Carbon Pollution Reduction Scheme and Carbon Pricing Mechanism: comparison

Carbon Pollution Reduction Scheme (CPRS)

Carbon Pricing Mechanism

Targets

  • Medium-term national target range of reducing emissions by between an unconditional 5 per cent of 2000 levels by 2020, with up to 15 per cent or 25 per cent of 2000 levels by 2020 conditional on the extent of action by other nations.
  • Long-term emissions reduction target of 60 per cent below 2000 levels by 2050. In the event that there is a comprehensive global agreement capable of stabilising atmospheric concentrations of greenhouse gases at around 450 parts per million of carbon dioxide equivalence or lower, the Government committed to a target of reducing emissions by 25 per cent of 2000 levels by 2020
  • Medium-term national target range of reducing emissions by between an unconditional 5 per cent of 2000 levels by 2020, with up to 15 per cent or 25 per cent of 2000 levels by 2020 conditional on the extent of action by other nations.
  • New 2050 target to reduce emissions by 80 per cent compared with 2000 levels (increase over previous commitments).

Coverage

  • Covered about 80 per cent of emissions (about 1000 facilities).
  • Wide coverage of gases, sources and sectors, with inclusion of forests (reducing emissions from deforestation and forest degradation in developing countries) and the land sector (including soil carbon initiatives, e.g., biochar if scientifically demonstrated) in the agreement.
  • Excluded agriculture, deforestation and closed landfills.
  • All six greenhouse gases mentioned in Annex A to the Kyoto Protocol.
  • Lower coverage than the CPRS. Covers about 60 per cent of emissions (around 500 of the largest emitters). Estimated to cover 25 per cent less emissions than CPRS.
  • Just four of the six greenhouse gases covered under the Kyoto Protocol. Only carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and perfluorocarbon (PFC) emissions will be included. Hydrofluorocarbons and sulphur hexafluoride will face an equivalent carbon price, which will be applied through existing synthetic greenhouse gas legislation.

Caps

  • Set annually, five years in advance.
  • 2020 target to be set before the end of the three-year period before moving to the emission trading scheme on 1 July 2015. The Government will announce the first five years of caps in the 2014 Budget and will be required to table regulations setting five years of pollution caps in the Parliament no later than 31 May 2014. The pollution cap will be extended by one year every year in regulations from 2015-16 to maintain five years of known caps at any given time.

Prices

  • A one-year fixed-price period in 2011-12, during which emissions units were to cost $10 per tonne. Transition to full market trading from 1 July 2012 subject to price caps.
  • In 2012–13, an AEU‘s price was capped at $40 plus five per cent real growth for each of the years 2010–11 and 2011–12. In each of the three years thereafter, the price cap would rise by the indexation factor for that particular year, applied to the previous year‘s price. The price cap for a particular year would apply until 15 December of the compliance year, and caps would cease on 15 December 2016.
  • Starting on 1 July 2012, price will be $23 a tonne. Following two years: this price will rise by 2.5 per cent a year in real terms. From 1 July 2015, the carbon price will be set by the emissions trading scheme market.
  • Price ceiling and floor will apply for the first three years of the flexible price period. The ceiling will be set at $20 above the expected international price and will rise by 5 per cent in real terms each year. The price floor will be $15, rising annually by 4 per cent in real terms.

Cost of living

  • Expected increases in the cost of living of 0.4 per cent in 2011–12 and 0.8 per cent in 2012–13, resulting from an initial $10 per tonne fixed carbon price in 2011–12 and a flexible carbon price in 2012–13.
  • Overall price level: 0.7 per cent increase in 2012-13 for a $23 carbon price
  • The average household will see cost increases of around $9.90 per week, while the average assistance provided will be around $10.10 per week.
  • Estimated increase in household electricity expenditure of around $3.30 per week.

