Bills Digest no. 59 2009–10
Carbon Pollution Reduction Scheme Bill 2009 [No.
2]
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Glossary
|
Abatement
|
Reduction of greenhouse
gas (GHG) emissions
|
|
The Authority
|
Australian Climate Change
Regulatory Authority
|
|
AAU
|
Assigned Amount Unit is a
unit issued out of a country s initial assigned amount and
allocated as an assigned unit amount, expressed as a tonne of CO2
by the Authority.
|
|
ACCI
|
Australian Chamber of
Commerce and Industry
|
|
AEU
|
Australian Emissions
Units
|
|
AIG
|
The Australian Industry
Group
|
|
BCA
|
Business Council of
Australia
|
|
Carbon dioxide-equivalent
(CO2-e)
|
The basis for comparing the warming effect of a greenhouse gas
as compared to carbon dioxide. It is calculated as the global
warming potential of a given mass of a non CO2 GHG
(based on its ability to absorb heat and its lifetime in the
atmosphere) compared to CO2.
|
|
CER
|
Certified Emission
Reduction units are credits generated from Clean Development
Mechanism (CDM) projects, each equivalent to one tonne of
CO2e.
|
|
Carbon leakage
|
The transfer of emissions
offshore, as industries relocate to markets with lower or
unregulated carbon pricing.
|
|
CDM
|
The Clean Development
Mechanism is a means by which developed countries may sponsor clean
development projects in developing countries to help meet their
emissions reduction commitments.
|
|
EITE
|
Emissions intensive trade
exposed industries
|
|
ERU
|
Emission Removal Units
|
|
ETS
|
Emissions trading
scheme
|
|
GHGs
|
Greenhouse gases
|
|
GreenPower
|
Refers to power from
renewable sources that electricity customers can opt to subscribe
to.
|
|
IPCC
|
Intergovernmental Panel on
Climate Change
|
|
Mt
|
Million tonnes
|
|
NETT
|
National Emissions Trading
Taskforce
|
|
REDD
|
Refers to reduced
emissions from deforestation and forest degradation.
|
|
RET
|
Renewable Energy
Target
|
|
RU
|
Removal Units are units
corresponding to emissions or removals of GHGs from land use, land
use change and forestry activities, which are accounted for as part
of each country s emissions commitments under the Kyoto
Protocol.
|
|
Sequestration
|
Refers to the removal of
greenhouse gases from the atmosphere and their storage in a sink
.
|
|
Sink
|
A natural, enhanced or
human designed system that absorbs greenhouse gases from the
atmosphere and keeps them in a long term store.
|
|
UNEP
|
United Nations Environment
Program
|
|
UNFCCC
|
United Nations Framework
Convention on Climate Change
|
|
WMO
|
World Meteorological
Organisation
|
Carbon Pollution Reduction
Scheme Bill 2009 [No. 2]
Date
introduced: 22 October
2009
House: House of Representatives
Portfolio: Climate Change &
Water
Commencement:
Royal Assent for sections
1 and 2 and the 28th day after receiving Royal Asset for sections 3
to 397, contingent on whether certain other Acts also receive Royal
Assent.
The other Acts[1] required to receive Royal
Assent for sections 3 to 387 to come into effect are:
- the Australian
Climate Change Regulatory Authority Act 2009
- the Carbon
Pollution Reduction Scheme (Charges Customs) Act
2009
- the Carbon
Pollution Reduction Scheme (Charges Excise) Act
2009
- the Carbon
Pollution Reduction Scheme (Charges General) Act 2009,
and
- the Carbon
Pollution Reduction Scheme (Consequential Amendments) Act
2009.
If the above Acts do
not receive Royal Assent on or before the 28th day after the day on
which the Carbon Pollution Reduction Scheme Bill 2009 [No. 2] (the
CPRS Bill) receives Royal Assent, then section 3 to 387 do not
commence at all. The relevant Bills for the above Acts are also
before Parliament and are being treated as a package.
Links: The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The CPRS Bill sets up an emission
trading scheme (ETS) as part of a framework designed to reduce
pollution caused by emissions of carbon dioxide (CO2)
and other greenhouse gases, collectively known as GHG emissions and
measured in parts per million of carbon dioxide equivalent[2] (or ppm CO2e).
The ETS provides economic incentives for achieving reductions in
GHGs. The objectives of this Bill, according to Clause
3 in Part 1, are:
- to give effect to Australia s obligations under the United
Nations Framework Convention on Climate Change (UNFCCC) and the
Kyoto Protocol to that Convention. [3]
- to support the development of an effective global response to
climate change, and
- to take action to enable the reduction of Australia s GHG
emissions to meet its emissions reduction targets. If a
comprehensive international agreement to which Australia is a party
is reached to stabilise atmospheric GHG concentrations at 450 parts
per million CO2e or lower, this target is a 25 per cent
reduction in emissions below 2000 levels by 2020.[4] Otherwise, the target is to reduce
emissions to 60 per cent below 2000 levels by 2050 and by between 5
and 15 per cent below 2000 levels by 2020, with the larger
reduction dependant on whether a strong international agreement on
GHG emissions control is reached.
This last point specifies the current Australian targets for GHG
emissions reduction. These targets are important for setting the
trajectory of the proposed scheme (see below).
Australia s GHG emissions were 552.7 million tonnes (Mt) of
CO2e in 2000 according to the emissions accounting rules
for the Kyoto Protocol.[5] The Government has not explicitly stated which
accounting rules its emissions reduction targets will be based
upon, but presumably if a global agreement is reached then the
accounting rules associated with that agreement will be used for
Australia s domestic targets. Using the Kyoto accounting rules as a
guide, the targets to which Australia s GHG emissions must be
reduced are approximately:
- between 525.0 Mt (at five per cent reduction on 2000 levels)
and 414.5 ( at 25 per cent reduction on 2000 levels) Mt
CO2e emissions in 2020, and
- 221.1 Mt CO2e in 2050 (at 60 per cent reduction on
2000 levels in 2020).
The Kyoto Protocol targets for emissions reduction were based on
the level of GHG emissions in 1990. Consequently, some commentators
will call for emission reduction targets based on 1990 emission
levels. According to the Department of Climate Change, Australia s
GHG emissions levels in 1990 were 546.3 Mt CO2e.[6] This is only slightly
less than the actual level of such emissions in 2000 noted above,
so the distinction under the Kyoto accounting rules is only about
one percentage point. However, the Kyoto rules apply special
treatment to emissions from deforestation in the base year (1990)
that leads to a larger emissions total for that year than under
other accounting rules.[7] The difference between using 1990 or 2000 may therefore
become significant under future accounting rules.[8]
The Carbon Pollution Reduction Scheme Bill 2009 (the original
Bill) was first introduced into Parliament on 14 May 2009 as part
of the 11-Bill Carbon Pollution Reduction Scheme (CPRS) package of
legislation. Along with the other CPRS Bills, the original Bill was
passed by the House of Representatives on 4 June 2009, but
negatived in the Senate on 13 August 2009.
The original Bill was amended in the House of Representatives on
4 June through the incorporation of a number of amendments, mainly
relating to reforestation. The current Bill, now titled the Carbon
Pollution Reduction Scheme Bill 2009 [No. 2] also incorporates
those amendments, and the content of this Bill is identical to that
passed by the House of Representatives on 4 June 2009.
This Digest is revised from the Digest[9] produced in June 2009 for the
original Bill in three main respects:
- it provides an update of the section
Coalition/Greens/Family First/Independent policy
position/commitments on positions of the Parliamentary
parties
- it provides an update of the section
Consequences of failure to pass The CPRS Bills as double
dissolution triggers, and
- it contains commentary on the reforestation
amendments made on 4 June these are contained in the section
Main Provisions Part 10 Reforestation
Scientific concern about the possible build up of carbon dioxide
in the atmosphere commenced as far back as 1861. However, it was
not until the latter half of the twentieth century that
improvements in technology allowed for more precise measurements of
the level of GHGs in the atmosphere. From the 1980 s onward
scientific concern about the possible long term consequences of the
increase in GHGs in the atmosphere accelerated.[10] At the beginning of the twenty
first century the effects of such a build up, as predicted by
scientific modelling, were being increasingly observed. These
effects include increasing average global temperatures, sea level
rise, accelerated glacial melting, intense and prolonged droughts
and increased storm severity.[11] The projected environmental and consequent
economic impacts of continued adverse changes in these areas are
severe to catastrophic, and form a compelling case for significant
global policy action to mitigate or reverse these trends.[12]
The development of Australian emissions trading policy took
place against the background of increased concern about climate
change in various international bodies.
Between 1979 and 1988 a series of international conferences
convened by the World Meteorological Organisation (WMO) and the
United Nations Environment Program (UNEP) raised concerns about the
ramifications of the mounting evidence that human activity was
causing potentially dangerous increases in GHGs in the atmosphere.
In 1988 the WMO and UNEP jointly established the Intergovernmental
Panel on Climate Change (IPCC). The IPCC s role is to provide
independent scientific advice on the complex and important issue of
climate change. The Panel was asked to prepare, based on available
scientific information, a report on all aspects relevant to climate
change and its impacts and to formulate realistic response
strategies. It has issued four major assessment reports to date as
well as a number of special reports on various topics.[13]
The findings of the first IPCC Assessment Report of 1990 played
a decisive role in leading to the UNFCCC, which was opened for
signature in the Rio de Janeiro Summit in 1992 and entered into
force in 1994 (Australia is a signatory to this Convention). The
IPCC Second Assessment Report of 1995 provided key input for the
negotiations of the Kyoto Protocol in 1997 and the Third Assessment
Report of 2001. Special and Methodology Reports provided further
information relevant for the development of the UNFCCC and the
Kyoto Protocol.[14]
The Fourth Assessment Report of the IPCC in 2007 has provided
the essential scientific background for the negotiations leading up
to a new global agreement on climate matters to be finalised in
Copenhagen at the end of 2009. The increasing wealth of scientific
evidence presented in each new IPCC report has heightened concern
about the rate of climate change and increased the urgency of a
coherent policy response at a global level.
Australia is currently responsible for only about 1.5 per cent
of global GHG emissions, but suffers the full effects of global
warming arising from the emissions of other countries.[15] Hence, it has a strong
interest in seeing effective global policy action to address
climate change issues. Australia is also one of the largest per
capita emitters in the world, which places additional pressure on
it to implement substantial domestic mitigation measures and
contribute its fair share towards a global mitigation effort.
The choice of a cap - and - trade
scheme is generally consistent with efforts in many other
countries.[16] The
significance of being consistent lies in the ability to link
internationally with minimal compliance and transaction costs. The
European Union (EU) has had an ETS in place since 2005. New Zealand
already has legislation for an ETS in place.[17] Japan is currently exploring options
for replacing its voluntary ETS with a mandatory ETS.[18] In early 2007, seven
US states and four Canadian provinces created the Western Climate
Initiative, as a collaborative effort to develop ways of
reducing GHGs, with a focus on a market-based cap and trade
scheme.[19] The
United Sates has had a number of subnational schemes operating for
a few years, and the United States Congress is making serious
progress in developing a national cap-and-trade scheme.[20] Also, so-called major
emerging emitters have or are in the process of developing a range
of domestic policies and measures to reduce their greenhouse gas
emissions.[21]
Details of other schemes and how
they compare to the scheme proposed in the Bill are provided
below.[22]
The broad outline of current government policy appears to have
been formulated in the period leading up to the 2004 election.
During the 2004 election campaign Australian Labor Party (ALP)
policy documents carried the following words:
Labor will establish a National Emissions Trading Scheme, to
allow market based mechanisms to deliver lowest cost greenhouse gas
emissions reductions, and seek linkages with international trading
arrangements.[23]
Another policy document from the 2004 campaign stated on 7
October 2004, that a Federal Labor Government would ratify the
Kyoto Protocol and introduced an ETS that was operational no later
than 2010.[24]
These themes were carried over into the 2007 election where ALP
policy was to introduce an ETS commencing in 2010.[25] During the 2007 election
campaign the then Labor opposition stated that a Rudd Labor
Government would:
Ensure that Australia's international competitiveness is not
compromised by the introduction of emissions trading.
Consult with industry about the potential impact of emissions
trading on their operations to ensure they are not
disadvantaged.
Establish specific mechanisms to ensure that Australian
operations of emissions intensive trade exposed firms are not
disadvantaged by emissions trading.[26]
The development of Coalition policy on emissions trading
occurred alongside increased public concern about climate change
matters. In response to increased public concern, the then
Coalition Government commissioned an inquiry in 2006 into the
development of an Australian ETS. The report of this inquiry
concluded that it would be in Australia s interests to develop a
cap and - trade style ETS, even if a global climate change
agreement had not been reached. This scheme was recommended to
commence trading by 2011, or at the latest by 2012.[27]
In the subsequent election, official Coalition party policy
stated:
To reduce domestic emissions at least economic cost, we will
establish a world-class domestic emissions trading scheme in
Australia (planned to commence in 2011). We are also committed to
capturing the opportunities from being among the first movers on
carbon trading in the Asia Pacific region.[28]
In 2004, Australian state and territory governments established
the National Emissions Trading Taskforce (NETT) to develop ideas
for a multi jurisdictional ETS as part of a policy response to the
challenge of reducing greenhouse gas emissions, and potentially to
link Australia to international carbon markets. The NETT played a
formative role in building Australian commitment to an ETS.[29] NETT s final report
strongly endorsed the establishment of a national emissions
cap-and-trade scheme as soon as possible.[30]
The Garnaut Climate Change Review was commissioned in April 2007
by the then Leader of the Opposition, Kevin Rudd, and by the
premiers of the six states and the chief ministers of the two
territories of Australia. The Commonwealth Government joined the
Review in January 2008 after the change of government in the 2007
election. The Review was required to examine the impacts of climate
change on the Australian economy, and to recommend medium to long
term policies and policy frameworks to improve the prospects of
sustainable prosperity.[31] Its draft and final reports, released in July and
September 2008 respectively, also strongly recommended the
establishment of an Australian cap and trade scheme.
The Rudd government responded to these developments by releasing
a Green Paper on an Australian ETS, which would be called the
Climate Pollution Reduction Scheme (CPRS). This paper put forward a
possible design for the proposed scheme and invited comments in
July 2008.[32] This
was followed by the release in October 2008 of detailed Treasury
economic modelling of the Australian economy under a reference
scenario and two scenarios incorporating assumptions consistent
with the CPRS.[33]
The final government decisions on the broad outline of the proposed
CPRS were released in a White Paper in December 2008.[34] An exposure draft of
the CPRS legislation and associated commentary was released on 10
March 2009, with comments invited by 14 April 2009.[35] In response to
submissions and feedback on the draft legislation, the Government
announced substantial changes to the CPRS on 4 May 2009,[36] before introducing the
revised legislation into Parliament on 14 May 2009.
The following outline includes the announced changes of 4 May
2009 as well as the changes to the Exposure Draft contained in the
Bill itself.
The proposed CPRS is a modified cap-and-trade scheme. Generally,
in cap-and-trade arrangements:
- the government sets an annual limit for GHG emissions
- the government then either sells or issues emission permits
(called, interchangeably, emission units) to liable entities or
other parties
- liable entities may reduce their emissions in line with the
number of emissions units they possess; sell surplus emissions
units if their emissions are lower than their current number of
units; or if they have insufficient units in relation to their GHG
emissions, buy additional units on a secondary market
- each liable entity then surrenders the number of emissions
units equal to its emissions over the relevant accounting period
(for Australia this will be the standard financial year running
from 1 July to 30 June the following year)
- entities who do not surrender sufficient emissions units in
relation to their emissions are subject to a penalty, and
- there is generally no upper limit on the price of an emissions
unit.
The proposed CPRS departs from the classical cap and trade model
in respect of this last point as it sets a fixed price on an
emissions permit for the first year and an upper limit on the price
for the following four years (see below). Significantly, it has
been drafted to dovetail with the National Greenhouse and
Energy Reporting Act 2007 (NGER Act).
In order to meet the specified national emissions targets (see
above) a trading scheme has to follow a set GHG emissions
trajectory. The trajectory is governed by annual limits or caps on
the total emissions that will be allowed. Following is the initial
indicative national emissions trajectory that was proposed in the
CPRS White Paper to meet Australia s target under the
Kyoto commitment period:
- 109 per cent of 2000 greenhouse gas emissions in 2010 11
- 108 per cent of 2000 levels in 2011 12, and
- 107 per cent of 2000 levels in 2012 13.[37]
Given the delayed start under the amended scheme and the fixed
permit price in the first year, there will now be no emissions caps
for the years 2010 11 and 2011 12, and Australia will need to
achieve the above emissions reductions through other mechanisms to
meet its Kyoto commitment (which may include purchasing
international offsets).
Under the CPRS, emissions caps will be set in the Regulations.
Specific emission caps for the years 2012 13 to 2014 15 are to be
announced by 1 July 2010. Thereafter, national emissions limits
will be specified at least five years in advance.[38] In addition, guidance may be
provided for emissions limits for additional years beyond the five
year caps. This will be through gateways that may be prescribed in
the Regulations to specify upper and lower limits to the caps for
each year in the extended period. The White Paper stated that the
Government intends to provide up to ten years of gateways beyond
the five year caps.
The emissions limit for each annual period will be reviewed each
year. There will be a strategic review of the scheme s gateways
every five years. The Government reserves the right to adjust both
the scheme s annual limits and gateways as circumstances
change.
