Australia: Carbon Pollution Reduction Scheme Legislation: Exposure Draft Released

Last Updated: 19 March 2009
Article by Peter Limbers, Eric Fethers, Jennifer Mee and Simon Salter


The Commonwealth Government released its exposure draft legislation for the Carbon Pollution Reduction Scheme (CPRS) on 10 March 2009. The legislative package confirms its commitment to:

  • establish the CPR Scheme by June 2010
  • reduce national greenhouse gas emissions by 5% - 15% of 1990 levels by 2020
  • take complementary action including an expanded Renewable Energy Target, investment in renewable energy, carbon storage and carbon capture, and adopt other energy efficiency initiatives.

The legislative package is comprehensive and complex. It elaborates upon the policy positions taken in the recent White Paper but also leaves important areas for resolution in regulations. The key issues are summarised below.

Cap and trade scheme

The CPRS is a 'cap and trade' scheme and emissions units will be issued up to the national scheme cap specified for a particular year in regulations. From 2015, the national scheme cap must also fall within the upper and lower bounds of 'national scheme gateways' that are designed to achieve the projected emissions trajectory. These will also be specified in the regulations.


The legislation establishes the Australian Climate Change Regulatory Authority (Authority) as the entity responsible for the registry, issuing Australian emissions units, assessing entitlements, administering the reporting regime, issuing obligation transfer numbers (OTNs) and carrying out other administrative functions. Details of its constitution, membership and powers are set out in the Australian Climate Change Regulatory Authority Bill.


The CPRS will utilise the existing National Registry of Emissions Units, giving account holders online access to receive, deal with, surrender and cancel emissions units. The registry will also perform accounting functions.

Reporting obligations for liable entities

All liable entities will need to assess and report on their emissions number (in tonnes of carbon dioxide equivalence emitted) for a financial year, using the formula set out in the Bill. The National Greenhouse and Energy Reporting Act 2007 (NGER Act) will be amended to enable reporting under the existing framework. The measurement methods described in the National Greenhouse and Energy Reporting (Measurement) Determination 2008 will also be used for this purpose.

Liable entities include persons responsible for the operational control of facilities which emit 25,000 tonnes of carbon dioxide equivalence or more, or persons that import, produce, manufacture or supply certain upstream fuels or synthetic greenhouse gas. Liability transfer certificates may be issued to transfer liability for a particular facility between related bodies corporate, or from an entity with operational control over a facility, to the entity with financial control over that facility.

Transfer of liability for fuel supply – obligation transfer numbers

For most fuels, liable entities will be the upstream importers, producers or fuel suppliers. However, the Bill also provides for the imposition of liability on the holder of an OTN issued by the Authority. The Authority may (for example) issue an OTN to a downstream purchaser of eligible fuel (either on the Authority's own initiative or in response to an application by that purchaser).

In order to avoid double-counting or gaps, a supplier of eligible fuel may (and, in some cases, must) transfer liability for emissions associated with that fuel to the holder of an OTN quoted in the supply agreement. In these situations the holder of an OTN will be the liable entity for that fuel supply.

Surrender obligations for liable entities

Liable entities must surrender enough eligible emissions units to match their emissions number. They may borrow and bank units, and may surrender both Australian emissions units and eligible Kyoto units.

Administrative penalty for shortfall

Any liable entity that has a unit shortfall will incur an administrative penalty. The administrative penalty will be set at either 110% of the 'benchmark average auction price' for the previous financial year, or the amount prescribed in regulations. A late penalty of up to 20% will also apply on late payments. The number of units that a liable entity fails to surrender will become a 'make good number' and will be added to the entity's emissions number for the following financial year.

Issue of emissions units

Emissions units will be issued up to the national scheme cap for a particular year, through the use of auctions, assistance to emissions-intensive trade-exposed activities (EITE) or coal-fired electricity generators, and as credits for reforestation and destruction of synthetic greenhouse gases. In addition, from 2010/11 to 2014/15 emissions units may also be issued for a fixed charge of $40 (rising each year by 5%), effectively acting as a cap on prices.