Household assistance

  • Assistance for low- and middle-income households: assistance through tax and transfer systems. Targeted to low- and medium-income households. Compensates about 90 per cent of households. About half of revenue devoted to household compensation. Assistance to low-income households would fully meet expected overall increase in cost of living. Assistance to middle-income households would help meet the expected overall increase in cost of living. 
  • A $2.75 billion Climate Change Action Fund established to ease transition costs for businesses, community sector organisations, workers, regions and communities changing to an operating environment that includes a price on carbon.
  • Fuel tax adjustment: ‘cent-for-cent’ fuel tax reduction for 3 years.
  • Household assistance package: $14.9 billion over four years
  • Two rounds of tax cuts and increases in pensions, allowances and benefits. Compensates about 90 per cent of households. Average assistance provided will be around $10.10 per week
  • Tax-free threshold will be more than trebled to $18,200 in 2012-13. From 2015, the tax-free threshold will be further raised to $19,400. But increases in marginal tax rates for higher incomes
  • Energy Affordability Scheme (component of the Low Carbon Communities program): $100 million for low-income households to improve energy efficiency
  • Household Energy and Financial Sustainability Scheme (part of the Low Carbon Communities program): $30 million for low-income households to meet energy bills

Industry assistance

  • All up: more than $8 billion in free permits and $1.4 billion in other assistance. Assistance declines over time.
  • Initial assistance to emissions-intensive trade-exposed industries (EITE) activities:
    • 94.5 per cent of the allocative baseline for activities that have an emissions intensity above 2000 tonnes of CO2-e/million dollars of revenue or 6000 tonnes of CO2-e/million dollars of value added in the specified assessment period
    • 66 per cent of the allocative baseline for activities that have an emissions intensity between 1000 tonnes CO2-e/million dollars of revenue and 1999 tonnes of CO2-e/million dollars of revenue or between 3000 tonnes of CO2-e/million dollars of value added and 5999 tonnes of CO2-e/million dollars of value added in the specified assessment period
    • About 25 per cent of the total pool of permits allocated to EITE industries, rising over time with EITE sector growth. EITE allocations capped at 100 per cent of an EITE entity’s direct and indirect electricity and steam emission costs in the previous year
  • Industry assistance: $9.2 billion over the period to 2014-15
  • Initial assistance to emissions-intensive trade-exposed industries (EITE) activities:
    • 94.5 per cent of the industry average baseline for activities with an emissions intensity of at least 2,000t CO2-e/$m revenue or at least 6,000t CO2-e/$m value added.
    • 66 per cent of the industry average baseline for activities with an emissions intensity between 1,000t CO2-e/$m and 1,999t CO2-e/$m revenue or between 3,000t CO2-e/$m and 5,999t CO2-e/$m value added
  • Transitional Electricity Cost Assistance Program (TECAP): a transitional fund to reduce the impact of electricity prices on medium to large corporations in the manufacturing and mining sectors: $1.1billion over 2 years
  • Clean Technology Program: $1.2 billion over seven years. Three components:
    • Clean Technology Investment Program: grants to manufacturers totalling up to $800 million over seven years
    • Clean Technology Food and Foundries Investment Program ($200 million over six years from 2011-12)
    • Clean Technology Innovation Program ($200 million over five years from 2012-13)
  • Clean Technology Focus for Supply Chains Programs: additional $5 million over the period to 2014-15
  • Agriculture: excluded indefinitely and offsets provided for abatement from agricultural emissions and other uncovered sectors; agriculture research funding
  • R and D agricultural abatement: $50 million in development and on-farm testing.
  • Agriculture, fishing and forestry: fuel credit scheme for 3 years.
  • Agriculture and reforestation: reforestation eligible to earn permits on voluntary basis
  • Agriculture: emissions not be subject to a carbon price.
  • A carbon price will not apply to transport and off-road fuel use by the agriculture, forestry and fishing industries.
  • Carbon Farming Initiative non-Kyoto Carbon Fund: $250 million over the first six years of the program from 2010-13. Kyoto-compliant credits created under the Carbon Farming Initiative can be used for compliance under the carbon pricing mechanism subject to a 5 per cent limit in the fixed price period.
  • Indigenous carbon farming fund: $22 million over 5 years from 2012-13
  • Biodiversity Fund: $946 million over the first six years from 2011-12