In the CPRS an emissions permit will be known as an Australian
Emissions Unit (AEU). The number of AEUs issued each year will be
lower than the national emissions limits required to meet the
specified emissions trajectory. This is because about 25 per cent
of Australia s emissions sources are not covered by the scheme (see
below) principally the agricultural sector, facilities that emit
less than 25 000 tonnes of CO2e per year and emissions
from deforestation.
The CPRS will cover all six GHGs mentioned in Annex A to the
Kyoto Protocol from the scheme s commencement.[39]
Generally, direct obligations will apply to entities (i.e.
companies, trusts, partnerships and the like), or individuals,
that:
- have at least one facility that directly emits at least 25 000
tonnes CO2e per year or an equivalent amount on a pro
rata basis if the facility is not controlled by the entity through
the whole of the relevant year
- the International Energy Agency says that average Australian
emissions from coal fired electricity and heat generation are about
1060 grams CO2 per kWh.[40] This means that one large coal-fired
power station (1000 MW capacity) may emit about 9.3 million tonnes
of CO2 per year, or about 370 times the 25 000 tonne
threshold.
- import or manufacture synthetic GHGs of at least 25 000 tonnes
of CO2e or an equivalent amount on a pro rata basis,
or
- have a landfill operation that directly emits at least 10 000
tonnes CO2e per year and that facility is within a
prescribed distance of another landfill facility accepting the same
classification of waste, which itself emits at least 25 000 tonnes
CO2e per year
All major industrial sectors, excluding the exemptions outlined
below, will be included in the scheme. Initially the scheme will
cover about 75 per cent of Australian GHG emissions and about 1000
emitting facilities.[41]
If an entity or individual has a facility, or facilities, that
each emit less than the above limits, they are not liable under the
proposed scheme, even if the combined total of GHG emissions from
all facilities under their control exceeds 25 000 tonnes
CO2e per year.
Exemptions from the proposed scheme include:
the agricultural sector. The government is disposed to include
the agricultural sector directly in the scheme in 2015, but a final
decision will not be made on this matter until 2013
- GHG emissions from the combustion of biofuels and biomass for
energy, including emissions from the combustion of methane from
waste land fill facilities
- emissions from landfill sites closed on or before 30 June
2008
- emissions from operating land fill sites due to waste deposited
on or before 30 June 2008
- deforestation is not included in the proposed scheme. Forestry
operators may opt into the scheme for reforestation credits but
participation is not compulsory
- emissions from decommissioned underground coal mines, and
- offshore emissions from exported fuels and materials.
After the first year of fixed permit prices, each directly
covered participant will be required to purchase the necessary
number of AEUs via an auction (save those who are eligible for
direct assistance or compensation see below). Auctions will be held
monthly. Auctions are to commence in 2010 2011 for the 2012 2013
year. Each permit will cover the emission of one tonne of carbon
dioxide or its equivalent in terms of global warming potential for
non CO2 GHGs
AEUs (or an equivalent number of international emissions credits
see below) covering a participant s annual emissions must be
surrendered by 15 December following the end of the preceding
financial year. The first surrender of units will occur on 15
December 2012.
The AEUs bought at auction will be personal property with no
limit on parties who may hold them (i.e. investment banks and
individuals may buy and hold these permits and later sell them on a
secondary market). These permits may also be banked (that is, held
over for use in later years).
Liable entities may save unused AEUs from any one financial year
for use in respect of a later financial year. They may borrow up to
5 per cent of their current year s obligations from the next year s
entitlement. However, they have to make good or repay this borrowed
amount.
Free AEUs will also be issued in relation to participating
eligible reforestation projects and the destruction of synthetic
greenhouse gases. Should they choose to participate, forestry
operators may begin to accumulate AEUs in relation to carbon stored
in forestry projects from 1 July 2010.
Individuals may request the cancellation of their AEUs and other
emissions units. Alternatively, this may be done through the
proposed Australian Carbon Trust (see below). Such requests will be
granted providing they do not breach either the Regulations or
Kyoto Protocol rules.
It is proposed that the scheme's governing body the Australian
Climate Change Regulatory Authority (the Authority) be provided
with a range of compliance, anti avoidance, investigative and
enforcement powers and a range of mechanisms, including civil
penalty and criminal provisions, to respond variously to non
compliance with the Scheme. Directors and officers of a company
found to be in breach of certain provisions of the CPRS Act may
also be fined. Fraudulent conduct in relation to the issuing of
AEUs, may result in the offender being required to relinquish those
units (see Part 13 of the Bill). Anti avoidance
provisions are also proposed in relation to the exemptions from
liability for small facilities (generally, those emitting less than
25,000 tonnes of CO2e per year). These are designed to
capture entities that pursue artificial means to keep their
facilities below this threshold so as to avoid CPRS liability.
A limited financial penalty will apply if the required number of
emissions units is not surrendered to the Authority by the
appropriate time. In the first year (2011 2012) this penalty will
be $11 per unit. The penalty in later year will be fixed by
regulation but will be limited to no more than 110 per cent of the
average auction price for the particular financial year. Thus,
liable entities have an incentive to buy any necessary units
through a secondary market rather than simply paying a penalty if
they do not surrender enough AEUs. These penalties will not be tax
deductible. Alternatively a liable entity may undertake to
surrender additional permits at a later date (the next year) if
they do not surrender enough permits by 15 December in any one year
(this is called a make good provision).
In 2011 2012 an unlimited number of AEUs will be available at a
fixed price of $10 per tonne CO2e. Fixed price permits
from the first year of the proposed scheme s operation cannot be
banked or saved for use in later years.[42]
Scheme participants will have to pay the market price for
permits from 1 July 2012 subject to the following price caps. In
2012 13, an AEU s price will not be above $40 plus five per cent
real growth for each of the years 2010 11 and 2011 12. The
proportional increase in the price cap is known as the indexation
factor. In each of the three years thereafter, the price cap will
rise by this indexation factor for that particular year, applied to
the previous year s price (Subclause 89(1)). The
price cap for a particular year will apply until 15 December of the
compliance year, and caps will cease on 15 December 2016.
The government will sell an unlimited amount of permits at the
price cap to liable entities only. The permits sold under these
arrangements cannot be resold or banked. They are automatically
surrendered after issue and can only be used to acquit that entity
s liability for that year.
The proposed scheme will allow the unlimited acceptance of the
following
Kyoto Protocol emissions credits (or units) to acquit emissions
obligations:
- Certified Emission Reduction Units (CER) generated under the
Clean Development Mechanism (but not temporary or long term
CERs)
- Emission Removal Units (ERUs) generated under the Joint
Implementation Mechanism, and
- certain Removal Units (RMU).
- Notably, an Assigned Amount Unit (AAU) arising
under the Kyoto Protocol will not be accepted for CPRS
purposes.
AAUs are units corresponding to emissions allocated to Annex I
countries under the Kyoto Protocol for the commitment period 2008
2012. The permits created under the CPRS and issued to Australian
liable entities are domestic units, and are distinct from Australia
s AAUs. The Authority will create both sets of units, but they will
not be interchangeable. Furthermore, AAUs from other countries will
not be accepted for compliance under the CPRS. This policy will be
reviewed for further international commitment periods in the light
of international developments.
Initially, other non Australian emissions credits, such as those
traded on the voluntary carbon market, will not be accepted for
CPRS purposes. Nor will 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 will be
reviewed on a case by case basis.
Assistance to emissions-intensive, trade exposed (EITE)
industries will be dependent upon the assessed industry wide
weighted average emissions intensity of an activity. In February
2009, the Department of Climate Change released a Guidance Paper
titled Assessment of activities for the purposes of
the emissions-intensive trade-exposed assistance program.
According to this paper, and the changes announced to the CPRS
announced on 4 May 2009, for the first year of the scheme emissions
intensive trade exposed (EITE) industries will receive either:
- 94.5 per cent of
required emissions permits free of charge
for activities that have an emissions intensity above 2000
tonnes CO2e per million dollars in revenue or 6000
tonnes CO2e per million dollars value added in the
specific assessment period, or
- 66 per cent of
required emissions permits free of charge
for activities that have an emissions intensity between 1000
tonnes CO2e and 1999 tonnes CO2e per million
dollars of revenue or between 3000 and 5999 tonnes CO2e
per million dollars value added in the specific assessment period.
[43]
About 25 per cent of the total pool of permits will be allocated
to EITE industries, rising over time with EITE sector growth. There
will be no upper limit on the share of free permits provided to
EITE industries.[44]
Rates of assistance will decline by 1.3 per cent per year from
the second year onwards. Furthermore, the above assistance rates
reflect changes announced on 4 May 2009 which boost assistance by
five per cent for the most emissions intensive category (from 90 to
94.5 per cent) and 6 per cent for the less emissions intensive
category (from 60 to 66 per cent). This boost (the global recession
buffer ) will cease after five years. The EITE assistance will be
phased out completely if and when Australia s major trade
competitors also impose similar emissions restraints on their own
industries, but five years advance notice of any changes will be
given.
Trade exposure is to be assessed in relation to trade shares
(being the ratio of traded quality of a product to domestic
production) being greater than 10 per cent in any one of the years
2004 05, 2005 06, 2006 07 or 2007 08, or the existence of a
demonstrated lack of capacity to pass through costs due to the
potential for international competition.
Eligibility of activities for EITE assistance has not yet been
assessed. The Government s guidance paper called for industry
information, which will be used in the Government s decision on
EITE eligibility.[45] Final details of eligibility and rates of assistance
will be provided in the Regulations.
The EITE assistance program will be subject to five-yearly
reviews. The Expert Advisory Committee will consider a range of
matters in conducting those reviews.[46]
The coal fired power generation industry will receive assistance
contingent on whether individual facilities pass a power system
reliability test and/or whether individual facilities make windfall
profits in the 2013 2014 or 2014 2015 years. Such assistance will
be available for five years after the commencement of the scheme
(i.e. up until the financial year commencing 1 July 2016).
A $2.75 billion Climate Change Action Fund will be 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.
The coal industry will receive $750 million in transitional
assistance through the Coal Sector Adjustment Fund.
Petrol Fuel Excise and other taxes will be reduced to take
account of the impact of the proposed ETS on petrol in the first
three years of the scheme.
Low and middle income households, and social security benefit
and pension recipients will received additional payments to offset
the impact of the proposed ETS on utilities bills.
These measures will be implemented in separate legislation.
An Australian Carbon Trust will be established; comprising of a
$50 million Energy Efficiency Trust and a $25.8 million Energy
Efficiency Savings Pledge Fund. A particular feature of assistance
available through the Energy Efficiency Trust is that it will
provide loans for businesses to undertake energy efficiency
measures. These loans would be repaid from the energy savings
achieved by this investment.[47] Under the proposed Pledge Fund, individuals can
calculate their savings from their investment in energy efficiency
measures and buy/retire AEUs from the scheme.[48] Contributions to the Pledge Fund
will be tax deductible. Further, purchases of power from renewable
sources (i.e. GreenPower ) will be recognised under the proposed
scheme. Limits on the annual issue of AEUs will be reduced in
recognition of voluntary purchases of GreenPower above 2009
levels.
An independent expert advisory committee will periodically
undertake a public review of the CPRS.
The Australian Climate Change Regulatory Authority will be
established to administer the proposed CPRS. This Authority will
establish a register of all emissions units relevant to the CPRS
scheme as well as other emissions units. The Authority will have
related information gathering and inspection powers and enforcement
powers as outlined above. Its decisions are subject to review by
the Administrative Appeals Tribunal.
The Authority will be required to release market relevant
information on the supply of AEUs and liable entities requirements
for these units in a timely manner.
The proposed scheme is to commence on 1 July 2011.
The proposed measures are based on the above mentioned
government White Paper entitled Carbon Pollution Reduction
Scheme: Australia s Low Pollution Future released by the
Government on 15 December 2008.
Generally, the Australian government s policy response to
climate change comes under three broad categories:
- mitigation
- adaptation, and
- helping to shape a global solution.
The proposed CPRS is the main policy response under the
mitigation heading. The Government also argues that the CPRS
contributes to shaping a global solution by indicating Australia s
preparedness to make a firm commitment to emissions reductions as
part of a global agreement. Others, however, argue that the
proposed emissions reduction targets do not represent Australia s
fair share in an ambitious global agreement or are overly
conditional, and hence may inhibit the chances of such an agreement
being reached. Other policy responses under the three headings
include:
- an expanded national Renewable Energy Target (RET) requiring
that 20 per cent of Australia s electricity supply come from
renewable sources by 2020.
- increased investment in low emissions energy research and
development, for example the Commonwealth has made a substantial
contribution to the Global Carbon Capture and Storage
Institute[49] and
Cooperative Research Centre for Greenhouse Gas Technologies, and
recently announced the Clean Energy Initiative[50]
- increases in energy efficiency for buildings, transport and in
other fields, for example through the Green Building Fund, the
Retooling for Climate Change Program, and the Climate Ready
Program
- adaptation measures such as the National Climate Change
Adaptation Research Facility (this particular policy response is
less advanced than other responses), and
regional and bilateral agreements for GHG emissions reduction
action in support of the realisation of a global solution, such as
the Indonesia/Australia Forest Carbon Partnership.[51]
At the time of writing, the current Bill has not been referred
to any committee. The original Bill and related CPRS bills were
referred to the Senate Standing Committee on Economics for inquiry
and report by 15 June 2009. Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_2_09/index.htm.
The Senate Standing Committee on Economics completed its inquiry
and report on the Exposure Draft of this Bill on 16 April 2009.
Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/info.htm.
The exposure draft
legislation was considered under broader terms of reference by the
Senate Select Committee on Climate Policy for report by 15 June
2009. Details of this inquiry are at http://www.aph.gov.au/SENATE/committee/climate_ctte/index.htm.
The Senate Select Committee
on Fuel and Energy s terms of reference also include inquiry into
the impact of an emissions trading scheme on the fuel and energy
industry. The Committee released an interim report on 7 May, before
its final report due by 21 October 2009. Details of the inquiry are
at http://www.aph.gov.au/SENATE/committee/fuelenergy_ctte/index.htm.
The Joint Standing Committee on Treaties released its Report 100
on the Kyoto Protocol on 19 March 2009. The report gives
recommendations relating to the extent and type of mitigation
action and targets that Australia should adopt post Kyoto. Details
of the inquiry are at http://www.aph.gov.au/HOUSE/committee/JSCT/25june2008/index.htm.
Please note this section has not been updated for recent
developments. The views of significant interest groups remain
largely unchanged from those contained in the Digest
to the original Bill.
Throughout the legislation drafting process, comments from
business and industry groups have been primarily negative, although
progressively less so. Generally financial, insurance and
investment organisations are in favour of the scheme, and for
details and timetables to be finalised sooner rather than later.
Renewable energy groups are strongly in favour of the proposed
scheme.[52] Many
carbon intensive industry groups are also generally supportive of
the scheme and its timetable; they cite the need to establish
certainty for investment and forward planning.[53]
The Business Council of Australia (BCA)
considers that any final design for an Australian ETS should have
bipartisan support. The BCA is supportive of the amended
legislation announced on 4 May 2009, but stresses that further
alterations should be made to the exposure legislation with regard
to the criteria for granting assistance to EITE industries. This
should be broadened to include competitiveness measures.
Compensation should also be increased for asset value loss for the
coal fired power sector. Importantly, the BCA requests independent
reviews of the scheme to be undertaken by the Productivity
Commission, or a board that includes a member of this commission.
The BCA urges the government to finalise the details of the scheme,
and for the Senate to pass the proposed legislation to provide
investor certainty.[54] & [55]
The Australian Industry Group (AiG) supports
the introduction of a cap and trade scheme and the swift passage of
legislation in 2009 to provide investment certainty to business.
[56] However, it
would like to see broader eligibility criteria for firms to be
classed as EITE to qualify for assistance, and increased amount of
free permits issued to these firms. In particular, the AiG would
support reducing the minimum target (i.e. the five per cent
reduction by 2020) as an insurance against the breakdown of
international negotiations.[57] It has flagged that it still needs to consider
its position on the Coalition s call to delay the passing of
legislation.[58]
The Australian Chamber of Commerce and Industry
(ACCI) also supports the introduction of an Australian ETS, and has
noted that the changes announced on 4 May 2009 were much needed .
However, the ACCI has concerns that the proposed 25 per cent target
may be too ambitious and has sought additional details on the
assistance available for small and medium sized industries.[59] & [60] Acting chief
executive Greg Evans has stated that more needs to be done to
assess the financial impacts to small businesses, in terms of
energy costs.[61]
-
The Minerals Council of Australia (MCA) has
several key reservations over the proposed CPRS. It claims that the
scheme design is out of step with other schemes being implemented
globally, is not calibrated with the availability of low emissions
technologies, and will impose the world s highest carbon costs. It
suggests that the proposed $40 price cap for emissions permits is
too high and will not prevent damaging carbon price volatility. It
is concerned that these design features will make meeting the
proposed 2020 target very challenging.
- Although the MCA
welcomed certain aspects of the changes announced on 4 May, it is
still concerned that the auctioning of AEUs will not be gradually
introduced, and that the scheme will distort domestic economic
activity by imposing different carbon costs on various sectors of
the economy.[62] It
is wary of a complex scheme design with critical elements
(including the treatment of emissions-intensive trade-exposed
firms) being dealt with in regulations, which adds uncertainty and
imposes high compliance burdens.
