is essential to understand what constitutes a "facility" under your "operational control".
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