On 15 December 2008, the Federal Government released its White Paper on the Carbon Pollution Reduction Scheme (CPRS). The CPRS is the Government's primary policy tool to reduce Australia's greenhouse gas emissions, with the emissions trading scheme intended to commence operation on 1 July 2010. For business, the implications of the CPRS will include the increased costs associated with putting a price on carbon; risks and opportunities that are likely to arise for high carbon intensive goods and services; and the potential for increased costs associated with mitigation and adaption to climate change.
The key elements of the White Paper are:
- a minimum (unconditional) commitment to reduce emissions by 5% below 2000 levels by 2020 irrespective of actions by other nations. If global agreement is reached and all major economies commit to substantially restrain emissions and all developed countries take on reductions comparable to Australia's, this commitment will be increased to 15% below 2000 levels
- the introduction of an emissions trading scheme on 1 July 2010, irrespective of the current economic market turmoil. The Government says that this turmoil has not reduced the risks and threats or the benefits of action on climate change, and
- a likely carbon price of $25 per tonne and a price cap for five years of $40 per tonne at the commencement of the CPRS, rising at 5% real per annum.
Emissions-Intensive Trade- Exposed (EITE) And Strongly Affected Industries
A number of changes have been made to the Government's policy on assisting EITEs from that outlined in the Green Paper released in July 2008. These changes include:
- extension of assistance to a lower level of emissions intensity to at least 1,000 t CO2-e (carbon dioxide equivalent, the internationally recognised measure of greenhouse gas emissions) per million dollars of revenue. Previously the level of assistance was 90% for activities that had at least 2,000 t CO2-e per million dollars of revenue, and 60% for activities that had at least 1,500 t CO2-e per million dollars of revenue
- additional activities that are likely to be eligible for EITE assistance may include activities in the pulp and paper manufacturing sector, the iron and steel sector and the plastics and chemical manufacturing sector
- expansion of the emissions and costs for which assistance is provided to include emissions from the use of steam, as well as extraction and production of natural gas and its derivatives such as methane and ethane when used as a feedstock, and
- the rate of assistance provided to EITE entities to decline to keep the share of permits provided to EITE industries broadly stable over time set at 1.3%, which is broadly in line with the rate of reduction in the national trajectory for 5% below 2000 levels. Therefore, it is likely that the share of permits provided to EITE industries will increase over the first 10 years of the CPRS.
The only industry which satisfies the characteristics of a strongly affected industry which will receive direct assistance through the Electricity Sector Adjustment Scheme (ESAS) is coal-fired electricity generation. For those coal-fired generators which qualify for the ESAS, the Government will provide a fixed administrative allocation of permits (delivering around $3.9 billion of assistance in nominal terms, or $3.5 billion in real 2008-09 dollars equating to approximately 130 million permits) to generators over five years. Assistance provided to individual generators will be weighted by their historical energy output and their emissions intensity.
Further, the White Paper:
- provides guidance about which complementary measures would continue to be supported under the CPRS in recognition of the fact that such measures are not expected to be adequately addressed by the CPRS
- proposes to reduce the risk of carbon market manipulation by giving the Australian Securities and Investments Commission power to investigate and prosecute market manipulation in the carbon market by designating permits and Kyoto units as financial products under the Corporations Act 2001 (Cth)
- states that no restrictions will apply to the use of eligible Kyoto units by mandatory participants in the CPRS for compliance purposes (however, no export of permits will be allowed, and if this is varied, it would only be allowed with 5 years' notice), and
- identifies elements of the National Greenhouse and Energy Reporting Act 2007 (Cth) that will be strengthened to facilitate the introduction of emissions trading, including extending the reporting obligations to Commonwealth and State entities and unincorporated joint ventures.
Following the White Paper, an exposure draft of the proposed legislation to underpin the CPRS was released on 10 March 2009 and in the first half of 2009 the Government will also release detailed program guidelines and the eligibility criteria for assistance under each of the four streams of the Climate Change Action Fund. We will continue to monitor and report on the development of the CPRS.
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.