- The Council has
voiced concerns over results of modelling undertaken by Concept
Economics showing that, under the proposed CPRS, almost 24,000 jobs
would be lost from the minerals sector by 2020. In light of this,
the Minerals Council believes that a phased approach to the
introduction of full auctioning of permits would save thousands of
jobs while still delivering the required environmental
benefits.[63]
& [64]
The Australian Coal Association considers that
the announced changes are positive, but is seeking the coal
industry s inclusion as an EITE industry so that it may access the
proposed assistance measures.[65] & [66]
The Australian Petroleum Production and Exploration
Association (APPEA) and the Australian Institute
of Petroleum (AIP) have concerns over the extensive use of
regulations to provide additional details of the proposed CPRS
operation. The AIP considers the differing levels of assistance
provided to the EITE sector unsatisfactory.[67] The APPEA would also like to see more
assistance for the liquefied natural gas industry.[68] & [69]
The Australian Bankers Association has also
expressed concerns over the use of regulations to provide details
of the proposed scheme (see main provisions section for further
discussion).[70]
Further, the association is concerned that the changes announced on
4 May 2009 will create additional complexity, uncertainty and costs
for business and other market participants, as well as inhibit the
development of carbon markets.[71]
The Energy
Supply Association of Australia supports the introduction
of an ETS as essential for promoting investor confidence, however
it claims that even a five per cent emissions reduction target will
cause several coal fired power stations to close or scale back
power production. It feels that a five year range of scheme
emissions caps is too short for certainty for the power industry.
It also suggests that the proposed assistance to strongly affected
industries (i.e. coal fired power stations) is inadequate.[72]
The Australian Pipeline Industry Association
notes that the proposed legislation does not allow liable entities
who have entered into long term contracts fixing the price of their
product, to pass any cost increases arising from the CPRS through
to their customers.[73]
Both the Australian Aluminium Council (AAC) and
the Cement Industry Federation (CIF) are concerned
about the gradual withdrawal of assistance to EITE industries over
time, in the absence of similar emissions restraints being imposed
on its major competitors. Further, the AAC wishes to see 90 per
cent of the necessary permits being made available to all such
industries (of which it is one) instead of between 60 and 90 per
cent. The AAC notes that some activities necessary to its continued
operation are not capable of receiving assistance as either
strongly affected or EITE activities. The result of this is that
the proportion of its free permits for the aluminium industry is
well below the 90 per cent mark.[74] The CIF proposes that highly EITE industries
should all receive 100 per cent of permits free.[75]
The Australian Plantation Products and Paper Industry
Council noted potential shortcomings with the forestry
related components of the proposed scheme. Principally, certain
aspects of the draft provisions may actually discourage forestry
operators from opting to participate in the CPRS.[76]
The Australian Landfill Owners Association
(ALOA) has raised concerns that the measurement techniques for
estimating GHG emissions from landfill operations is not yet
sufficiently accurate, with possible error margins of 30 percent.
Further, it argued that the inclusion of emissions from waste
deposited in the past (legacy waste provisions) creates significant
difficulties and unfairness for the sector and should be removed,
and the scheme should be aimed at future behaviour.[77] These concerns have
been largely addressed by the changes made to the exposure draft
legislation in the CPRS Bill introduced into Parliament, and have
been well received by the Australian Industry Group.[78]
Some environmental groups feel that the proposed Australian
targets are not consistent with Australia s fair share on the
overall global emissions reduction task and should be increased to
at least an unconditional 25 per cent reduction on 1990 levels.
They are also concerned over the proposed assistance to EITE,
claiming it should be reduced and over time withdrawn altogether.
Importantly, all environmental groups highlight the fact that the
proposed scheme does not allow the achievements of voluntary or
additional action by individuals, communities or states to reduce
overall emissions limits.
Generally, environmental groups did not support the proposed
CPRS as outlined in the exposure draft legislation. However in the
wake of the changes announced on 4 May 2009 many environmental,
social welfare and union groups, such as the Southern Cross Climate
Coalition, now support the scheme and are calling for the passage
of enabling legislation in 2009.[79] Other groups find the changes to the targets
disingenuous and the slower start and increased compensation to
EITE industries counter productive.[80]
The Total Environment Centre has expressed
concerns mainly over the proposed GHG emissions targets. It claims
that in combination with unlimited use of non-Australian emissions
permits they may see Australia s GHG emissions rise, instead of
fall (initially this may well be the case). It is also concerned
that as Australian emissions permits will be property rights there
will be a massive transfer of wealth from the public to the private
sector. Combined with the proposed assistance to the EITE
industries (which it claims discriminates against recycling
industries), polluters will achieve windfall profits. The Total
Environment Centre also calls for emissions from all closed
landfill sites to be included in the scheme and claims that
proposed emissions measurement methods for land fill sites are
inaccurate, and need improvement. [81]
The Australian Conservation Foundation (ACF)
shared many of these concerns and also considered that the draft
legislation did little to promote renewable energy, energy
efficiency and healthy eco systems.[82] The ACF did not support the
introduction of the CPRS legislation to Parliament as outlined in
the exposure draft, however, the ACF has changed its position
following the changes announced on 4 May 2009.[83] It continues to push for
amendments to the legislation but welcomes the new 25 per cent
target and calls for the Senate not to delay passing the
bills.[84]
Generally, the Climate Institute (TCI) has been
an ongoing supporter of an Australian ETS. It released a report
detailing the effect of proposed climate policies on Australian
jobs. The results of the modelling demonstrated that more than
26,200 jobs might be created by renewable energy projects.[85]
TCI welcomed the 4 May change to the legislation enabling an
Australian emissions reduction target to be set at 25 per cent
reduction on 1990 levels, commensurate with an appropriate global
agreement being reached. In its submission to the Senate Economics
Committee inquiry into the exposure draft legislation, TCI also
said that it would like to see EITE industries required to improve
emissions performance by four per cent per annum, and for
assistance to EITE industries to be automatically reduced once an
effective international agreement enters into force. Also, TCI
suggested that assistance be contingent on recipients publishing an
annual, externally audited report on emissions abatement
opportunities in their operations. It recommended the legislation
should include a commitment to move towards full auctioning of all
permits with resulting revenue channelled towards the following
priorities: vulnerable low income communities; research,
development and deployment of clean technologies; and support for
adaptation and mitigation in developing countries.
Additionally, an organisation, such as the Productivity
Commission, should be empowered to annually report to the
Parliament on real, proxy and shadow carbon prices in competitor
countries.[86]
As at the time of writing, opposition parties and independent
senators remain opposed to the Government s proposed design of the
CPRS. However, they do generally support a CPRS and have, between
them, proposed a variety of competing design changes for the
government s consideration.
The Coalition has further developed its position on the CPRS,
recently releasing a list of key amendments to the CPRS for
negotiation with the Government. These are as follows: [87]
- amend the CPRS to provide a single level of assistance for
emissions intensive trade exposed (EITE) industries at 94.5 per
cent until 2015 and 90 per cent thereafter
- lower the threshold for assistance from the CPRS proposal of
1000 tonnes of CO2 per $1 million of revenue to 850 tonnes of CO2
per $1 million
- continue to provide assistance to Australian EITE industries at
90 per cent until 80 per cent of their international competitors
have also implemented carbon abatement measures
- include primary food processing such as dairy and meat in the
EITE scheme., and
- allow industries that include a series of sequential or
parallel production processes to have these assessed as a single
activity in determining assistance.
- permanently exclude agricultural emissions from the CPRS,
and
- obtain government agreement to introduction of an agricultural
offset scheme in line with similar offset schemes to be introduced
in comparable economies such as the US and EU.
Coal Mine Emissions
- exclude coal mine fugitive emissions from the CPRS, and
- provide the Minister with authority to use regulation to
control fugitive emissions with the objective of achieving a 30 per
cent reduction by 2025 as technology and international best
practice allow.
Lower Electricity Prices
- the Coalition will continue to advocate an intensity-based
cap-and-trade model for generators. This delivers the same
emissions cuts as the CPRS but with a much smaller increase in
electricity prices
- this would greatly reduce the burden on small and mid-sized
businesses, which receive no compensation for higher power bills
under Labor s proposals
- under the CPRS retail electricity prices will rise by close to
20 per cent in the first two years. Under an intensity approach,
retail electricity prices would rise by less than 5 per cent in the
first two years, and
- if the Government continues to refuse to consider the intensity
model, the Coalition will negotiate for an alternative approach to
cushion near-term electricity price increases for small
businesses.
Compensation for Electricity Generators
- coal-fired generators must be better compensated for loss of
value they experience from the CPRS, to ensure security of
electricity supply and enable them to transition to lower emission
energy sources
- the CPRS offers coal-fired generators 130 million permits over
five years worth $3.6 billion. Yet three respected private sector
analysts estimate their losses at $9 $11 billion
- assistance should be increased to 390 million permits over 15
years (or about $10 billion). Assistance should be allocated to all
generators in proportion to the losses they suffer, and
- in the absence of access to the Government s secret Morgan
Stanley report, this represents the Coalition s best estimate of
appropriate generator compensation given the available data.
Energy Efficiency and Voluntary Action
- the Coalition will negotiate for a national white certificate
energy efficiency scheme so households and businesses earn credits
for efficiency measures, and contribute to reducing national
emissions, and
- likewise, the Coalition supports creation of a voluntary offset
market in advance of the introduction of the CPRS, and amending the
CPRS to ensure voluntary abatement leads to a lower national level
of emissions.
On 12 October 2009, the Greens
released their Safe Climate Bill which they have described as: a
collection of 12 linked bills based around the pillars of renewable
energy, energy efficiency, clean transport and forest protection,
supported by a real carbon pricing scheme . The proposed Bills
are:
- The Safe Climate (Emissions Trading Scheme) Bill 2009
- The Safe Climate (Renewable Energy Electricity) Amendment Bill
2009 [Renewable Energy Target]
- The Safe Climate (Renewable Electricity Feed‐in Tariff)
Bill 2009
- The Safe Climate (Renewable Energy Infrastructure) Bill
2009
- The Safe Climate (Energy Efficiency Access and Savings
Initiative) Bill 2009 [The EASI scheme]
- The Safe Climate (Energy Efficiency in Non‐Residential
Buildings) Bill 2009
- The Safe Climate (Energy Efficiency Opportunities) Bill
2009
- The Safe Climate (Energy Efficiency Target) Bill 2009
- The Safe Climate (Sustainable Transport Infrastructure) Bill
2009
- The Safe Climate (Fringe Benefits and Fuel Credit Restrictions)
Bill 2009
- The Safe Climate (Native Forest Carbon and Biodiversity
Protection) Bill 2009
- The Safe Climate (Green Carbon) Bill 2009
The package of Bills was released
essentially as exposure drafts. However, one of the Bills in the
package has already been introduced in the Senate, while others are
still going through the consultation phase.
On 17 September 2009, the Safe
Climate (Energy Efficient Non-Residential Buildings Scheme Bill)
2009 was introduced into the Senate. The purpose of the Bill is to
introduce an emissions intensity cap and building efficiency
certificate trading scheme for non-residential buildings to provide
an economic incentive for investment in energy efficiency, and for
related purposes .[88] It is intended to address
some of the limitations of the broader emissions trading scheme
.[89] Due to the
highly technical nature of the Bill and its wide ranging
implications for owners of non-residential buildings (such as
shopping centres, hospitals, schools, hotels and so forth) it was
referred immediately to the Economics Legislation Committee for
inquiry and report by 10 March 2010.
- a national emissions reduction target of at least 40 per cent
below 1990 levels by 2020 in the context of global agreement
- subject to global agreement, scheme caps must be set in line
with the ultimate 350 ppm goal
- all permits will be subject to auction rather than free
grandfathering
- use of Professor Garnaut s model for emissions intensive trade
exposed industries, requiring the Productivity Commission to advise
on the minimum level of assistance necessary to compensate for loss
of international competitiveness
- coverage of the same sectors as the CPRS but effectively
including the transport sector in the scheme rather than offsetting
the entire price signal with reductions in fuel excise
- excludes the use of a price cap
- limited use of imported permits in the scheme to 20 per cent in
total
- a proportion of revenue from the scheme is to be used to
finance adaptation and mitigation measures in developing countries
over and above existing overseas development aid
- voluntary action by governments, groups or individuals is
encouraged by subtracting total voluntary emissions reductions in
each year from the following year's target, and
- earmarks a substantial revenue for investment in activities
such as:
- upgrading energy efficiency in homes, commercial buildings and
industry;
- R&D and commercialisation funding for renewable energy, as
well as upgrading to a smart electricity grid to enable energy
efficiency and renewable energy;
- providing debt guarantees to those wishing to invest in large
renewable energy generation;
- implementing Just Transitions plans for communities most at
risk from the transition,
- investing in skills audits, training programs and seed funding
for new clean industries;
- some direct compensation measures for low income earners;
and
- bus, rail and bike infrastructure and redesigning urban areas
around people instead of cars.
Further details relating to the
other Bills in the package, are available at http://greensmps.org.au/blog/launching-safe-climate-bill#
Independents and Family First
Senator Xenophon and the Coalition jointly commissioned a report
by Frontier Economics. That report proposes a hybrid scheme (a
baseline and credit scheme) which they argue would provide for a
doubling of the unconditional reduction in greenhouse gas
emissions, at a much lower cost. Senator Xenophon supports deeper
cuts in greenhouse gas emissions and remains concerned that the
scheme proposed by the government will not achieve this in an
economically responsible manner. He is concerned that the CPRS
emphasizes penalties at the expense of incentives and believes that
the approach recommended by Frontier Economics will be more
efficacious. [91]
Senator Fielding s position is perhaps best reflected in certain
consistent comments and concerns that he has raised in relation to
the CPRS. In brief, these are:
- questioning of the precise scientific basis of climate change
projections, although acknowledging that climate change is a real
and apparent occurrence
- a preference to delay any finalisation of Australia s response
to climate change until after the forthcoming United Nations
conference on a global response to this issue in Copenhagen in
December, and
- a concern about the economic impact of the CPRS on working
families, particularly on the potential for steep rises in
utilities prices and potential loss of employment
opportunities.[92]
Given both the short- and long-term implications of the proposed
CPRS, this Bill is one of the most significant pieces of
legislation to come before Parliament in recent times. Its
implications are nothing less than a re configuration of the
Australian economy towards a low GHG emissions stance.
Where there is a deadlock between the House of Representatives
and the Senate, section 57 of the Australian Constitution provides
for a double dissolution (of the House of Representatives and the
full Senate) as a procedure to resolve such a deadlock, subject to
certain conditions being met.[93] As they apply to the current situation, two of
the main procedural conditions are:
that the content of the reintroduced CPRS Bills[94] must be the same as the Bills as
they were when passed by the House of Representatives[95]
the period between (i) the Senate rejecting the CPRS Bills (13
August 2009) and (ii) the passing of the reintroduced Bills by the
House of Representative must be at least three months
The first condition is satisfied by the CPRS Bills. In relation
to the second, the Minister has said the Government intends that
the Bills be voted in the week beginning 16 November 2009.[96] If so, this would
satisfy the second condition.
Once the requirements for a double dissolution are met, the
Government does not have to use the double dissolution trigger
immediately. The Government has up until six months before the
maximum term of the House of Representatives expires. Thus in
theory, a double dissolution election on this issue could take
place as late as 16 October 2010. [97]
The following table outlines the potential financial impact on
the federal budget of the proposed scheme.
|
Year
|
2010
2011
|
2011
2012
|
2012
2013
|
|
Revenue from
selling permits
|
n.a.
|
4.5
|
13.0
|
Source: Explanatory Memorandum[98]
The size of these revenue impacts are less certain than usual as
the proposed scheme may be subject of extensive amendment before
being passed by Parliament and the price of AEUs is uncertain in
the 2012 2013 and later years.
The government intends to recycle all revenue generated by the
selling of AEUs to assist both households and business adjust to
the introduction of the proposed scheme.[99] The overall project fiscal outcome
after this redistribution is shown in the following table.
|
Year
|
2009
2010
|
2010
2011
|
2011
2012
|
|
Net impact on Federal
Budget
|
-0.3
|
0.8
|
-0.5
|
Source: Explanatory Memorandum
There are several key issues that emerge from the above
background in respect of the proposed scheme. Briefly, they
are:
- whether a cap and trade scheme is the best instrument to
achieve Australia s emissions reduction targets, in concert with
the government s other measures
- in the light of the identified criticisms of the proposed
scheme, whether to proceed and pass legislation this year or
redesign Australia s approach to GHG emissions control
- if the proposed scheme is to be legislated what is the
appropriate commencement date, 1 July 2011 or some later date
- what are the appropriate targets for Australian GHG emissions
reduction?
- will the proposed scheme cause significant carbon leakage that
is, the movement of industrial activities/additional investment in
emissions intensive activities to a location that is not subject to
emissions constraints
- related to the previous point, does the proposed scheme provide
the right amount of transitional assistance to EITE and the coal
fired power industries? Should the range of industries being
classed as EITE be expanded, most notably to include certain coal
mines and coal fired electricity generation
- does the scheme have appropriate coverage
- should there be an explicit link between the level of GHG
emissions abatement achieved through voluntary action and the
annual emissions caps set by the relevant Minister
- should there be any limits on the use of Kyoto protocol
compliant emissions credits in the proposed CPRS, and
- what is the appropriate level of delegated legislation to be
included in the proposed scheme. That is, how much detail of the
proposed scheme s operation should be left to regulation?
A further issue is whether undue harm to the prospects of the
conclusion of an effective international emissions control
agreement would occur if Australia attended the relevant
negotiations at the end of 2009 without a Scheme in place.