  • Carbon Farming Futures program: $429 million over the first six years
  • Independent land sector carbon and biodiversity board: $4 million over 6 years from 2011-12
  • Aluminium, iron and steel, non-ferrous metals: (EITE assistance for fossil fuel combustion for electricity generation): 94.5% for highly emissions-intensive; 66% for moderately emissions-intensive
  • Steel transformation plan (additional to MPCCC agreed package): assistance up to $300 million over five years to encourage investment and innovation. Funded outside the revenue from the carbon pricing mechanism.
  • $50 million over six years for manufacturers in the metal forging and foundry sector under the Clean Technology Food and Foundries Investment Program
  • Business (small and medium enterprises), community sector organisations, workers, regions, communities and agricultural sector (fossil fuel combustion for electricity generation, and to produce heat or steam including consumption of gas for domestic heating): climate change action fund (CCAF). CCAF streams 1-3: $1.7 billion (includes $150 million set aside under stream 2 for food processing)
  • Small business: immediate asset write-off threshold for tax purposes: increased to $6,500 (conditional on the passage of the Minerals Resource Rent Tax). Revenue forgone: $200 million over the period to 2014-15
  • $40 million in grants over four years to industry associations and non-government organisations with relationships with small businesses and community organisations
  • Regional NRM planning and climate change fund: $44 million over five years from 2011-12
  • Regions: $200 million in the event that regions are affected by the introduction of a carbon price. Over 7 years from 2010-13
  • Food processing: $150 million over 6 years under the Clean Technology Food and Foundries Investment Program
  • Gassy coal mines: assisted with free permits and grants. Permits through the Coal Sector Adjustment Scheme. Grants under the Coal Mining Abatement Fund through CCAF.
  • Coal sector adjustment scheme (CSAS): 9.72 million permits (41.23 billion) set aside over 5 years; climate change action fund (CCAF) stream 4: coal sector abatement fund – $270 million over 5 years
  • Extra assistance: $1.55 billion
  • Assistance to eligible coal mines: up to 80 per cent of their fugitive emissions exposure above the 0.1 tCO2-e per tonne of saleable coal threshold.
  • The coal sector jobs package (additional to agreed MPCCC package): assistance over six years to the most emissions-intensive coal mines; $1.3 billion
  • Electricity generators: electricity sector adjustment scheme  (ESAS): 228.7 million permits ($7.3 billion) over 10 years
  • Low Emissions Transition Incentive to provide generators with credit for investment in replacement capacity.
  • Payments for the closure of around 2000 MW of highly emissions-intensive generators. Money held in the contingency reserve.
  • Strongly affected generators: transitional assistance comprising a limited free allocation of Australian carbon permits, and cash allocated until 2016-17. Estimated at $5.5 billion and amounting to around 23 per cent of the coal-fired power stations’ expected liability over this time
  • Iron and steel, cement, aluminium (PFCs), ammonia, ammonium nitrate, magnesia (industrial processes): EITE assistance: 94.5 per cent for highly emissions-intensive; 66 per cent for moderately emissions-intensive
  • The Steel Transformation Plan will provide assistance worth up to $300 million over five years to encourage investment and innovation in the Australian steel manufacturing industry.
  • Landfill facilities: closed waste facilities and legacy emissions excluded from coverage.
  • Methane from landfills wastewater processing: coverage of small landfills within close proximity of large landfill.
  • Landfill facilities will not be liable for emissions that arise from waste deposited prior to 1 July 2012, but those emissions will count towards facility thresholds. To avoid waste displacement from covered to non-covered landfill facilities, an additional threshold of 10,000 tonnes of CO2-e will apply to landfill facilities within a prescribed distance of large landfill facilities.
  • Oil and gas including LNG: EITE assistance: 94.5 per cent for highly emissions-intensive; 66 per cent for moderately emissions-intensive; ‘top up’ for LNG – minimum effective assistance of 50 per cent.
  • LNG: EITE assistance 94.5 per cent for highly emissions-intensive; 66 per cent for moderately emissions-intensive; LNG projects will receive a supplementary allocation to ensure an effective assistance rate of 50 per cent in relation to their LNG production each year.
  • Petroleum: EITE assistance: 94.5 per cent for highly emissions-intensive; 66 per cent for moderately emissions-intensive
 