The Bill confirms that Australian emissions units will be auctioned, but leaves all details to be determined by the Minister in a yet to be developed legislative instrument. The White Paper supported monthly auctions that use an ascending clock format.

Tax treatment

Because Australian and Kyoto emissions units are classified as personal property rights, their transfer will attract GST. However, the cost of purchasing a unit will be tax deductible. Emissions units that are allocated for free will not be taxable unless later transferred. The legislative package includes amendments that specifically address taxation, custom and excise issues.


The Bill provides for a raft of compliance and enforcement provisions including administrative penalties and civil and criminal sanctions. This includes anti-avoidance provisions to prohibit any artificial scheme that seeks to avoid or gain the benefit of provisions of the Bill (for example, engaging in asset stripping).

The Bill includes detailed provision for civil penalties, and applies vicarious liability to companies' executive officers. It also allows a court to order a person convicted of a criminal offence under the Bill to relinquish units received as a result of the criminal act.

Assistance for EITE Industries

As set out in the White Paper and the Commonwealth Government's Guidance Paper "Assessment of activities for the purposes of the emissions-intensive trade-exposed assistance program" (February 2009), the legislation proposes to establish an assistance program for Emissions-Intensive Trade-Exposed (EITE) industries by 1 July 2010.

The program's details are left to be formulated in regulations, including details such as the eligibility criteria, reporting and relinquishment requirements, application and approval criteria, and the method for calculating an entity's entitlement to free Australian emissions units.

Coal fired generation

For the first five years of the Scheme, the Authority will issue free Australian emissions units in respect of eligible generation assets. The free units will be allocated on a pro rata basis based on the entity's 'annual assistance factor', determined by applying the following formula:

Annual assistance factor = historical energy × (emissions intensity – 0.86)

'Historical energy' means the generation asset's electricity output over the three year period 1 July 2004 to 30 June 2007 (or the nameplate rating as proxy for this amount). 'Emissions intensity' means the generation asset's emissions intensity in kilotonnes of carbon dioxide equivalence of emissions per gigawatt hour of electricity generated based on actual data or the Authority's discretionary estimate.

Entities seeking this assistance must apply within 90 days of the legislation commencing. In order to be eligible, the relevant generation asset must:

  • be in operation in June 2007 or committed to be constructed as of 3 June 2007;
  • use coal for 95% of its primary energy supply
  • connect to a grid with a capacity of at least 100MW
  • comply with the 'power system reliability test'.

After three years, all generation assets that have received assistance must undergo a windfall gain review. This involves the Authority assessing whether the value of assistance delivered in respect of a generation asset is likely to exceed the impact of the CPRS on the value of that asset. If the Authority finds that a windfall gain is likely, it may issue a windfall gain declaration and may withhold assistance for the remaining two years. This decision is reviewable by the Adminstrative Appeals Tribunal.


The Authority may issue free Australian emissions units for net greenhouse gas removals that occur after the CPRS starts. To be eligible, a person must be a recognised reforestation entity and hold sequestration rights in relation to the project. A person must submit a reforestation report and obtain a certificate of reforestation from the Authority in order to obtain emissions units. The Bill sets out a formula for determining the unit entitlements that apply to a reforestation period, with further detail to be provided in the Regulations.

What next?

The future of the proposed legislation is uncertain, with a Senate enquiry reporting back on whether Australia should adopt an emissions trading scheme on 14 May 2009.

Consultation on this draft legislation closes on 14 April 2009 as the Government hurries to comply with its June 2009 deadline to pass the legislation. However, currently the draft legislation appears not to have enough Parliamentary cross bench support, so its passage into legislation is not guaranteed.

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”

Mondaq Advice Centre (MACs)
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.