- the cap fixes an overall limit for emissions this is a major
difference between a cap and trade scheme and all other
approaches
- potentially delivers emissions control and reduction at the
least overall cost
- allows for unforseen reductions in emissions across the
economy[100]
- provide the greatest incentive for further technical
innovation[101]
- avoids heavy handed direct regulation, instead allow
participants to tailor their own emissions abatement programs to
their own particular circumstances
- is more flexible, allowing firms to react quickly to unexpected
developments, such as changes in required overall emissions
reductions levels as a result of better measurement of actual
emissions produced
- emissions trading copes with uncertain demand and supply
responses for emissions permits without overt government
intervention
- emission trading schemes allow the signalling of future
emissions permit prices through a forward contract system. This
allows participants to potentially fix their costs in advance
- allows firms to be rewarded for emissions reductions by
enabling their unused permits to be sold to other market
participants (that is, provides a positive incentive for emissions
reduction, as well as a negative incentive), and
- such schemes appear to be the favoured approach for emissions
control. Without an emission trading scheme Australia would forego
the benefits of eventually linking its emissions control efforts to
those of other countries or an evolving international emissions
trading scheme
an international emissions trading arrangements already exists
under the Kyoto Protocol arrangements through the trading of the
emissions credits generate by projects under the Clean Development
and Joint Implementation mechanisms.[102]
- they are complex to design and administer
- the design of such schemes must be very carefully thought out
to minimise adverse market distortion and economic impacts
- the initial emissions permit allocation decision may be open to
either state or economic sector bias
- their implementation has long lead times, often requiring a
slow start in target emissions reduction. So significant results do
not appear to be achieved over the short term
- there is some concern that emissions trading provides
additional avenues for profit to large financial institutions,
and
- a related concern is that emissions trading may lead to
unjustified third party hoarding of emissions permits.
Economic theory suggests that a government may control
efficiently the price of emissions, or their quantity, but not both
at the same time.[103] Broadly, approaches to GHG emissions control have
favoured either controlling prices, or quantities but not both at
the same time. The cap and trade approach controls the emissions
quantity. Other such approaches are:
- the emissions intensity approach, where a benchmark emissions
intensity of particular production processes is set, in say tonnes
of CO2e per unit of output. Then the government
legislatively reduces the permitted emissions intensity for liable
parties over time[104]
- the hybrid approach, where each country establishes their own
emissions trading scheme without any explicit international target
for emissions reduction. Each scheme features both short term and
long term emissions reductions targets. Individual countries may
then link their schemes if they wish and each scheme features a cap
on the price of its particular permits. In the short term the cap
may be breached if the price of the emissions permits exceeds a
certain pre set level.[105] After its fixed permit price in the first year, the
proposed CPRS has this feature in the next four operating
years.
- the baseline and credit approach where the emphasis is on
offsetting emissions made rather than reducing such
emissions[106],
and
- the regulatory approach, where the government simply sets
targets for emissions and fines those entities whose emissions
breach the set targets.
Of course, the major alternative for raising the price of GHG
emissions is the imposition of an emissions tax. As the cost of
making such emissions is raised then the emitter has greater
incentive to reduce these emissions.
Briefly, a significant weakness of the emissions intensity,
baseline and credit and emissions tax approach is that they lack
sufficient assurance that GHG emissions will actually be reduced. A
second problem is that while it is not impossible to link these
types of approaches with other countries schemes, it is more
difficult given the prevalence of the cap and trade approach (see
following section). Lastly, the regulatory approach lacks any
potential incentive for liable parties to pursue technical
innovation to reduce their emissions beyond that required by the
regulatory limit imposed.
Internationally, the trend in emissions control regimes has been
toward implementing classical cap and trade schemes. The most
prominent example has been the European Emissions Trading Scheme.
Other examples include the sectoral based Acid Rain Program in the
United States and the regionally based schemes in North
America.[107] It
may be far easier to link the proposed CPRS to other existing and
proposed cap and trade schemes in other countries and regions, than
it would be to link alternative schemes.
The emissions reduction targets to which the caps in the CPRS
must aim are between five and 25 per cent by 2020 compared to 2000
levels (minimum unconditional five per cent target, with higher
targets conditional on international agreements being reached), and
60 per cent by 2050 compared to 2000 levels. It is important to
note that the CPRS will not be solely responsible for these
proposed reductions, but will be supported by other complementary
or transitional measures, particularly in the initial years of the
scheme before it becomes fully operational. This section aims to
provide additional detail on implications of the proposed and
alternative timing of the scheme and various targets.
The 15 per cent reduction target will only be adopted if the
following occur.[108]
- global action to stabilise atmospheric GHG concentrations
between 510 and 540 ppm CO2e
- emissions reductions in advanced economies that aggregate to
within the range of 15 to 25 per cent below 1990 levels
- substantive measurable, reportable and verifiable commitments
and actions by major developing economies, supported by
international financing and technology transfer but which may not
deliver significant emissions reductions until after 2020, and
- progress towards inclusion of forests (reduced emissions from
deforestation and forest degradation, REDD) and land sector in an
international agreement as well as deeper and broader international
carbon trading and low carbon development pathways.
- For Australia to adopt a target of a 25 per cent reduction
requires a comprehensive international agreement to reduce
emissions such that atmospheric GHGs stabilise at 450 ppm
CO2e or lower. Such an agreement must specifically
include[109]:
- comprehensive coverage of GHGs, sources and sectors, including
forests (REDD) and the land sector (i.e. soil carbon and biochar if
scientifically demonstrated)
- a nominated early deadline for peak global emissions no later
than 2020
- emissions reductions in advanced economies that aggregate to at
least 25 per cent below 1990 levels by 2020
- slowing and reduction of emissions in major developing
economies, with a combined reduction of at least 20 per cent below
business as usual levels by 2020 and a nominated emissions peaking
year for individual major developing economies, and
- the development of fully functional global carbon markets
facilitated by the mobilisation of financial resources from
developed and major developing economies.
To achieve this 25 per cent target the government has indicated
that it would purchase up to five per cent of the required
reductions in the form of international emissions trading. Under
such an international agreement, the Government would also seek an
election mandate to increase its 2050 emissions reduction
target.
It can be argued that the conditions for the adoption of the 25
per cent target are, at the time of writing, unlikely to occur.
However, the advantage of this approach is that overseas
participants in the UNFCCC negotiations have greater clarity of
Australia s intentions and requirements in this area. Given
Australia s positive population growth rate, committing to a 25 per
cent reduction in emissions would translate into a comparatively
larger reduction in per capita emissions. However, Australia s per
capita emissions would still be higher than those of most other
advanced economies and the rest of the world in general.
Climate change impacts have been projected under various
mitigation scenarios as well as under a no mitigation reference
scenario. Two mitigation scenarios commonly considered target GHG
stabilisation levels of 450 and 550 ppm CO2e,
respectively (by mid next century in the 450 case, and by 2100 in
the 550 case). These scenarios correspond to warming by 2100 of
about 2 C and 3 C, respectively.[110] The projections under these
scenarios suggest that limiting the amount of warming by 2100 to 2
C or less would be highly desirable in order to reduce the risks of
damaging and potentially catastrophic climate change
impacts.[111]
There have also been suggestions that 450 ppm CO2e and 2
C are too high, and that we should be aiming for a stabilisation
target of 350 ppm CO2e and limiting warming to less than
1.5 C.[112]
Stabilising GHG concentrations at 450 ppm CO2e is
estimated to give a 50 per cent chance of limiting warming to 2 C
above pre industrial levels.[113] Atmospheric GHG concentrations currently stand
at over 450 ppm CO2e, so achieving a 350 or 450 target
will mean substantial and rapid cuts in emissions, and even then
will require initial overshooting of the target.[114]
The amount and duration of overshooting will influence the
likelihood of irreversible climate change impacts being initiated;
for example, one event that is thought to be particularly
vulnerable to tipping points in the climate is irreversible loss of
the Greenland ice sheet, which may be initiated under relatively
moderate warming scenarios and which would contribute an estimated
seven metres of sea level rise over several centuries.[115]
Of all developed countries, Australia is perhaps the most
vulnerable to the impacts of climate change. Australia s climate is
naturally highly variable and this together with its limited water
resources already place ecosystems and communities under stress.
Australia also has strong economic ties with surrounding developing
nations in the Asia Pacific region, and the adverse impacts of
climate change on these nations would impact Australia through
effects on trade and socio political issues.
The Australian Government has stated its support for a global
stabilisation target of 450 ppm CO2e or lower,
recognising that this would be in Australia s interests. Minister
Penny Wong has said that its climate change strategy is formulated
with this target in mind:
In formulating our approach to climate change, the Australian
Government recognises it is in our national interest to seek a fair
and effective global agreement delivering deep cuts in emissions,
so as to stabilise concentrations of greenhouse gases in the
atmosphere at around 450 parts per million or lower, by
mid-century. [116]
Australia s
emissions trajectories under various mitigation and reference
scenarios
Australia s various proposed and recommended 2020 emissions
reduction targets have in general been stated with respect to 2000
emission levels. The following table illustrates how they translate
to reductions with respect to 1990 levels (which is the baseline
year under the Kyoto Protocol), to 2008 12 levels (the Kyoto
commitment period, during which Australia has committed and is on
track to limit its emissions to 108 per cent of 1990 levels), and
the reduction in emissions these targets represent compared to the
business as usual scenario.
|
Baseline year/s
|
Baseline year emissionsa
(Mt CO2e)
|
To achieve
equivalent 2020 reduction targets
(%)
|
|
2000
|
552.7
|
5
|
10
|
15
|
25
|
40
|
|
1990
|
546.3
|
4
|
9
|
14
|
24
|
39
|
|
2008 12
|
590.0
|
11
|
16
|
20
|
30
|
44
|
|
2020 BAUb
|
774.2
|
32
|
36
|
39
|
46
|
57
|
a Based on Kyoto
Protocol accounting rules, from the Australian Greenhouse Emissions
Information System, National Greenhouse Gas Inventory Kyoto
Protocol Accounting Framework , Department of Climate Change
website, http://www.ageis.greenhouse.gov.au/.
b 2020 BAU is the business as usual emissions
projection for 2020 as modelled by the Australian Treasury in its
report Australia s low pollution future: the economics of
climate change mitigation, October 2008. This reference
scenario includes policy measures in place in 2008 (i.e. it does
not include the expanded renewable energy target, the CPRS or the
Government s 2050 emissions reduction target of 60%).
Source: Compiled by the Parliamentary Library using data from
the Department of Climate Change and the Australian Treasury.
As the table illustrates, the rate at which Australia s GHG
emissions must be reduced from current (2008 12) levels is well
above the nominal rate generally cited (with respect to 2000 or
1990 emissions). The emissions reductions below the business as
usual (BAU) scenario are much higher again. Since 1995 the trend
growth in Australia s GHG emissions has been 1 per cent per year,
though it has increased by as much as five per cent in any one
year.[117] The
Treasury BAU scenario projects an average annual increase of two
per cent per year from 2005 to 2020. In contrast, a five per cent
emissions reduction target by 2020 relative to 2000 levels will
require an average annual reduction in emissions of 1.3 per cent
per year from 2011 to 2020. The equivalent annual reductions
required for other 2020 targets are shown in table 4 below.
|
2020 emissions reduction target (from 2000 levels)
|
5%
|
10%
|
15%
|
25%
|
40%
|
BAU
|
|
Annual reductions required from 2011 to 2020a
|
-1.3%
|
-1.8%
|
-2.4%
|
-3.6%
|
-5.7%
|
+2.0%
|
a Calculated for mitigation scenarios assuming
emissions in 2010 are 108% of 1990 levels, or 590.0 Mt
CO2e. For the BAU scenario the figure is from the
Treasury modelling.
Source: Compiled by the Parliamentary Library using data from
the Department of Climate Change and the Australian Treasury.
With business as usual emissions projected to continue
increasing, it is clear that if the mitigation scheme for a given
2020 emissions reduction target is delayed, much steeper annual
reductions will be required to meet the target. This means that the
economy wide costs of the scheme on its introduction may increase
the longer it is delayed, no matter what particular target is
chosen. Generally, the higher the rate of reduction, the greater
the cost of those reductions to the economy as a whole.
What represents
Australia s fair contribution to global emissions reduction
commitments?
The Garnaut Climate Change Review found that it would be in
Australia s interests to pursue a global agreement to stabilise GHG
concentrations at 450 ppm CO2e, and that Australia s
proportionate contribution to such an agreement would be a
commitment to reduce its emissions by 25 per cent compared to 2000
levels by 2020.[118]
Garnaut s alternative recommendations for Australian 2020
emissions reduction targets in the absence of such an ambitious
global agreement were five per cent reduction on 2000 emissions
unconditionally, 10 per cent reduction conditional on a global
agreement for GHG stabilisation at 550 ppm CO 2e, or
between 10 and 25 per cent reduction if a global agreement is
achieved for a stabilisation target between 450 and 550 ppm
CO2e.[119]
As a party to the United Nations Framework Convention on Climate
Change, Australia has agreed that developed countries have a
responsibility to take the lead in committing to climate change
mitigation measures. This means that to achieve the global
emissions reductions required for a particular GHG stabilisation
target, developed countries will need to implement much higher
reductions than the global goal, to allow the economies of
developing countries to continue to expand. For example,
stabilisation at 450 ppm CO2e will require global
emissions reductions of 50 per cent by 2050 relative to 2000
levels. Based on the per capita contract and converge principle
advocated by Garnaut, this would require a much steeper reduction
target of 86 per cent for developed countries, while developing
countries would on average reduce their emissions by only 14 per
cent in this time.[120] The 2020 targets for developed and developing
countries consistent with a 450 ppm CO2e stabilisation
target under this allocation principle would be 31 per cent and +85
per cent, respectively, compared to 2000 levels. Garnaut s
assessment of Australia s proportionate contribution to a 450
stabilisation target is a reduction from 2000 levels of 25 per cent
by 2020, and 90 per cent by 2050.
It is worth noting that Garnaut s recommended 2020 and 2050
targets for Australia are lower than other developed nations when
stated in reference to 2000 or 1990 levels, but are roughly
comparable when the Kyoto commitment period of 2008 12. This means
that under Garnaut s allocation scheme, Australia is not penalised
for being one of the few developed countries that was allowed to
increase its emissions under the Kyoto Protocol.
In the 4 May amendments to the scheme, the Government announced
it would adopt an emissions reduction target of 25 per cent below
2000 levels under certain conditions. This change in policy
reconciles the apparent discord that had existed between the
Government s stated support for a GHG stabilisation goal of 450 ppm
CO2e and its previous maximum emissions reduction target
of 15 per cent. However, the Government has attached additional
conditions to its adoption of the 25 per cent target regarding the
nature of the international agreement (see earlier). These
conditions have been criticised as unrealistic and in violation of
the agreed differentiation of responsibilities between developed
and developing countries embodied in the UNFCCC and Kyoto
Protocol.[121] In
addition, specific individual and aggregate developed country
targets that have been proposed for post Kyoto commitment periods
are generally higher than the 25 per cent that the Government is
conditionally nominating.[122]
The Government has argued that an equitable division of
emissions reduction commitments should also consider the economic
costs of mitigation, as well as the impact of reductions when
compared to present day emissions and on a per capita
basis.[123]
Australia s per capita emissions are the highest among the
developed nations, and among the highest in the world. In addition,
unlike most other developed countries, Australia s population is
projected to continue to grow. This means that absolute emissions
reductions translate to relatively higher per capita emissions
reductions for Australia compared to other developed countries.
[124]
Australia is not alone in setting targets for the reduction of
GHG emissions. A comparison with other country targets is shown in
the table below. The table illustrates the 2020 targets in absolute
reductions compared to 1990 levels, as well as per capita
reductions compared to 1990 levels. Long term targets (2050
absolute reduction targets) are also shown relative to 1990 levels.
Where a target range is indicated, the low end of the range is an
unconditional commitment, while the high end is a commitment
conditional upon the realisation of an international agreement with
comparable commitments from other developed countries and
implementation of emissions reduction measures from developing
countries.
|
Entity
|
Stated 2020 target
|
2020 absolute target below 1990 levels
|
2020 per capita target below 1990 levels
|
2050 absolute target below 1990 levels
|
|
Australia
|
5
15% or 25% below 2000 levels
|
3
14% or 24%
|
30
38% or 45%
|
60%
|
|
European Union
|
20
30% below 1990 levels
|
20
30%
|
28
37%
|
60
80%
|
|
United Kingdom
|
34
42% below 1990 levels
|
34
42%
|
42
49%
|
80%
|
|
Germany
|
40%
below 1990 levels
|
40%
|
41%
|
|
|
Canada
|
20%
below 2006 levels
|
Increase of 24%
|
8%
|
60
70%
|
|
United States
|
14%
below 2005 levelsa
|
6%
|
27%
|
80%
|
|
20%
below 2005 levelsb
|
8%
|
32%
|
80%
|
Notes: Compiled by the Parliamentary Library. Conversions to
1990 baseline were calculated based on UNFCCC total GHG emissions
including LULUCF inventory data (http://unfccc.int/di/DetailedByParty.do);
with population data and projections from the UN Population
Division Population Database (http://esa.un.org/unpp/index.asp).
EU per capita reductions are based on the 15 EU member states that
have combined and internally reallocated their commitments under
the Kyoto Protocol. Individual country commitments are from various
sources. [125]
a Target outlined in Barack Obama s 2010 budget
proposal.
b Waxman Markey bill (the American Clean Energy
Security Act of 2009) currently under consideration, economy wide
emissions reduction target.
The following figure provides a graphical illustration of the
different targets with respect to 1990 levels of the
countries/communities listed in Table 5.