  • Synthetic greenhouse gas importers: no assistance
  • High global warming potential synthetic greenhouse gases (with the exception of perfluorocarbons from aluminium smelting) will not be included in the carbon pricing mechanism but will be subject to an equivalent carbon price using existing import and manufacture levies under the Ozone Protection and Synthetic Greenhouse Gas Management legislation. Levies will be adjusted annually to reflect the prevailing carbon price. From 1 July 2013, incentives will be provided for destruction of waste synthetic greenhouse gases, including ozone depleting substances, recovered at end of life.
  • Transport: heavy on-road: fuel credit scheme for 1 year.
  • Transport fuels excluded but, where applicable, an equivalent carbon price will be applied through changes in fuel tax credits or excise. A carbon price will not apply to household transport fuels, light vehicle business transport and off-road fuel use by the agriculture, forestry and fishing industries. Aviation, domestic shipping, rail transport and non-transport use of fuels to b subject to the carbon tax.

Community assistance

  • A $2.75 billion Climate Change Action Fund established to ease transition costs for businesses, community sector organisations, workers, regions and communities changing to an operating environment that includes a price on carbon.
  • Low Carbon Communities program: expanded to provide funding through competitive grants to local councils and communities to improve energy efficiency in council and community-use buildings and facilities, and to assist low-income households. Funding increased by $250 million from $80 million to $330 million over 6 years from 2010-11.
  • Remote Indigenous Energy Program: $40 million over 5 years from 2011-12.

Budget

  • Cumulative net impact of revenue and assistance measures from 2009-10 to 2012-13: cost to the Budget of $1.6 billion.
  • Cumulative net cost to the Budget: $3.961 billion from 2011-12 to 2014-15 in fiscal balance terms. In underlying cash balance terms: $3.795 billion over the same period.
  • Unknown cost to shut power stations (in contingency reserve).
  • Australian Bureau of Statistics: household energy consumption. $10 million over 3 years form 2011-12.

Energy efficiency

  • $75.8 million over five years from 2009-10 to establish the Australian Carbon Trust to further support action on climate change by households and businesses.
  • Energy efficiency information: $40 million in grants over four years to industry associations and non-government organisations which have established relationships with small businesses and community organisations.
  • The Low Income Energy Efficiency Program (part of Low Carbon Communities): up to $100 million in grants to consortiums of local and state governments, community organisations, energy retailers and energy service companies. to assist low-income households reduce energy costs.
  • Household Energy and Financial Sustainability Scheme (part of Low Carbon Communities):  $30 million to help low-income households find more sustainable ways to manage their energy consumption.
  • Remote Indigenous Energy Program: $40 million will help Indigenous communities to access clean, affordable and reliable 24-hour power supply, manage their energy efficiently etc.
  • Tax Breaks for Green Buildings Program: $1 billion. From 1 July 2012, eligible businesses investing in improving the energy efficiency of their existing buildings will be able to apply for a tax break.
  • Energy Affordability Scheme (component of the Low Carbon Communities program): $100 million for low-income households to improve energy efficiency.
  • LivingGreener website: $6 million over the period to 2014-15.
  • Energy Savings initiative: $4 million over 2 years from 2011-12.
  • Energy Efficiency Opportunities: extra $32 million over 5 years from 2012-13

Research and development

  • $75.8 million over five years from 2009-10 to establish the Australian Carbon Trust to support action on climate change by households and businesses. Of this, $50 million will be seed funding to an Energy Efficiency Trust to support energy efficiency investment in the business sector.
  • Agriculture research funding: $20 million over the forward estimates.
  • Clean Energy Finance Corporation: $10 billion over 5 years from 2013-14: invest in renewable energy, low pollution and energy efficiency technologies.
  • Australian Renewable Energy Agency (ARENA):  $3.2 billion over 9 years from 2011-12. Support for research and development, demonstration and commercialisation of renewable energy.
  • $200 million over five years for grants to support business investment in research and development in renewable energy, low-pollution technology and energy efficiency.
  • Continuation of a range of existing programs to support clean energy innovation, with committed funding of over $2 billion, on top of the initiatives included in ARENA e.g., CCS Flagships program.

