Key Point
- While several key elements remain the same, a number of heavily negotiated elements have now been confirmed.
With the release of the White Paper we reflect on the key elements that remain the same and those significant elements which are either confirmed or are a departure from the Government's preferred position under the Green Paper.
Later in the week we'll dig into the White Paper in greater depth.
What's the same?
Several key elements remain the same:
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Commencement |
The timetable remains broadly the same with commencement of the CPRS scheduled for July 2010. |
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Coverage |
All six greenhouse gases under the Kyoto Protocol remain under the scheme and there are no changes to the sectors covered, with forestry to remain as opt-in, and the future inclusion of agriculture to be decided on in 2013 but earliest inclusion date being 2015. |
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Borrowing/Banking |
Unlimited banking is confirmed, together with the ability to borrow a limited amount from the next compliance year. |
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Offsets |
No change to the Government's position on domestic offsets - no offsets from domestic sources until after a review in 2013. Kyoto compliant offsets will be permitted with no quantitative limits. |
What's different and what further detail has been provided?
A number of heavily negotiated elements have now been confirmed with outcomes which will undoubtedly make headlines over the coming weeks. This is particularly the case in relation to the medium term target range of 5 - 15 percent which is dependent on the level of international agreement, and the increased scope of industry assistance.
Target & Cap
The Government has announced a target which is unconditional at the lower end of the range (5 percent) but conditional on international agreement at the higher end of the range (15 percent). The Government argues that on a per capita basis the target is broadly consistent with the commitments of other developed nations such as the United Kingdom and the European Union. Accordingly, Australia's target equates to 27 percent-34 percent per capita, whilst the UK's equates to 33 percent-39 percent per capita and the EU's at 24 percent-34 percent per capita.
In line with its target range, the Government has confirmed a price cap of $40 per tonne of CO2-e for five years, rising at 5 percent in real terms per annum.
Industry assistance: Emission Intensive Trade Exposed industries
The Government has confirmed that EITE assistance will be in the form of free allocation of permits at the beginning of each compliance period in respect of direct emissions, emissions from the use of electricity and steam, and emissions associated with the extraction and production of natural gas and its derivatives, such as methane and ethanol, used as feedstock.
Also new is a definition of trade exposure, which will be a trade share (defined as the ratio of the value of imports and exports to the value of domestic production) of greater than 10 percent 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 is to be measured according to the industry's historic average emissions intensity per unit of production. There will be an emissions intensity threshold of 1,000 tonnes CO2-e per million dollars of revenue or 3,000 tonnes of CO2-e per million dollars of value added. Assistance equivalent to 90 percent of emissions from subject activities will be available where
- emissions intensity is equal to or greater than 2,000 tonnes of CO2-e per million dollars of revenue, or
- 6,000 tonnes of CO2-e per million dollars of value added, and 60 percent
- between 1,000 and 1,999 tonnes of CO2-e per million dollars of revenue, or
- between 3,000 and 5,999 CO2-e per million dollars of value added.
Strongly affected industries
Coal-fired electricity generators will receive support as a strongly affected industry. The Government will provide a once and for all allocation of permits to deliver assistance of approximately $3.9 billion to the most emissions-intensive coal-fired generators based on an initial carbon price of $25 per tonne. These permits will be distributed to each eligible generator in equal amounts over the first five years of the Scheme. However, not all generators will receive assistance as a generator's emissions intensity must exceed the threshold level of 0.86 tonnes CO2-e/MWh generated.
A review to avoid windfall profits will be held in 2013 and the responsible minister will have discretion to withhold the last two years of assistance from a generator.
Point of obligation
Confirming the proposal outlined in the Green Paper, CPRS obligations will apply to large emitters having direct emissions of 25,000 tonnes of carbon dioxide equivalent a year or more.
There will be no obligations for emissions from combustion of biofuels and biomass for energy, including CO2-e emissions from combustion of methane from waste landfill facilities.
Emissions from agriculture will not be included until 2015 (despite being Australia's second greatest source of emissions).
Upstream suppliers of coal, gas and liquid fuels will be required to measure and report the quantity of, and in some cases the emissions arising from the combustion of the fuels they sell to downstream entities. However, entities that use fuel will in certain circumstances be able to directly manage their permit liabilities, if this is advantageous to that entity.
Where more than one entity may be liable for emissions, the "operational control" test will be applied, meaning that CPRS obligations will fall to the entity that has the greatest ability to introduce and implement operational decisions for the facility. However, the scheme has been widened to allow the possibility for entities with "financial control" over a covered facility to take on CPRS liabilities in certain circumstances.
In respect of obligations for corporate groups, these will continue to fall on the controlling corporation. However, with the approval of the CPRS regulator, controlling corporations may shift the obligations to a subsidiary.
Allocation
Subject to industry assistance provisions, 100 percent auctioning is confirmed with 12 auctions to occur each financial year using an ascending clock method. The first auctions are to occur as "early as feasible" in 2010. The Government has confirmed that companies will be able to purchase permits in advance (up to four years) of their vintage financial year. A new feature of the auction method is the possibility of a deferred payment system to assist industry with the purchase of future vintage permits.
Thanks to Fleur Newman, Honor Irvine and Trish Cashmere for their help in writing this article.
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.