Figure
1: Absolute and per capita emissions reduction targets for
different countries and the EU with respect to 1990 levels
Notes: Produced by the Parliamentary Library from sources noted
in Table 5. The error bars indicate the range of targets for each
country or community, with the main bars indicating the middle of
that range. The range for the US covers President Obama s budget
proposal and the proposed targets in the Waxman Markey bill
currently under consideration.
In considering the comparisons in Table 5 and Figure 1, three
relevant points should be noted:
- unlike the other countries listed, Australia was allocated an
increase in emissions under the Kyoto Protocol. This means although
Australia s 2020 emissions reduction targets are significantly
lower than targets of European countries when referred to the 1990
baseline, the difference is less pronounced when expressed as a
reduction relative to current emission levels (both Australia and
the EU are on track to meet their Kyoto commitments).
- Australia s absolute targets are lower than those of European
countries, but more ambitious than the current US and Canadian
targets. Australia s economic structure more closely resembles
those of the US and Canada than those of EU countries. Australia,
the US and Canada are all large, resource rich countries that are
relatively sparsely populated. European countries, on the other
hand, are much more densely populated and their economies are
generally more service oriented. These differences are largely
responsible for the difference in energy efficiency and greenhouse
gas intensity relative to growth and population of the two groups
of countries.
- The per capita emissions reduction targets are not as disparate
as the absolute targets. The populations of Australia, the US and
Canada are projected to increase by between 34 and 39 per cent
between 1990 and 2020, while those of the European Community will
on average increase by only six per cent.[126] Hence, a given absolute emissions
reduction will require much steeper reductions per person in the
countries with expanding populations.
Briefly the term carbon leakage refers to either:
- the relocation of emissions intensive industries away from
regulatory environments that control those emissions, and/or
- the direction of investment funds to facilities in regulatory
environments that do not include controls on GHG emissions or have
less stringent controls.
The emissions continue to be made, or increase, in the
alternative location, rather then being reduced or controlled in
the original site. These relocations occur due to the activity
losing a competitive advantage in international trade. Concerns
about carbon leakage are behind the EITE assistance package.
Should a company or sector find itself vulnerable to carbon
leakage, and the associated falling profits, then it may decide to
relocate its activities to a jurisdiction that is not subject to an
ETS. In no particular order some of the considerations when
relocating may be:
- whether a facility is the highest cost facility in a globally
integrated industry. For example, the global aluminium industry is
dominated by a few major multinational companies with aluminium
smelters in many locations. Such companies would relocate
production from the highest cost smelters first
- the availability of an alternative location with the necessary
physical attributes, particularly for achieving the necessary scale
of production if establishing a new facility
- whether the alternative location can physically expand
production if the activity in question is already present? For
example, this may require the establishment of additional power
stations
- the availability of less expensive energy in the alternative
location
- the availability of a trained workforce in the alternative
location
- if there are strong nearby markets with low import barriers.
This is particularly important for products where transport costs
to markets are a major cost. Transport costs are not so important
for low volume high value commodities such as aluminium
- whether there is a stable government willing to host the
activity in question without extracting a disproportionate rent in
the form of fees and charges
- whether there are less stringent tax and environmental regimes
in the alternative location, both now and over the economic life of
the new investment
as the income of developing countries increases, they may well
demand enhanced environmental controls. Further, participation in
any new international agreement to limit GHG emissions may
radically affect the decision to relocate
- whether it is less expensive to upgrade an existing facility
compared to the investment required to relocate, and
- whether by relocating, a company risks a major negative impact
on its reputation.[127]
The answers to these questions will be different for each
particular firm and activity. But the important point is that a
decision to relocate an activity due to the impact of emissions
trading is not a simple decision. Some firms may choose to absorb
the additional costs and continue operating within a region subject
to an ETS.
Representatives of heavy industry have argued that the proposed
CPRS will lead to carbon leakage. Some doubts have been raised
whether Australian emissions intensive industries are really
vulnerable to carbon leakage under the proposed CPRS. Recent
Treasury modelling suggests that there may be a minor amount of
carbon leakage at most expected permit prices. Where carbon prices
are double the highest expected price range, significant leakage
may occur. Treasury also concluded that recent concerns raised
about carbon leakage, based on private economic modelling, may be
exaggerated.[128]
However, these conclusions reflect Treasury s modelling
assumptions. One important assumption is that other countries also
adopt GHG emissions control measures within a few years of the
start of the Australian ETS in 2011. In this scenario, the scope
for carbon leakage is lower. Treasury did not model the outcome in
respect of carbon leakage should other countries fail to adopt GHG
emissions control measures.
Recent equity analysis reports on the impact of the proposed ETS
on Australia s largest companies (including Woodside) suggest that
its impact should not have a significant effect on their financial
positions.[129]
This conclusion was repeated in the wake of the release of the
Australian Government s white paper outlining the final design of
the proposed Australian ETS.[130] The changes announced on 4 May 2009, which
increase the assistance given to EITE facilities, are likely to
reinforce these conclusions.
The above analysis does not appear to
apply to the aluminium smelting industry. The Garnaut Climate
Change Review noted that Australia s aluminium smelting industry
may well eventually decline due to the introduction of an ETS in
Australia. The review suggested that this industry would relocate
to take advantages of cheaper energy in Africa, Asia and the island
of New Guinea.[131]
As noted above there will be a considerable amount of assistance
in the form of free AEUs to facilities that fall into this
category. The government has published an initial list of
industries that potentially qualify for assistance as EITE, they
are:
- aluminium refining and smelting
- ammonia production
- carbon black production
- newsprint, printing paper, cardboard and carton board
manufacturing
- lime, caustic soda and chlorine gas and soda ash
production
- cement clinker and coke production
- copper, magnesia, zinc, synthetic rutile, titanium oxide,
silicon and pig iron refining and smelting/production
- ethanol and methanol production
- float glass production
- nitric acid and ammonium nitrate production
- ethylene/polyethylene production, and
- petroleum refining. [132]
Of course, whether an individual facility in the above
industries is covered by the proposed scheme, let alone qualifies
for assistance under the EITE program, depends on whether its
emissions exceed the specified limits. Assistance given under the
EITE program would decline over time.
Generally environmental groups would prefer that this assistance
be reduced as quickly as possible. Most business groups appear to
advocate that all emissions intensive trade exposed industries be
sheltered from the full effects of the proposed CPRS until major
competitors have comparable emissions controls.
From 2013 at least 50 per cent of the emissions permits issued
under European Union s Emissions Trading Scheme will be auctioned.
This proportion rises to 70 per cent by 2020, and to 100 per cent
by 2027.
The exceptions to this policy are industrial sectors (not
facilities) that are considered to be at risk of relocating outside
the European Union. All of their allowances, issued within the
declining overall number of permits issued, will be allocated free
of charge. Thus, the amount of permits issued in this fashion will
decline over time. A list of industry sectors considered to be at
risk of relocation will be published at the end of 2009.
This policy will be reviewed in the light of any international
agreements reached on emissions control and in particular any
international agreements reached in respect of particular sectors.
For example, governments may negotiate a separate agreement
concerning emissions control for the aluminium sector.[133]
The American Clean Energy and Security Act of 2009,
currently under consideration in the US Congress (known as the
Waxman Markey bill after the members who introduced it), also
provides transitional assistance to EITE industries. The Waxman
Markey bill provides up to 100 per cent free permit allocations to
eligible EITE industries to cover their direct and indirect costs
imposed by the scheme, subject to maximum limits on the percentage
of free allocations out of the total permit pool. This continues
for as long as 70 per cent of global output in the relevant sector
is produced in countries with similar emissions constraints. The
maximum limits on the free allocations may reduce the level of
assistance below the 100 per cent compensation level. These limits
start at 15 per cent of the permit pool in the first year of
industry liability (2014), and reduce by 1.75 per cent per year
from 2015 to 2020, then by 2.5 per cent per year from 2021 to 2025.
The eligibility criteria for EITE assistance under the Waxman
Markey bill appear to be more stringent than under the CPRS, and
petroleum refining is explicitly excluded from eligibility (unlike
under the CPRS).[134]
In 2006, synthetic GHG emissions accounted for one per cent of
Australia s total greenhouse gas emissions in CO2e, or
20 per cent of Australia s industrial emissions.[135] However, there are currently
no entities that import or manufacture more than the liability
threshold of 25,000 tonnes CO2e of synthetic greenhouse
gases.[136]
The synthetic greenhouse gases are hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs) and sulfur hexafluoride (SF6).
These gases have a much greater global warming potential per tonne
than CO2 (ranging from 1000 to 23 000 times more potent
over a 100 year timeframe). Emissions of many of these gases have
been rapidly increasing, as they are used as substitutes for ozone
depleting substances controlled under the Montreal Protocol. They
are used or produced in numerous industrial processes, mainly
as:
- Refrigerants for refrigeration and air conditioning
equipment
- Foam blowing agents for some thermal insulation
applications
- Propellants in some aerosols
- Extinguishing agents in some systems
- Insulation gas in electrical switchgear
The CPRS does not cover additional synthetic greenhouse gases
that are emerging as potentially significant contributors to global
warming. There are several such gases whose use is rapidly
expanding in such areas as the electronics industry, and as
replacements for other more potent greenhouse gases that are
controlled under either the Kyoto or Montreal Protocols. Several of
these gases are being considered for inclusion in a post Kyoto
international emissions control agreement, with the support of the
Australian Government.[137]
The CPRS covers reforestation activities on a voluntary basis.
It does not cover emissions resulting from deforestation.
The Government has already established tax deductions for
establishment of forests for the purposes of carbon sequestration.
The implications of encouraging such activities through tax
incentives apply equally to the incentive provided under the CPRS,
and are discussed more fully in the Parliamentary Library research
paper Tax deductible carbon sink forests? [138]
Reforestation under the CPRS is as defined for the first
commitment period of the Kyoto Protocol. However, the international
accounting rules for land use, land use change and forestry are
currently under negotiation, and the Scheme allows for a revision
of the crediting rules for reforestation to remain consistent with
international accounting. Under the current scheme, forest harvests
are counted as emissions. Therefore, a forest that is planted for
non harvest purposes will be allocated more permits for emissions
removals than a harvested forest, and the Government expects that
non harvest forests will be more likely to participate in the
Scheme:
Scheme participation might not be beneficial for single rotation
plantations, such as those owned through managed investment
schemes, because of the risk that the cost of obligations under the
Scheme for harvest emissions would exceed the value of permits
received for sequestration. The Government therefore expects that
most forests established as a result of the Scheme will be not for
harvest forests grown on marginal or less productive farm land,
rather than plantations. This reduces the risk that plantation
forests would be maintained for carbon, while native forests are
subject to additional harvesting.[139]
Natural disturbances such as bushfires and pest attacks can
result in large transitory emissions from forests. The CPRS makes
allowance for natural disturbances in its coverage of reforestation
activities. Under the policy positions laid out in the White Paper,
those engaged in forestry activities that are intended to act as
carbon sinks will be required to provide an emissions estimation
plan based on intended management practices (including scheduled
harvests). To account for the risks of emissions resulting from
natural disturbances such as fire, wind throw, insect attack,
storms or severe drought, the number of emissions permits allocated
to a forest will be reduced by an amount commensurate with the
risk. Under this approach, the forest manager is not required to
surrender permits in the event of a natural disturbance.[140]
There have been various concerns expressed about allowing
credits for reforestation activities, including that
- it may cause agricultural production to be replaced with forest
plantations, thereby potentially impacting rural livelihoods and
food security
- it may encourage harvesting to be shifted from plantation
forests to native forests, to allow plantation forests to grow for
longer and thus gain more credits
- it may impact water resources, as forests have high water use
which may reduce water availability elsewhere in the catchment,
and
- it doesn t make sense to include reforestation in the Scheme if
deforestation is not also covered, and the land use sector should
be treated in an integrated manner to encourage responsible and
accountable land management practices
The Australian Bureau of Agricultural and Resource Economics
(ABARE) modelled the economic potential for establishment of
forests on cleared land under the two CPRS 2020 emissions reduction
targets of five and 15 per cent, as well as under a reference
scenario (without the CPRS).[141] The study found that under the higher carbon
pricing of the 15 per cent target scenario, by 2050 timber
plantations are projected to increase by 4.5 million hectares (with
further growth limited by distance to processing infrastructure),
and environmental or not for harvest plantings increasing by 21.8
million hectares. Forestry plantations currently cover 1.9 million
hectares, while the total forest area in Australia is about 149
million hectares.
The additional plantation areas projected under the CPRS would
replace 6.2 per cent of existing farm area. Most would occur on
marginal agricultural land, with existing agricultural land uses
remaining economic on higher productivity land. This is consistent
with others suggestion that most Australian farms do not make
optimal use of their land, and that 10 to 15 per cent of farmland
could be revegetated to absorb carbon without substantially
affecting farm productivity.[142]
The ABARE modelling also suggests that, in contrast to the
Government s expectation (see quote above), plantation forestry,
including short rotation plantations, would expand under the
Scheme, though not to the extent of environmental plantings. This
suggests that existing native forests may not be unduly threatened
by transference of logging from plantations to native forests.
Deforestation currently accounts for about 11 per cent of
Australia s emissions.[143] Given that it is a substantial emissions source and
Australia is liable for emissions from deforestation under the
Kyoto Protocol, there is an argument for its inclusion in the CPRS.
However, due to the intermittent and often small scale nature of
deforestation and the large number of landholders involved, the
Government has decided that it would be impractical to include it
in the Scheme, and to instead explore alternative incentive based
mechanisms to reduce emissions from deforestation.[144]
Agriculture represented about 16 per cent of Australia s net
greenhouse gas emissions in 2006, making it the second largest
emissions sector.[145] The main sources of agricultural emissions are methane
emissions from enteric fermentation (during the digestive process)
in livestock and nitrous oxide emissions from soils (associated
with application of fertilisers). Additional emissions occur from
manure management (during decomposition of manure), rice
cultivation (from decay of plant material in flooded fields), and
burning of crop residues and pastures. Agricultural emissions are
projected to increase by nearly 15 per cent by 2020.[146]
Agricultural emissions are currently not covered under the CPRS,
but the Government has stated its preference to include the sector
by 2015. The Government intends to develop a work program in
consultation with the agricultural industry and make a decision on
coverage of the sector in 2013.[147]
The main argument for the inclusion of agriculture is the fact
that it is responsible for such a large proportion of Australia s
GHG emissions, and its omission means that there is no incentive
for changes in agricultural management practices to be adopted to
minimise emissions. There have been many mitigation measures
identified within the agricultural sector that could substantially
reduce emissions at low or zero cost,[148] but it is less likely that such
measures would be implemented in the absence of the direct
incentive provided by a price on emissions or equivalent
incentives. It has been suggested that land management to optimise
soil carbon sequestration in agricultural soils together with
reforestation on farmland could contribute 25 per cent of the
mitigation activity required to meet Australia s contribution to a
450 ppm CO2e stabilisation target.[149]
Arguments against inclusion of agriculture in the scheme are
based on excessive compliance costs because the bulk of emissions
in the sector are produced by small farm businesses that each emit
much less than the 25,000 tonnes CO2e threshold that the
CPRS sets for other sectors. There are around 130,000 such farm
businesses in total.[150] A very low threshold would need to be set for the
agricultural sector to cover a reasonable proportion of the
emissions, as illustrated in table 6 below. The Department of
Climate Change estimates that covering 80 per cent of direct
emissions from the beef, sheep, dairy and wheat industries would
involve liability imposed upon about 45,000 farm
businesses.[151]
The Government is also considering coverage of the sector through
upstream (indirect) liability or a combination of upstream and
downstream liability.[152]
| |
Emissions
threshold (kt CO2e)
|
| |
25
kt
|
3
kt
|
2
kt
|
1
kt
|
|
Number of farms
|
47
|
2700
|
4500
|
18 400
|
|
Percentage of agricultural emissions covered
|
2%
|
21%
|
26%
|
52%
|
Source: M Ford, A Gurney, C Tulloh, T McInnes, R Mi and H
Ahammad, Agriculture and the Carbon Pollution Reduction Scheme
(CPRS): Economic issues and implications, Australian Bureau of
Agricultural and Resource Economics, March 2009, Table 2, p.
10.
The farming industry is against inclusion of agriculture in
emissions trading at any time, due to the complexity of monitoring
and verification in the sector, as well as the negative impact the
industry will suffer from increased fuel and energy costs, even
without being directly included in the scheme. Chief Executive
Officer of the National Farmers Federation Ben Fargher, has
suggested that the industry is prepared to contribute to emissions
mitigation, but that the best means for it to do so may be through
alternative, complementary measures rather than inclusion in the
CPRS.[153]
The CPRS allows for offset credits to be created in sectors not
covered by the scheme. However, from the commencement of the scheme
until 2013, these can only be generated through the Clean
Development Mechanism in developing countries (see section on
treatment of international credits below), and can not be generated
in Australia (other than through reforestation activities as
described above). Therefore, the current market in voluntary
domestic offsets will not be incorporated into the Scheme at its
commencement.[154]
The Government has stated that it was committed to facilitating
participation of indigenous Australians in carbon markets and would
consider including offsets from reductions in emissions from
savanna burning under indigenous management practices. [155] There are currently
projects underway to reduce GHG emissions from bushfires through
prescribed burning and management activities (for example in the
Northern Territory s tropical savannas).[156] Such projects are designed to
provide marketable offsets to emissions in other sectors, so that
they can be formally incorporated into a carbon trading scheme.