Skills development

 
  • Clean Energy Skills program: $32 million to 2014-15 for educational institutions and industry to develop clean energy skills. Funded from existing allocations.
  • Carbon farming skills initiative: $4 million over 5 years from 2011-12.

Economy

  • Growth rate to be lower by 0.1% annually compared to what it would otherwise be.
  • Gross National Income (GNI) per person projected to grow from around $56,000 today by around $9,000 per person to 2019-20. By 2050, the increase is expected to be more than $30,000 per person in today’s dollars.
  • But carbon tax slows growth in GNI: from 2010 to 2050, GNI per person projected to grow at an average rate of 1.1 per cent per year in the core carbon pricing policy scenario, compared to 1.2 per cent per year without carbon pricing.

International linkages

  • Emitters allowed to buy an ‘eligible international emissions unit’, that is, a certified emission reduction (other than a temporary certified emission reduction or a long-term certified emission reduction), an emission reduction unit, a removal unit, a prescribed unit issued in accordance with the Kyoto rules.
  • Initially, other non–Australian emissions credits, such as those traded on the voluntary carbon market, would not be accepted for CPRS purposes. Nor would emission permits from other country‘s schemes, such as the New Zealand ETS or the European Union ETS. However, acceptance of these emissions credits or permits would be reviewed on a case by case basis.
  • Linking to credible international carbon markets and emissions trading schemes from the commencement of the flexible price period.
  • At least half of a liable party’s compliance obligation must be met through the use of domestic permits or credits.

Governance

  • Independent regulator to oversee ETS and renewable energy target (Australian Climate Change Regulatory Authority)
  • Establishment of the Climate Change Authority to advise on pollution caps and progress towards meeting targets and undertake reviews of the carbon pricing Mechanism.
  • Establishment of the Clean Energy Regulator to administer the carbon pricing mechanism.
  • The Productivity Commission will undertake reviews relating to industry assistance, fuel tax arrangements and carbon pollution reduction activities internationally.

Sources of information:

‘Answers to questions on notice: CPRS and regions’, [Questioner: R Boswell), Senate, Debates, May 2009, http://www.aph.gov.au/senate/committee/fapa_ctte/estimates/bud_0910/climate_change/qon/CC31a-b.pdf

Australian Government, Budget measures: budget paper no. 2, 2009-10, pp. 127 ff, http://cache.treasury.gov.au/budget/2009-10/content/bp2/download/bp2_Consolidated.pdf 

Australian Government, Carbon pollution reduction scheme. Australia’s low pollution future, White Paper, December 2008. (Note: this is no longer on the Department of Climate Change website).  

Australian Government, Securing a clean energy future. The Australian Government’s climate change plan, 10 July 2011, http://www.cleanenergyfuture.gov.au/clean-energy-future/our-plan/

Carbon Pollution Reduction Scheme Bill 2010, Explanatory Memorandum, http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r4281_ems_d62d60ab-81ec-4354-8704-8dcf9db1f843/upload_pdf/338878.pdf;fileType%3Dapplication%2Fpdf

Department of Climate Change, Assessment of activities for the purposes of the emissions-intensive trade-exposed assistance program. Guidance paper, February 2009, http://www.climatechange.gov.au/~/media/publications/eite/guidance-paper-pdf.pdf  

Department of Climate Change and Energy Efficiency, Emissions-intensive trade-exposed industry assistance,  

Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2009, Explanatory Memorandum, http://parlinfo/parlInfo/download/legislation/ems/r4121_ems_44f4b531-74f7-41d4-995b-2575809979f4/upload_pdf/329345.pdf;fileType=application%2Fpdf           

K Rudd, (Prime Minister), Delivering for the Environment media release, 24 November 2009, http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/C7BV6/upload_binary/c7bv60.pdf;fileType=application/pdf

Senate Finance and Public Administration Legislation Committee, Answer to question on notice,  

P Wong, (Minister for Climate Change and water), A Carbon Pollution Reduction Scheme in the National Interest, media release, 24 November 2009, http://www.climatechange.gov.au/en/minister/previous/wong/2009/media-releases/November/mr20091124.aspx


Last reviewed 18 July, 2011 by the Parliamentary Library Web Manager

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