Article by Charmian Barton and Alicia Chryssochoides
The Carbon Pollution Reduction Scheme Bill 2009 (Cth) (Bill) was introduced into Parliament last week. The Bill includes a package of new measures for the Carbon Pollution Reduction Scheme (CPRS) that the Federal Government announced on 4 May 2009 following consultation with business, environmental advocates and the community.
The key aspects of the CPRS and its cap-and-trade operation have not been altered since the draft legislation was released for public comment on 10 March 2009. However, there are a number of significant changes in the new package which are outlined below. The changes are intended to help the Australian economy recover from the global recession while strengthening Australia's 2020 carbon pollution reduction target.
DELAY IN COMMENCEMENT
The start date of the CPRS is to be delayed until 1 July 2011. The Federal Government has decided to delay the commencement of the CPRS to assist with lessening the impact of the global financial crisis on the Australian economy and to address industry's concerns about starting a trading scheme during a recession. However, the Federal Government is keen to have the legislation passed this year to provide business certainty throughout Australia and to enable Australia to provide maximum drive to achieve a strong outcome at the Copenhagen Meeting of the Parties to the UN Framework Convention on Climate Change in December this year.
The Federal Government has committed to reduce Australia's carbon pollution target by 25% below 2000 levels by 2020 if the world agrees to a global deal to stabilise levels of greenhouse gases at 450 parts per million or lower by mid-century. This new target is also aimed at achieving the best possible outcome in international negotiations at Copenhagen.
If the above global deal is reached, Australia will meet the 25% target with the CPRS and the expanded Renewable Energy Target (RET), in addition to substantial investment in clean renewable energy and energy efficiency programs and strategic investment in carbon capture and storage. Up to 5 percentage points of the 25% target may be reached through the Federal Government's purchase of international credits using CPRS revenue (commencing no earlier than 2015).
If the global community is unwilling to adopt these targets, the Federal Government will retain its White Paper target range of an unconditional commitment to reduce carbon pollution by 5% by 2020 and a commitment to reduce carbon pollution by 15% by 2020 if there is an agreement where major developing economies and advanced economies commit to comparable targets.
FIXED PRICE UNITS
The CPRS will have a one year fixed-price period from its commencement on 1 July 2011. During this period, an unlimited number of permits will be issued to liable companies at a cost of $10 per tonne of CO2-e, with the transition to full market trading from 1 July 2012. Fixed-price permits from the first year will not be able to be banked for use in later periods. The fixed-price phase is intended to provide the Australian economy with more time to recover from the global recession.
ADDITIONAL BUFFER FOR EITE INDUSTRIES
In addition to the previously announced rates of assistance, a 'global recession buffer' for emissions-intensive trade-exposed industries (EITE) will apply for the first five years of the CPRS. The buffer will provide an additional 5% of free permits for EITE activities eligible for 90% assistance. This will provide these EITE activities with an effective rate of assistance of almost 95% in the first year of the CPRS. The buffer will also provide an additional 10% of free permits for EITE activities eligible for 60% assistance, giving an effective rate of assistance of 66% to moderate EITE activities in the first year of the CPRS. These rates of assistance will decline at a rate of 1.3% per year in accordance with the carbon productivity contribution set out in the Federal Government's White Paper.
To reduce carbon pollution before the CPRS starts, reforestation will be eligible to generate emission units for increases in carbon sequestration from 1 July 2010. This is likely to create economic opportunities in regional Australia. Units will not be issued until 1 July 2011 and those units will have a vintage year beginning 1 July 2012. The Federal Government also plans further amendments to the Bill's reforestation provisions.
The treatment of landfill facilities under the CPRS has changed. The Federal Government has accepted the argument put forward by the waste sector that 'legacy waste' emissions (emissions from waste that was deposited in landfill prior to the start of the CPRS) should not be covered by the CPRS. In addition, if a landfill facility is within a prescribed distance from another landfill facility that has a CO2-e of 25,000 tonnes or more, and is receiving a similar classification of waste, the threshold is reduced to 10,000 tonnes CO2-e. This prevents any potential avoidance of waste related liability under the CPRS. The regulations will set the prescribed distance following industry consultation.
FUNDING AND CAPITAL INVESTMENT GRANTS
Eligible businesses will receive funding as part of a $200 million tranche of the Climate Change Action Fund to undertake energy efficient measures commencing in 2009- 2010. These measures will include a range of programs to increase energy efficiency and to encourage investment in the research, development and commercialisation of lowcarbon transport and energy technology, and renewable sources of energy production.
The Federal Government has also announced the establishment of a $75.8 million Australian Carbon Trust to drive energy efficiency in commercial building and businesses and to allow households to contribute by investing directly in reducing Australia's emissions. The Australian Carbon Trust will incorporate a $50 million Energy Efficiency Trust and a $25.8 million Energy Efficient Savings Pledge Fund. The Federal Government will also take into account the contribution made by individual households that purchase accredited GreenPower when setting CPRS caps.
WHERE TO FROM HERE?
The Government is keen to secure the passage of the Bill this year as Australia will be unable to sign up to new targets at Copenhagen if it does not have the means to deliver them. However, the Federal Government will have to overcome a number of obstacles in order to pass the Bill in the current sitting of Parliament.
HOW CAN DLA PHILLIPS FOX ASSIST?
DLA Phillips Fox can help you navigate your way through the complex issues and to develop a measured and commercially astute response. We can:
- Assist with managing compliance with the National Greenhouse and Energy Reporting Act 2007 including understanding point of obligation provisions. (NGER Act registration is required by 31 August 2009 and the first report for the period from 1 July 2008 to 30 June 2009 is required by 31 October 2009.)
- Assist liable entities to understand the operation of, and their obligations under, the proposed CPRS.
- Assist liable entities in reducing their abatement costs by providing advice and assistance on linking with the international carbon market under the Kyoto Protocol and other countries' domestic and regional emissions trading schemes.
- Assist EITE industries with assistance applications.
- Assist coal-fired generation industry participants with assistance applications.
- Assist forestry-industry participants understand the impact of, and opportunities arising from, the CPRS.
- Advise on the impact of climate change issues on planning applications and development proposals.
- Advise on contractual issues, including cost pass through, contract review clauses and the impact of the CPRS on financing arrangements.
- Assist renewable and sustainable energy participants to commercialise opportunities presented from the expanded Renewable Energy Target (RET) and the introduction of the CPRS including through project development and the linking of Kyoto units.
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.