The Explanatory Memorandum to the CPRS Bill states that the
scope for domestic offsets will be considered in 2013.[157]
The issue of whether voluntary abatement action would be able to
contribute to emissions reductions over and above the targets in
the CPRS has been prominently debated in recent months. One of the
issues that fuelled the debate was the Government s second stimulus
package introduced in February, which included $3.8 billion for the
Energy Efficient Homes Package.[158] The Government claimed that this would reduce
greenhouse gas emissions by nearly 50 million tonnes
CO2e by 2020. Though it is true that potential energy
savings in households resulting from the package could correspond
to emissions reductions in the household energy sector below
business as usual levels, critics have claimed that this would not
result in a net emissions reduction for Australia as a whole,
because it would merely free up additional emissions permits to be
used elsewhere by industry emitters.[159] The same argument applies to other
voluntary or assisted energy efficiency or abatement measures,
including installation of solar panels on the roofs of homes, as
well as state and community level initiatives.
The Government has argued that such measures will reduce the
overall cost of the CPRS to the economy, and this reduction in cost
is beneficial to everyone, including householders, because it would
limit the increase in energy prices under the CPRS. The CPRS bill
also allows for the abatement from voluntary measures to be taken
into account when setting the annual caps.[160] However, as the caps are set at
least five years in advance, there is an inbuilt lag time in any
response to such considerations. The Senate inquiry into the
exposure draft CPRS legislation recommended that the legislation be
amended so that in relation to setting the emissions caps the
Minister shall have regard to voluntary action, rather than may
have regard .[161] This recommendation was not adopted. However, the
Government recently announced that it would hold public
consultation workshops across the country to determine how
voluntary action can be taken into account when setting CPRS
caps.[162]
Under the May 4 changes, the Scheme now provides for the
establishment of an Australian Carbon Trust, which includes an
Energy Efficiency Savings Pledge Fund and an Energy Efficiency
Trust. These would operate as follows:
- the Pledge Fund will be established to enable individuals to
buy carbon pollution permits to reflect the energy savings from
their individual energy efficiency measures. These permits would
then be retired under the CPRS, hence reducing the overall number
of permits available to industry, and
- the Energy Efficiency Trust is to fund energy efficiency
investments in commercial buildings that would be paid back by the
business through its energy cost savings. There are currently no
provisions in the bill for the resulting emissions abatement to
cancel permits under the CPRS.
The changes also included a commitment to GreenPower purchases
after 2009 when setting the annual emissions caps.[163]
The 4 May changes do not address the essential criticism of the
treatment of voluntary action in the CPRS. The emissions abatement
from individual households that install solar panels on their
roofs, for example, does not impact the annual caps under the
changes any more than was provided for in the draft legislation
through the Minister having regard to such savings. In fact, the
Pledge Fund may be somewhat counter to the efficacy of such
mechanisms, as it suggests that individuals should spend their
money buying permits to be cancelled, instead of recouping the
costs of their investment in energy efficiency measures and
potentially investing in further measures. The resulting reduction
in permits available to industry could also potentially lead to
higher energy costs for the individual by increasing the cost of
permits overall. The impact of the Pledge Fund on the carbon market
may in reality be minimal due to low participation and low overall
emissions abatement in the voluntary sector in comparison to the
annual reductions required under the Scheme. The provision of a
price cap for four years also limits any such influences (the
Pledge Fund will not buy and cancel permits during the first year
of fixed prices).
It is also worth noting that the exposure draft legislation and
the bill as introduced already allow for purchase and cancellation
of permits by individuals. However, the Pledge Fund is likely to
make this process more accessible by providing a simple purchasing
procedure, and will overcome any limitation on minimum purchase
quantities required at auction.
It is widely accepted that energy efficiency measures should be
an essential component of any climate change mitigation program,
and such measures have the potential to produce substantial
emissions reductions at little or no cost.[164] Energy efficiency measures are
expected to account for some of the emissions reductions that are
to be achieved by liable industries under the CPRS, but there are
substantial energy efficiency opportunities outside these
industries that may require additional incentives to fully realise.
At the Council of Australian Governments (COAG) meeting on 30 April
2009, COAG signed a Memorandum of Understanding (MOU) on energy
efficiency and released a draft National Strategy for Energy
Efficiency. The MOU notes:
A carbon price alone will not realise all the potential
cost-effective opportunities to improve energy efficiency across
the Australian economy. Market barriers, such as split incentives,
information failures, capital constraints, early mover disadvantage
and transaction costs need to be addressed to remove impediments to
investment in energy efficiency by households and business.[165]
It is generally considered important that individuals,
communities and businesses be able to contribute to and be involved
in a national strategy to mitigate climate change, in order to
facilitate the behavioural transformation that will be required to
allow our societies and economies to adjust to a carbon constrained
world. It is not clear that the CPRS encourages such involvement,
but as noted in COAG s MOU above, there may be more appropriate or
effective means of encouraging voluntary and energy efficiency
measures external to the CPRS, for example through enhanced
regulation of energy efficiency standards, rebates, feed in tariffs
and tax incentives. The Senate inquiry into the exposure draft
legislation also recommended that complementary policies be
developed alongside the CPRS to encourage voluntary action.[166]
The CPRS allows for unlimited import of certain international
Kyoto credits. This provision has been criticised for its potential
to reduce the initiative to abate domestically if cheaper
mitigation measures are available abroad.[167] Since climate change is a global
problem, however, the inclusion of international units can be seen
as a sensible provision within the framework of working towards a
global solution. Just as the emission of one tonne of
CO2 has the same effect whether it occurs in Australia
or Indonesia, the removal of one tonne of CO2 has the
same effect regardless of where it occurs. The Government has
indicated a desire to explore linking opportunities with other
emissions trading schemes in the future, by prescribing non Kyoto
international emissions units, for use under the CPRS.
The provision is also consistent with the aim of achieving a
given mitigation target at lowest possible cost, though it requires
the mitigation target to be defined more broadly as mitigation for
which Australia is responsible, rather than mitigation of
Australian emissions per se. A cap on the import of
international credits may negatively affect abatement by reducing
its cost efficiency. This is because mitigation will happen first
where it is cheapest. Similarly, carbon credits will be bought at
the cheapest available price. If the international credits
represent the lowest price, then they will set the domestic price
of carbon. Conversely, if the domestic price lies below the
international price of carbon, there will be no imports. It is
likely however, at least in the first year of the Scheme while a
low fixed price of $10 exists, that no international carbon credits
will enter the market.
The CPRS Bill is lengthy and complex. Consequently, only the
main operative provisions will be covered by the following
section.
Clause 3 sets out the objects of the Bill.
These are divided into three main themes:
- to give effect to Australia s obligations under the Climate
Change Convention and the Kyoto Protocol: subclause
3(2)
- to support the development of a global response to climate
change: subclause 3(3) and
- to set targets for the reduction of emissions in Australia:
subclause 3(4).
Australia is aiming to reduce its GHG emissions on either of the
following bases:
- if Australia is a party to a comprehensive
international agreement that is capable of stabilising atmospheric
concentrations of greenhouse gases at around 450 parts per million
of carbon dioxide equivalence or lower the target is reducing net
greenhouse gas emissions to 25% below 2000 levels by 2020:
paragraph 3(4)(a) and
- if Australia is not a party to such a
comprehensive international agreement the target is:
reducing net greenhouse gas emissions to 60% below 2000 levels
by 2050: subparagraph 3(4)(b)(i), and
reducing net greenhouse gas emissions to between five and 15 per
cent below 2000 levels by 2020: subparagraph
3(4)(b)(ii).
Proposed paragraph 3(4)(c) specifies that these
targets are to be reached in flexible and cost effective way.
Clause 9 provides that Commonwealth, state and
territory governments (the Crown ) are bound by the Bill, However,
with some exceptions, there are not liable to a pecuniary penalty
or to be prosected for an offence. This protection does not
extended to government authorities (as opposed to government
departments, or the Executive, for example), nor does it apply to
governments for penalties in relation to, for example eligible
emission unit shortfalls (see clause 133).
Clause 14 introduces two important terms the
national scheme cap and the
national scheme cap number . The
national scheme cap is a quantity of GHG
that has a carbon dioxide equivalence (CO2e) of a
specified number of tonnes. Subclause
14(1) empowers the relevant Minister to declare, by
regulation, the national scheme cap , for
a financial year, except for the financial year commencing 1 July
2011.[168] This
is then referred to as the national scheme cap
number for that financial year.
The national scheme cap number may be
less than Australia s total GHG emissions for that year. The
Minister must take all reasonable steps to set the
national scheme cap numbers for the
financial years commencing 1 July 2012 2014 before 1 July 2010:
subclause 14(2).
Subclause 14(3) requires the Minister to take
all reasonable steps to declare the national scheme cap
number in respect of the financial year beginning on
1 July 2015 at least five years before the end of the
eligible financial year . The definition of
eligible financial year in clause
5 is either the financial year beginning on 1 July
2011, or a later financial year. In the context of
subclause 14(3) it is not clear at what point the
Minister must have declared the national scheme cap
number for the financial year beginning on 1 July
2015. However, proposed paragraph 14(3)(b) does
require the national scheme cap number to
be declared five years in advance.
Clause 15 introduces the term
national scheme gateway which will only
apply from the eligible financial year beginning on 1 July 2015.
Essentially this means that the national scheme
cap must be no more than the uppermost level of the
national scheme gateway and no less than the lowest level of the
national scheme gateway in an eligible financial year as declared
by regulation: subclause 15(2).
In making the regulation about the national scheme
gateway the Minister must have
regard to Australia s international obligations under the UNFCCC
and the Kyoto Protocol to that convention: paragraph
15(4)(a).
In addition, the Minister, in making these regulations,
may have regard to:
- if a report has been presented by the expert advisory committee
(see Clause 354), that report to the extent that
it deals with either the national scheme cap number or the above
mentioned gateways: paragraph 15(4)(b)
- the stabilisation of GHG in the atmosphere at 450 part per
million: subparagraph 15(4)(c)(i)
- the development of comprehensive global action to restrain GHG
emissions: subparagraph 15(4)(c)(ii)
- the economic implications of setting either the annual national
scheme cap number and the emissions gateways, including the effect
on the carbon price :[169] subparagraph 15(4)(c)(iii)
- voluntary action which is expected to reduce Australia s GHG
emissions: subparagraph 15(4)(c)(iv)
- estimates of GHG emissions not directly covered by the proposed
CPRS, such as emissions from the rural sector: subparagraph
15(4)(c)(v), and
- any other relevant matter, such as past levels of voluntary
action (including action at the household level) that have not as
yet been taken into account for the setting of the national scheme
cap number: subparagraph 15(4)(c)(vi.)
On or as
soon as practicable after any clause 15
regulations have been tabled, the Minister must also table a
written statement setting out the Minister s reasons for making his
or her relevant recommendation to the Governor-General regarding
the regulations: subclause 15(6).[170]
One of the essential components of any ETS is the precise rules
defining which entities are covered by the scheme and which are
not. Part 3 deals with these matters in respect of
the proposed CPRS.
As noted above, liability under the proposed CPRS is on a
facility by facility basis.
Clauses 17 and 18 formally
make all facilities[171] (other than landfill facilities) emitting GHG
liable entities in an eligible financial
year under the proposed CPRS whether they are controlled by either
a collective entity (such as a corporation) or an individual.
Subclauses 17(4) and 18(4)
exempt individual facilities from the scheme if they emit less than
25 000 tonnes CO2e in a financial year. Special rules
apply to landfill sites (see below). There are also separate
provisions covering fuels (see below).
Clause 5 defines the term landfill
facility as a facility for the disposal of solid
waste as landfill, and includes a facility that is closed for the
acceptance of waste. Clauses 20 and
21 impose a liability under the proposed CPRS on
landfill facilities, managed by either collective entities or
individuals, that emit over 25 000 tonnes of CO2e per
year. If the landfill facility is within a certain distance of
another site that accepts a similar type of waste the emissions
threshold is 10 000 tonnes of CO2e per year:
subclauses 20(13) and 21(13).
Subclauses 20(6), 20(8),
21(6) and 21(8) exempt the
following landfill facilities from proposed CPRS obligations:
- landfill facilities that have not accepted waste since 30 June
2008, and
- emissions coming from waste accepted before 1 July 2011.
Clauses 24 and 25 apply the
provisions of the National Greenhouse and Energy Reporting Act
2007 (NGER Act) to the measurement and reporting of GHG
emissions from a facility.
For CPRS Bill purposes a synthetic greenhouse gas is defined in
clause 5 as having the same meaning as in the NGER
Act. This definition is to be inserted as new section
7B of the NGER Act by item 146 of the
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill
2009 [No. 2]. Briefly, this proposed definition includes each of
the following gases as a synthetic greenhouse gas:
- sulphur hexafluoride
- a hydrofluorocarbon of a kind specified in the table in new
subsection 7B(2) of the NGER Act, and
- a perfluorocarbon of a kind specified in the table in new
subsection 7B(3) of the NGER Act.
Clauses 26 and 27 impose a
liability under the CPRS Bill on importers, manufactures and
suppliers of synthetic greenhouse gases where the amount of
imported or manufactured gases is 25 000 tonnes or more of
CO2e per year. This amount is calculated by subtracting
the netted out number from the amount of
gas an importer or manufacturer is responsible for in an eligible
financial year.
For an importer a netted out number
under subclause 26(7) is:
- if the person s imports exceed their exports of these gases the
amount of gas exported, otherwise
- the amount imported.
For a manufacturer the netted out
number under subclause 27(7) is:
- if the amount manufactured exceeds the amount exported the
amount exported, otherwise
- the amount manufactured.
The above definitions of netted out
numbers do not address situations where:
- a person s imports of these synthetic greenhouse gases are less
than their exports, and
- the amount manufactured is less than the amount exported.
These situations may arise where a person is both a manufacturer
and simultaneously an importer and exporter of these gases. The
proposed legislation is silent on the calculation of a
netted out number in these
circumstances.
Clause 5 defines the term eligible
upstream fuel to include liquid petroleum fuel and
gas, black and brown coal, coke, natural gas, ethane, coal seam
methane and other fuels in both their processed and unprocessed
forms. Generally, the fuels covered by this scheme are those on
which either import duty, or excise, is payable.
It is important to note that the general 25 000 CO2e
emissions threshold does not apply in these cases. All the embedded
emissions in these fuels are covered by the proposed CPRS. That is,
all the potential greenhouse gas emissions that could be released
from the combustion of these fuels are covered by the CPRS
rules.
Clauses 31 and 32 impose a
CPRS liability on importers and producers of liquid petroleum fuel.
Clause 5 defines liquid petroleum
fuels as being, amongst other things, excisable goods
within the meaning of the Excise Act 1901 or the
Excise Tariff Act 1921.
Clauses 33 39 impose a
liability for an eligible financial year under the proposed CPRS on
those who import, refine or supply eligible upstream
fuels . That is, the importer, refiner or supplier of
such fuels is liable under the scheme in respect of the embedded
CO2e in those fuels. This amount is known as the
provisional emissions number .
However, the provisional emissions number is reduced by the
netted out number of these fuels. This term refers to the embedded
CO2e of the fuels supplied to another party. This party
then assumes the liability of the embedded CO2e in the
fuel in question.
Thus the liability of an importer, producer or supplier of an
eligible upstream fuel would equal:
- the provisional emissions number minus the netted out number,
plus
- any emissions occurring due to that party s own use of the fuel
and, if appropriate, any emissions occurring in the production of
that fuel.
The result of the above calculation cannot be less than
zero.
One of the key administrative tools in administering the
proposed CPRS is the obligation transfer
number (OTN). This number is issued by the CPRS
administering Authority to those who are liable, or who may be
liable, under the proposed CPRS: subclause 44(2).
A person or liable entity may apply for an OTN: clause
42, or it is issued by the Authority to those who it
believes will need it: clause 45.
The OTN is designed to give effect to the CPRS obligations
between the upstream suppliers of fuel and the direct emitters so
as to prevent double counting of emissions and gaps in coverage.
This is achieved by making it possible for CPRS obligations to be
transferred from upstream suppliers of fuel and GHGs to
intermediate suppliers and end users. If an entity quotes a valid
OTN to an upstream supplier, the supplier is relieved of liability
for the relevant supply, and the potential liability is transferred
to the entity that quoted the OTN. For example, when a fuel is
supplied to another party, such as by a refiner to a distributor,
the refiner quotes the distributor s OTN. That number, together
with the details of the fuel supplied, is then given to the
administering Authority. The supplying entity s net emissions are
calculated using this information plus that reported under the NGER
Act.
Clauses 52 55 set out the circumstances in
which the quotation of an OTN by a recipient of an
eligible upstream fuel to a fuel supplier
is mandatory.
In particular, clauses 53 to
55 require the quoting of an OTN by a recipient to
a supplier where:
- the recipient is a retailer of natural gas
- the recipient either re supplies natural gas or is a liquid
petroleum gas marketer[172]
- where the liquid petroleum gas is used a feedstock to another
process (such as fertiliser manufacture)
regardless of the amount supplied or the emissions of the
facilities using these eligible upstream fuels.
Clauses 56 64 allow a recipient of the supply
of various types of eligible upstream fuels or synthetic greenhouse
gases to quote the OTN to the supplier. However, quoting of this
number in these circumstances is not mandatory. Generally these
circumstances do not include the combustion of the fuel in
question. They also include the export of these fuels or gases.
