On 19 June 2009, the Federal Government released important
details of how the emissions-intensive trade-exposed (EITE)
assistance program, established by Part 8 of the Carbon
Pollution Reduction Scheme Bill 2009, will work in practice.
The draft Carbon Pollution Reduction Scheme Regulations
2009 (released with a commentary paper) are open for public comment
until 14 August 2009.
The Bill contains very little in the way of detail about the
program, simply noting that regulations may formulate a program for
the issue of free Australian emission units (AEUs) in respect of
activities that, under the program, are taken to be emissions
intensive trade exposed activities.
The draft regulations released last week contain the first eight
activities that will be eligible for EITE assistance: carbon black
production, bulk flat glass production, glass container production,
methanol production, silicon production, white titanium dioxide
pigment production, zinc smelting, and newsprint manufacturing.
Further activities are intended to be added to the list of
qualifying EITE activities in the draft regulations.
The Government also released an explanatory paper, "Establishing the
eligibility of activities under the emissions-intensive
trade-exposed assistance program", explaining the assessments
that have been made under the program to date .
Allocation Of Free AEUs
The allocation of free AEUs is intended to provide assistance in
relation to an EITE entity's increase in direct and certain
indirect costs resulting from the commencement of the CPRS.
The general principle underlying the allocation of free AEUs is
that they will be allocated on the basis of a portion of a baseline
level of direct emissions, electricity use and the use of natural
gas as a feedstock from an activity, calculated by using the
applicant's previous year's production of the relevant
product. Special provisions are made for new entrants and where
there will be a significant expansion of a facility.
The method of calculating the number of free AEUs to be issued
to an eligible person for a qualifying EITE activity is set out in
Part 9 of the draft regulations, and involves the application of a
complex formula. The proposed regulator, the Australian Climate
Change Regulatory Authority, may only issue free AEUs to an
applicant using this formula. The formula involves, among other
things, the application of the assistance rate for an activity,
which is determined by whether it is classified by the regulations
as high or moderately emissions intensive activity. These
rates are 90% and 60% respectively, or 94.5% and 66% allowing for
the recently announced Global Recession Buffer.
The "X" Factor For Large Electricity
Division 6 of Part 9 of Schedule 1 to the draft regulations
deals with large electricity users and pre-existing contracts, and
requires applicants for assistance to submit legal opinions from
senior counsel as to the consequences of the CPRS for pass-through
of costs relating to electric power purchase agreements entered
into before 3 June 2007.
The Authority is authorised to determine what is referred to as
the "X" factor which represents its reasonable estimate
of the carbon cost pass through in the relevant contracts. The
"X" factor is then factored into the formula to determine
the level of assistance in respect of increased electricity costs
resulting from the CPRS.
What Else Is Covered By The Draft
The draft regulations also contain details of the assurance
standard required for applications for assistance under the
program, how applications will be assessed, details of
relinquishment obligations triggered by closure of a facility and
"true up" mechanisms where allocations have been made to
new entrants and for significant facility expansions based on
Stakeholder Responses To The Draft
The Government has indicated that it is interested in hearing
from stakeholders on the practical implications of the draft
regulations, and whether there is need for any additional clarity
or certainty in relation to the program. It is particularly
interested in receiving feedback on the compliance burden imposed
by the program, and whether there are any unintended outcomes by
the application of the rules based approach of the program.
Industry stakeholders are invited to provide details of situations
that have arisen in their industry over the past ten years, if
necessary, in confidence, to demonstrate any unintended outcomes or
Public submissions on the draft regulations are invited before
14 August 2009. If you need help in formulating a
submission to address any specific concerns about the program, and
the way it is proposed to be implemented, or would like to know
more about how the program affects your business, please contact
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.
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