The circumstances referred to in clause 58
appear to overlap with the requirements to quote the OTN in
clause 55. In the latter clause, it is required to
quote the OTN where liquid petroleum gas, propylene, or ethane is
used as a feed stock for another product. In the former clause the
quoting of the OTN is voluntary where the eligible upstream fuel is
used in manufacturing other products. Liquid petroleum gas,
propylene, and ethane fuel are all eligible upstream fuels.
The difference between the use of, for example, liquid petroleum
gas as a feed stock and its potential use in the manufacturing of
other products is not clear from reading the legislation. Thus
there may be an unintended conflict between the requirement to
quote the recipient s OTN in clause 55 and the
voluntary quotation of this number in clause
58.
The CPRS Bill provides exceptions in relation to liability
transfer certificates, which permit transfer of liability under the
CPRS Bill and transfer of reporting obligations under the NGER Act.
Because the CPRS Bill is designed to apply to both individuals and
constitutional corporations, the NGER Act will be amended to
require all relevant entities to meet reporting
obligations.[173]
The CPRS Bill provides two circumstances in which the liability for
a particular facility can be transferred from one entity to another
by means of a liability transfer
certificate :
- within a corporate group: this will allow the transfer of CPRS
liability from the controlling corporation to another member of the
controlling corporation's corporate group. This is of practical
benefit, allowing a change of law or carbon cost to be relayed via
a clause in a contract which the subsidiary is party to, on the
basis that such a clause could not be used if the liability were
placed solely on the controlling corporation:[174] clause
69
- from a person who has operational
control of a facility to an entity with financial
control:[175]
clause 73.
Such circumstances may include where a mine or pipeline is
operated under contract. Normally, the entity which has operational
control would be liable under the proposed CPRS. However, should
that entity lack the financial resources to meet its CPRS
obligations, it would be appropriate for the CPRS liability to be
transferred to another entity.
Under clauses 70 and 74 such
transfers may only occur with the written consent of the
controlling corporation of the corporate group.
According to clauses 72 and 76
such certificates must only be issued where the Authority is
satisfied that:
- the relevant transfer tests in clauses 69 and 73 are met,
and
- the applicants are likely to continue to have the capacity, the
access to information and the financial resources to meet the
requirements of:
- the proposed CPRS scheme and relevant regulations, and
- the NGER Act.
At the time when the CPRS commences there will be existing
contracts between parties which will be affected by the scheme.
Those parties who are directly liable under the CPRS will,
presumably, wish to pass the costs they incur onto their customers.
Other parties in the supply chain who are not directly liable under
the CPRS but who will face cost increases themselves may also wish
to pass on all or part of those costs to their customers.
From a customer's viewpoint, the best protection is a fixed
price contract.
However there are two types of clauses which are contained in
contracts which may allow for the increased prices to be passed on.
They are referred to as a change in law clause which, essentially,
allows for a variation in a contract price when there has been a
change in the law; and a pass through clause which, depending on
how broadly it is drafted, may allow cost increases to pass through
a supply chain.
The liability transfer certificate is designed to trigger the
operation of these clauses in existing contracts.[176] However, a change in law
provision generally only allows the passing through of costs that
the subsidiary incurs as a result of a change in law. Because the
liability transfer envisaged by the CPRS Bill will only take place
if the subsidiary applies for a liability transfer certificate from
the Authority, it may be that the subsidiary will not be incurring
the liability as a result of a change in law but as a result of its
voluntary decision to apply for the certificate.
Further, it is unclear why minority shareholders in a partly
owned subsidiary would wish to take on the liability that would
normally be borne by the majority shareholder s group and so, where
they are able to veto such a move, they will most likely do so,
thus stopping the subsidiary from applying for a liability transfer
certificate. This is despite the fact that the subsidiary may be
best placed to manage the facility s emissions and pass on the
associated carbon cost to its customers.
This anomaly arises, because the CPRS imposes primary liability
not on the entity that has operational
control over the emitting facility but on that entity
s controlling corporation. This seems to derive from the approach
taken by the national greenhouse and energy reporting scheme under
the NGER Act, where reporting obligations are best left to the
controlling corporation level. However, the same logic does not
necessarily apply to the imposition of liabilities under the CPRS.
Perhaps it would better serve the object and purpose of the CPRS to
require that a subsidiary with operational control over a facility,
be made responsible for making an application for a liability
transfer certificate unless the controlling corporation otherwise
agrees. This would result in the costs associated with the CPRS
liability being imposed by law on the subsidiary, thereby enabling
it to take advantage of any change in law provision in its sale
contracts.
The Carbon Pollution Reduction Scheme (Consequential Amendments)
Bill 2009 proposes amendments to the NGER Act that clarify which
corporation has operational control in
the situation of partnerships, joint ventures and trusts. In such
circumstances the Authority has the power to issue a declaration.
Where the Authority does not issue a declaration, it falls on the
entities to nominate which of them has operational
control . If the entities do not so nominate, they
will be subject to a penalty. This means that a nominated joint
venturer carries all of the credit risk of the other joint
venturers. This proposed arrangement may also impose a
disproportionate share of liability of smaller joint venture
participants. Perhaps a commercially more realistic and fairer
arrangement would be to impose CPRS liability on each of the joint
venturers in proportion to their joint venture interests.
As it stands, the Bill fails to contemplate that more than one
entity may have financial control over a facility. In that case
there will be uncertainty as to which entity is entitled to assume
the CPRS liability for the facility.
Part 4 is about the issue of Australian
Emission Units (AEUs) and the acceptance of emissions credits
generated by the Kyoto Protocol flexible mechanisms for CPRS
purposes.[177] It
is these AEUs and Kyoto protocol units that are traded and accepted
for the acquitting of a CPRS liability.
Clause 86 allows the Authority to issue AEUs
for a particular financial year at any time before 15 December
following the end of that year thus for the financial year covering
the period 1 July 2011 to 30 June 2012, the AEUs must be issued by
15 December 2012. Liable entities must surrender their AEUs or
other emissions credits by 15 December following the end of the
relevant financial year under the proposed scheme: clause
132. Under clause 85 the relevant
financial year for which an AEU was issued is the vintage year
.
Clause 88 specifies the circumstances under
which an AEU can be issued. These circumstances are:
- as the result of an auction conducted by the Authority
- issued under clause 89 at a fixed price
- as assistance to EITE or coal fired power stations
- to eligible reforestation projects, or
- as a result of the destruction of synthetic greenhouse
gases.
As noted above the Authority will issue AEUs at a fixed price
under clause 89. The table in subclause
89(1) sets out the charge per unit for five separate
periods. The effect of this subclause is to cap the price of an AEU
for CPRS purposes until 15 December 2016. The maximum number of
AEUs that can be issued to a person is worked out using the formula
in subclause 89(2).
Subclause 89(7) defines the
indexation factor for a particular
eligible financial year by way of a prescribed formula. The factor
is calculated by taking the index number of the March quarter
immediately preceding the start of an eligible financial year and
dividing it by the index number for the March quarter 12 months
before that, and then adding 1.050 to the result.
Under subclause 89(5) the units issued under
clause 89 procedures are automatically surrendered
once they have been issued. They cannot be traded or saved for
later use. Subclause 129(5A) also has this
effect.
Subclause 89(10) specifies that the
index number for these purposes is the
All Groups Consumer Price Index number calculated by the Australian
Bureau of Statistics.
Subclause 89(11) requires the publication of
the fixed price charge for a particular financial year before the
start of that year, from 1 July 2012.
Under clause 93 the total number of AEUs issued
in any one vintage year from auctions and as a result of the
assistance measures must equal the national scheme cap
number of that year.[178] However, this provision does not
include the number of units issued as a result of reforestation
activities and the destruction of synthetic greenhouse gases. Thus
the total number of AEUs issued in any one year may be above the
national scheme cap number.
Clause 94 specifies that an AEU is personal
property that is able to be transmissible to another party.
Clauses 95 98 set out the conditions by which an
AEU may be transferred.
Under clause 103 the relevant Authority may, by
legislative instrument, decide the policies, procedures and rules
for the auction of AEUs.
In clause 5 a Kyoto
unit is defined to mean:
- an assigned amount unit (AAU)
- a certified emission reduction unit (CER)
- an emission reduction unit, (ERU), or
- a prescribed unit issued in accordance with Kyoto Rules
- a removal unit (RU).[179]
These emission reduction units arise from the activities
conducted under the Kyoto protocol to the UNFCCC. Australia s
ratification of the Kyoto Protocol obliges it to set up mechanisms
to handle these units within Australia. Clauses
104 116 achieve this aim by
allowing these units to be entered in the register of emissions
units kept by the Authority and allowing the transfer of these
units to and from various parties.
As noted above, only some of the above Kyoto units will be
generally accepted for CPRS purposes.
In clause 5 a non-Kyoto
international emissions unit is defined as:
- a prescribed unit issued in accordance with an international
agreement (other than the Kyoto Protocol), or
- a prescribed unit issued outside Australia under a law of a
foreign country .
The first point refers to emissions units that are issued under
either a successor to the Kyoto Protocol or some under
international agreement such as Australia s proposed Forest Carbon
Market Mechanism .[180] The last point refers to emissions units that may be
issued under another country s emissions trading scheme, for
example New Zealand s emissions trading scheme.
Clauses 117 121 enable the
Authority to enter a non-Kyoto international emissions
unit in its emissions units register.
Clause 122 allows regulations to make provision
for, or in relation to, prohibiting the surrender of non-Kyoto
international emissions units for CPRS purposes. As already
mentioned, initially, these non-Kyoto international emission units
will not be accepted for the proposed scheme s purposes.
Briefly, a liable entity s emission number is the number of AEUs
and/or eligible international emissions units (collectively known
as eligible emissions units) that they are obliged to surrender by
15 December each year in respect of the immediately previous
financial year.
Clause 125 defines a person s
emissions number as being made up of:
- the total of a person s provisional emissions numbers
a person s provisional emissions numbers are defined generally
in Part 3 as the amount of tonnes of
CO2e emitted from facility(s) under the person s control
in a particular financial year, and
- the person s make good number (if any)
a person s make good number is defined
in clause 142 to be shortfall between the number
of eligible emissions units surrendered and the number that is
required to be surrendered for a particular eligible financial year
if the person is also a liable entity for the following financial
year.
A person s emissions number for any year can be reduced by the
number of AEUs surrendered to the Authority in the previous
financial year above that required to meet their CPRS liability:
subclause 125(2).
Clause 129 specifies that eligible emissions
units may be surrendered electronically to the Authority, and which
units can be surrendered, as follows:
AEUs surrendered for a particular eligible financial year are to
be surrendered in respect of that particular year, or earlier
eligible financial years
this provision allows a liable entity to save, or bank, unused
AEUs issued in respect of a particular eligible financial year for
use in later years. There is no requirement for the surrender of a
particular vintage year s AEUs in respect of the corresponding
eligible financial year
a Kyoto unit must not be surrendered if it is in breach of
regulations: subclause 129(6)
a Kyoto Protocol Removal Unit or an Emissions Reduction Unit
that has been converted from a Removal Unit during the Kyoto
Protocol s first commitment period (2008 2012) must not be
surrendered to the Authority in relation to a financial year
beginning on 1 July 2013 or later years; and
a non-Kyoto international emissions unit must not be surrendered
if that action would breach regulations made under clause
122.
Subclause 130(4) allows a liable entity to
borrow up to five per cent of a current financial year s emission
number (effectively the liable entity s emissions) from the next
financial year, for surrender in relation to the current eligible
financial year.
Clause 132 requires a liable entity to
surrender enough eligible emissions units by 15 December following
the end of an eligible financial year so that they do not have a
shortfall of units in respect of that year.
Clause 133 imposes a financial penalty
according the number of required emissions units not surrendered in
respect of a financial year. For the financial year beginning on 1
July 2011 the penalty per unit will be $11 (compared to the fixed
price of $10 per unit). In later years the penalty per unit not
surrendered to the Authority will be fixed by regulation, or
failing that, will be 110% of the benchmark average auction price
for the previous financial year.
Subclause 133(2) limits the penalty per
emission unit to 110 per cent of the average auction price for such
units during the relevant financial year.
The amount payable under clause 133 becomes payable on 31
January in the next eligible financial year: clause
134. Under clause 135 if an amount of
penalty calculated under clause 133 remains unpaid past the due
date, then the person becomes liable to pay an additional amount
calculated at the rate of 20 per cent per annum or some lower rate
which may be specified in the regulations.
The National Registry of Emissions Units (the Registry)
currently exists and is operated by the Commonwealth.
Clause 145 gives the Registry a statutory, rather
than just administrative, basis and provides that it will be
operated by the Authority. It will have the duel function of
being:
- the registry for AEUs, and
- the registry for Kyoto units.
Clause 146 allows a registry account to be
opened in the name of a person. This means that a registry account
can be opened in an individual s, as well as a corporate entity s,
name.
Clause 150 identifies a number of different
types of Kyoto units and specifies that these units cannot be
transferred or surrendered for CPRS purposes.
Clause 167 enables the relevant Minister to
implement the proposed emissions-intensive trade-exposed (EITE)
assistance program by regulation. This clause requires the Minister
to take all reasonable steps for these regulations to be made
before 1 July 2010.
Significantly, a great deal of the detail relating to the CPRS
is to be provided for by way of regulations which are due to be
made available for public comment in June 2009. For example,
detailed scheme cap numbers for each relevant financial year. It is
expected that these will be consistent with the 2020 and 2050
national emissions targets. The Minister is required to take all
reasonable steps to ensure that regulations are made to set the
scheme caps within the range specified for the relevant year before
the start of that particular year under clauses
14-15.
The EITE assistance program will also be created by way of
regulations. The regulations will set out the Government s
decisions relating to the eligibility of activities and the
allocative baselines for eligible activities. Regulations will also
set out the rate at which assistance may be reduced. Regulations
will also be the source for details relating to the administration
of the Registry as it relates to Kyoto units.
It is common for Acts of Parliament to delegate to the executive
government, the power to make regulations which supplement and help
give operational effect to the primary Act. While such regulations
are not required to be passed by both Houses of Parliament, either
House may disallow them. A member of Parliament has 15 sitting days
from the date of tabling in which to give a notice to move a
disallowance motion in relation to them. If the motion is passed,
or alternatively has not been withdrawn or otherwise disposed of
within a further 15 sitting days after the notice was given, the
regulations cease to have effect from the date the motion is passed
or the expiry of the second 15 sitting day period. Actions done
under the authority of the regulation or other disallowed
instrument before the actual or deemed date of disallowance remain
legally valid.[181]
Clause 176 authorises the issue of AEUs free of
charge to coal-fired power generators who hold an eligibility
certificate for such assistance for the financial years commencing
on 1 July 2011 to the year commencing 1 July 2015.
This clause also contains a formula to determine the annual
number of AEUs issued to eligible generators over this period (see
clause 186 for additional formulas for these
purposes).
For the first two years of the scheme s operation (2011 2012 to
2012 2013) the annual number of free AEUs given to coal fired power
generators will be capped at 26 140 000: subclause
176(2). Otherwise the formulae contained in this clause
will be used to calculate the amount of free permits issued to each
eligible generator. It is likely that the actual number of
emissions permits given to generators in these two years will be
less than this upper limit.
Clause 177 imposes a 180 day limit[182] after the
commencement of this particular section on persons applying for an
eligibility certificate for coal-fired generation assistance. Only
those owning, controlling or operating coal-fired power generation
facilities may apply for these certificates: subclause
177(2).
Clause 181 specifies the criteria for the issue
of such certificates. An operating power generation complex will
qualify for a certificate if any one of its generating units met
any one of the following criteria:
- it was in operation at any time during June 2007:
subparagraph 181(2)(a)(i)
- if it was not in operation in June 2007 there was a plan to
re-commence operation before the end of 2007: subparagraph
181(2)(a)(ii)
- if it was not in operation during June 2007 due to restricted
access to cooling water supplies there was a plan to return it to
operation when this problem was overcome: subparagraph
181(2)(a)(iii).
Additional criteria for being granted these certificates
are:
- at least 95 per cent of power generated by the complex during
the financial year commencing 1 July 2006 came from coal
combustion: paragraph 181(2)(b), and
- at any time during the financial year commencing 1 July 2006
the generation complex was connected to an electricity grid with a
capacity of at least 100 megawatts: paragraph
181(2)(c).
Subclause 181(3) provides that power generation
projects that:
- were in existence but not yet completed, and
- were fully committed[183] as at 3 June 2007, where 95 per cent of the power was
to be generated by coal combustion and would be connected to a grid
with a capacity of 100 megawatts also qualify for these assistance
certificates.
Clause 183 allows the relevant Minister, before
1 August 2014, to declare that a specified generation asset will
not receive further free AEUs, if a windfall gain declaration is in
force.
One of the most telling criticisms of the operation of the
European Union Emissions Trading Scheme during its first two
trading periods (2005-2007 and 2008-2012) is that power generators
received windfall profits from the large scale allocation of free
emissions permits to them. The Australian government has addressed
this issued in the design of the CPRS.
Clause 185 requires a person who has received
free AEUs in respect of a power generation asset to make a
submission to the Authority in respect of windfall profits before
30 September 2013.
Clause 186 empowers the Authority to make a
windfall gain declaration in respect of a power generation asset,
if that asset passes the windfall gain test.
Clause 187 specifies that a power generation
asset passes the windfall gain test
if:
- it is likely that the total value of assistance to the
particular asset will be greater than the likely projected long
term net revenue loss, or
- it is likely that there will be a projected long term net
revenue gain from the particular generation asset.
For the purposes of the above clause the total value of
assistance is the market value of free AEUs with vintage years
beginning between 1 July 2011 and 1 July 2013 plus the projected
market value of free AEUs issued with vintage years beginning on 1
July 2014 and 1 July 2015: subclause 187(3).
Clause 188 specifies that no free AEUs will be
given in respect of a generation complex (and not a particular
power generation asset within that complex) that does not pass the
power system reliability test.
Clause 189 specifies the power
system reliability test that generation complexes
have to pass in order to receive free AEUs is:
- as at 1 September in the eligible financial year the person who
either owns, controls or operates the generation complex is
registered under either a Commonwealth or State law regulating
energy markets
- as at 1 September of an eligible financial year the nameplate
rating in megawatts of that complex was not less than the same
rating as at 3 June 2007, or
- if there is a reduction in the nameplate rating of the
generation complex the appropriate energy market operator certifies
that this reduction is unlikely to breach power system reliability
standards, or
- if before 1 September in any eligible financial year the person
s registration under the appropriate Commonwealth or State law
ceased to be in force the appropriate energy market operator
certifies that it is unlikely that the relevant power system
reliability standard will be breached in the following two
years.
Clause 5 defines the term nameplate
rating to generally mean the maximum continuous
electrical generation capacity in megawatts of the generation
complex, or the proposed generation complex.
In introducing the Bill on 14 May 2009, the Government flagged
that it would in response to stakeholder feedback introduce
amendments to the Bill s reforestation provisions.[184] These amendments
were subsequently introduced, and all were passed along with the
remainder of the CPRS Bills on 4 June 2009. The main amendments
relating to Part 10 deal with:
- who can undertake reforestation projects (and hence scheme
obligations)
- allowing projects over multiple land titles
- changes to forest maintenance obligations, and
- enabling the transfer of scheme liabilities and the inclusion
of transitional arrangements for forests which have been part of
other greenhouse gas abatement schemes.
These amendments are discussed below under the relevant clauses
of the Bill.
In respect of privately held land the provisions of this Part
apply to eligible reforestation projects established on property
held under the Torrens land title system.[185]
Clause 191 requires the Authority to issue free
AEUs to the holder(s) of a certificate of reforestation as soon as
practicable after the day that certificate was issued.
Subclause 191(2A) requires that certificates
issued during the 2011 2012 financial year are to have a vintage
year beginning on 1 July 2012. This means that such units cannot be
surrendered during the first year of the scheme s operation (2011
2012). They may, however, be traded.
Under sections 40-1000 to 40-1025 of the Income Tax
Assessment Act 1997 a limited tax deduction is available to
land holders who establish a forest for the purposes of carbon
sequestration. The issue of free AEUs may not be the only benefit
available to persons undertaking a reforestation project influenced
by this Part.
Clause 192 requires the applicant for a
certificate of reforestation to provide a reforestation report in
respect of an eligible reforestation project for a particular
reforestation reporting period. Such certificates are not
transferable: clause 197.
Clause 195 specifies the conditions under which
a certificate of reforestation may be issued. Amongst these
conditions are:
- the recipient is a recognised reforestation entity:
paragraph 195(2)(a)
- the recipient is the project manger for the relevant
reforestation project:[186] paragraph 195(2)(b)
- the recipient is not required to hand back AEUs arising from
another reforestation project and is not required to pay amounts in
relation to this requirement: paragraph 195(2)(c),
and
- the number of tonnes of GHGs removed by the project is greater
than the amounts of AEUs issued in respect of that project:
paragraph 195(2)(e) and subclause 195(3).
More detail on project managers and their obligations is
contained in clauses 197A-197C. The Supplementary
Memorandum issued in May 2009 explains the rationale for the
project manger concept:[187]
1.3 The amendments will enable the carbon sequestration right
holder to transfer scheme obligations to another entity,
with the agreement of the Authority. Emissions units will still be
issued to the holder of the carbon sequestration right only.
1.4 These amendments will enable a wider variety of arrangements
for managing and financing reforestation projects.
1.5 Consistent with this provision, references to the holder of
carbon sequestration right as the scheme participant are amended to
refer instead to the project manager .
Clause 201 generally requires that, amongst
other matters, a reforestation entity be a fit and proper person
before the Authority will grant recognition as a reforestation
entity. Subclause 201(3) provides criteria to
which the Authority must have regard in deciding the applicant is a
fit and proper person. Amongst other matters, the criteria
include:
- whether the applicant has been convicted of an offence under
Commonwealth, State or Territory law where the offence involves
dishonesty
- whether the applicant has been convicted of an offence under
Commonwealth, State or Territory law where the offence relates to
the conduct of business, and
- whether the applicant has been subject to an pecuniary penalty
order Trade Practices Act 1974.
Where the applicant is a corporation, the record of any
executive office of the corporation in respect to the above
criteria is also something to which the Authority must have regard
in making its decision.
Subclause 209(4) allows the Authority to
declare a project to be an eligible reforestation
project if:
- the project manger (who is also the applicant for the
declaration) is a recognised reforestation entity:
paragraph 209(4)(c)
- the applicant either holds a carbon sequestration right in
relation to the project, or the holder has consented in writing to
the making of the application: paragraph
209(4)(db)
- each of the following has consented, in writing to the making
of the application in relation to the project area(s): person who
holds an eligible interest in the project area or any of the
project areas, and a person specified in regulations:
paragraph 209(4)(e), and
- the project meets any relevant requirements made under the
regulations: paragraph 209(4)(g).
The Authority or the applicant may vary, or revoke, the
recognition of an eligible reforestation project on a wide range of
grounds: contained in clauses 210 to 219A.
An eligible reforestation project can also occur on Crown Land
that is not under the Torrens system of title: see
paragraphs 209(4)(a) and
209(5)(b).[188]
Each eligible reforestation project is to be given a
reforestation unit limit . This number is
one of the upper limits on the number of AEUs that can be issued in
relation to a particular eligible reforestation project under
clause 196. The other upper limit is the net total
number of tonnes of greenhouse gases removed minus one. That is,
the AEUs issued in respect of a particular project must be at least
one tonne less that the amount of GHG removed by that project.
Clause 220 defines the
reforestation unit limit to be the
projected net greenhouse gases removal number for the project less
the sum of:
- the number that, under the regulations, is the non-CPRS
greenhouse gases removal sales number for the project, and
- the number that, under the regulations, that is the 2008 carbon
stock number for the project.
These latter two terms are not elsewhere defined in the Bill.
However the Explanatory Memorandum notes that:
The calculation of the unit limit will also take into account
the 2008 carbon stock number for the project and any sale of
abatement from the reforestation project to schemes or projects
outside of the Carbon Pollution Reduction Scheme...[189]
Clause 225 requires a person holding a carbon
sequestration right in relation to an eligible reforestation
project immediately before the end of a reforestation reporting
period under clause 223 to provide a reforestation
report. The information required in this report and the manner and
form in which it must be provided will be set out in
regulations.
Clauses 226-226D deal with forest maintenance
obligations, and a related issue, forest restoration orders. These
were the subject of extensive amendments introduced after
introduction of the original Bill. The Supplementary Explanatory
Memorandum issued to accompany the amendments comments:[190]
1.78 In very limited circumstances, a person with an interest in
land on which there is or was a reforestation project may become
subject to a forest maintenance obligation.
1.79 The forest maintenance obligation is designed to preserve
the environmental integrity of the scheme; that is, to ensure that
reforestation activities for which scheme units have been issued
provide long term carbon storage.
1.80 Under the CPRS Bill, the forest maintenance obligation
requires the person with the forestry right to maintain a forest
stand (where a forest stand exists) or re-establish the forest
stand (where a forest stand has been cleared) to ensure that the
carbon stored in the forest stand will be equivalent to the net
number of units that have been issued for the forest stand.
1.81 The amendments will convert the forest maintenance
obligation from a positive to a negative obligation. All persons
would be prohibited from engaging in conduct that would reduce
greenhouse gas removals in existence at the time the obligation is
imposed.
1.82 The amendments will ensure that a person is only required
to re-establish a forest if they were responsible for having
breached the forest maintenance obligation. This approach reduces
the risk to landholders of allowing reforestation projects on their
land.
1.83 The forest maintenance obligation can be triggered by
actual or likely non-compliance with a requirement to relinquish
units after events such as the clearing of a forest.
Clauses 239A-240 deal the concept of a
carbon sequestration right . The precise
definition of a carbon sequestration right is very important as
only holders of these rights may obtain free AEUs arising from
eligible reforestation projects.
Under clause 239A, a person holds the carbon
sequestration right in relation to a reforestation project only if
they hold that right in relation to the project area or areas on
which the relevant trees are located.
Clause 240 sets out the criteria that must be
satisfied for the carbon sequestration right to be held in relation
to an area of land by a person under various circumstances.
Essentially, the carbon sequestration right will be an estate,
interest or right in the eligible reforestation project that gives
them exclusive legal right to obtain the benefits of the
sequestration of carbon dioxide by the trees on the relevant
land.
Carbon sequestration rights may only exist under clause
240 in relation to Torrens system land (subclauses
240(1)-(3)), or Crown land that is not Torrens system land
(subclause 240(4)-(7).[191] In relation to privately held land,
this means that such rights can only exist if that land is also
Torrens system land.
Clause 241 defines a forestry right to be the
estate or interest in the reforestation project that gives a person
the exclusive legal right to establish, manage and maintain a
forest on the project area or areas. Again, for private land this
right must arise under the Torrens system of land title:
subclauses 241(1) and (2). This right can also
arise under Crown land that is not Torrens system land:
subclauses 241(3) and (4).[192]
Clauses 243-243C provide for the transition of
reforestation projects from non-CPRS reforestation schemes. This
allows for a person, in making an application for a reforestation
project to be declared as an eligible reforestation project under
the CPRS, also to request a clause 243C determination. The clause
243C determination would specify that for a project area that was
or is covered by pre-existing greenhouse gas abatement scheme, a
specified number of AEUs will be added to the maximum number of
AEUs that may be required to be relinquished for the project. The
request has to be made within two years of commencement of this
Part of the Bill. The Government commented that the provisions are
designed to:[193]
enable forest permanence obligations that were created under
existing schemes to be enforced through the CPRS, thereby removing
a barrier to winding up these existing schemes.
In the context of the UNFCCC Clean Development Mechanism (CDM)
the destruction of one of the synthetic greenhouse gases,
hydrofluorocarbon (HFC), has been accomplished at a very low
cost.[194] While
Australia cannot host CDM projects under the current Kyoto Protocol
rules, this outcome indicates that these GHGs may be disposed of at
little marginal cost in Australia.
Clause 245 requires the Authority to issue free
AEUs to the holder of a certificate of eligible synthetic
greenhouse gas destruction as soon as practicable after that
certificate has been issued. These certificates are not
transferable: clause 252.
Under the provisions of clause 246 a person
may, within four months of the end of an eligible financial year,
apply for the issue of a certificate of eligible greenhouse gas
destruction if:
- they are a recognised synthetic greenhouse gas destruction
customer, or
- the operator of an approved synthetic greenhouse gas
destruction facility.
Clause 251 provides a formula for working out
the number of AEUs to be issued. This formula makes reference to
the destruction efficiency factor for the
destruction of these gases to be specified in regulations.
The criteria for the issue of a certificate of eligible
greenhouse gas destruction are set out in clause
250. Briefly, these criteria are:
- the destruction event occurred during the relevant eligible
financial year: subparagraph 250(2)(a)(i)
- the applicant was a recognised synthetic greenhouse gas
destruction customer: subparagraph
250(2)(a)(ii)
- the destruction occurred at an approved facility authorised
under the Ozone Protection and Synthetic Greenhouse Gas Management
Regulations 1995, and complied with those regulations:
subparagraph 250(2)(a)(v) (vi) and
- the applicant incurred expenditure in respect of this
destruction: subparagraph 250(2)(a)(iv).
Operators of approved synthetic greenhouse gas destruction
facilities may also apply for certificates: subclause
250(3).
The Bill is silent on the amount of expenditure required to
qualify for the issue of AEUs under the above clause.
Clause 256 requires that a synthetic greenhouse
gas destruction customer be a fit and proper person having regard
to, amongst other things, whether they have been convicted of a
dishonesty offence under Commonwealth, State, or Territory
laws.
All markets work on the basis of information. The better the
quality and scope of the information available, the better the
market works. An ETS is no exception to this rule. It is arguable
that the lack of timely and comprehensive information was a major
contributor to the problems experienced by the European ETS during
its first operating period (2005 2007).[195]
Clause 261 requires the Authority to establish
and maintain a Liable Entities Public Information Database . This
database is to be kept electronically and will be available for
inspection on the Authority s website. This database will include
the following information:
- liable entities under the scheme: clause
262
- liable entity s emission number: clause
263
- an entity s emissions number is defined in clause
125 and is the total quantity of emissions in tonnes for
which the entity is responsible
- a liable entities unit short fall (clause
130), is the difference between their emissions number for
a particular year and the number of AEUs surrendered in respect of
that particular year
- the number of eligible emissions units surrendered by a liable
entity for a particular year: clause 266
- an eligible emission unit, in clause 5,
includes both AEUs and eligible international emissions units
- the number of eligible emissions units that have been voluntary
cancelled: clause 267.
In addition, the Authority is required to publish additional
information, including:
- the prices paid for units and the number of units sold at these
prices within 7 business days of conducting an AEU auction:
clause 270
- information about the auctions results of the previous 6
months: clause 271 within 7 business days after
the end of May 2012 through to 2014 and November 2012 and 2013
- information on AEUs issued at a fixed charge under
clause 89 as soon as practicable after the 15
December for the years 2012 to 2016: clause
272
- information on the distribution of free AEUs to EITE
industries, coal fired power stations and as a result of
reforestation projects and the destruction of synthetic greenhouse
gases as soon as practicable after their issue: clause
273
- reports about the issue of free AEUs in the previous quarter as
soon as practicable after the end of each quarter: clause
274
- information on the surrender of borrowed and banked AEUs as
soon as practicable after 15 December: clause
275
- the total number of Kyoto Protocol derived Certified Emissions
Reductions Units (CERs) and Emissions Reduction Units (ERUs) for
which there are entries in its Registry accounts, and this
information must be kept up to date: clause
276
- the total of all liable entities emissions numbers for the
eligible financial year and the total number of liable entities
unit shortfalls in relation to that year as soon as practicable
after 15 January: clause 277, and
- a concise description of the characteristics of AEUs and each
other type of eligible emissions unit 24 hours before the authority
conducts the first AEU auction: clause 278.
In addition, clauses 278A 278F require the
publication of information about the number of AEUs and Kyoto Units
voluntarily cancelled or relinquished as soon as practicable after
these events occur.
Clause 280 allows a court to order the
relinquishment of AEUs issued as a result of a conviction for
fraudulent conduct under specified sections of the Criminal
Code Act 1995. The conviction may for an offence occurring
before the coming into force of the CPRS legislation, as long as it
took place after 15 December 2008.
Under the proposed CPRS, individuals are able to purchase AEUs
and other emissions units. They may choose to cancel these units
for environmental purposes. It is interesting to note that in the
United States the Acid Rain Retirement Fund purchases emissions
units issued under that country s Acid Rain Emissions Trading
Scheme. This fund simply banks these emissions trading units,
thereby taking them out of circulation.[196]
Clauses 282 to 284 allow a
person holding either AEUs, Kyoto units or non-Kyoto international
emissions units to request that they be cancelled. Generally,
providing that these requests would not breach any Kyoto Protocol
rules or regulatory provisions, they must be acted upon.
This part contains administrative provisions for the
relinquishment of AEUs.
The possibility that an emissions trading market may be
manipulated is a significant general weakness of cap and trade
schemes. One way in which this manipulation may possibly occur is
through the hording of emissions permits. This Part contains
provisions that require scheme participants to notify the Authority
when they hold a significant number of units.
Clauses 293 and 294 require
either a controlling corporation or a non-group entity to notify
the Authority within five business days after they become aware of
holding a significant number of AEUs. The Authority must publish
such notifications on its website.
Subclauses 293(7) and 294(7)
define a significant holding of AEUs as
being 5 per cent or more of the national scheme cap number for a
particular vintage year.
The national scheme cap number for a particular vintage year is
defined in clause 14 as being the quantity of
CO2e in tonnes declared in regulations for an eligible
financial year. Under clause 93 the number of AEUs
issued in any one vintage year must not exceed this number. Thus a
significant holding for a particular vintage year is 5 per cent or
more of the AEUs issued for a particular vintage year.
Contravention of the significant
holding notification requirements may subject the
entity to a Part 21 civil penalty. Such penalties are discussed
later in the main provisions section of this Digest.
Should a scheme participant hold a significant amount of AEUs as
defined above it is not clear what, if any, action (apart from
notifying the market) the Authority will take in response.
Clause 296 gives the Authority power to gather
information and documents that are relevant to the operation of the
enabling legislation for the proposed scheme. The Authority can
gather this information from anyone it wishes, not just scheme
participants. It must have reasonable grounds for the exercise of
this power. A person is required to comply with any information
request made by the Authority.
Clause 300 specifies that a person cannot
refuse to provide this information or document on the grounds of
self incrimination. However, in case of an individual, any
information or document is not, with limited exceptions, admissible
as evidence in a civil proceeding against them in respect for the
recovery of a penalty. Similarly, except for prosecutions for
providing false or misleading information, any information or
document is not admissible as evidence in a criminal proceeding
against the relevant individual.
It is proposed that the current record-keeping obligations under
the NGER Act will be expanded by amendments set out in the draft
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill
2009.
Clause 302 provides for detailed record keeping
obligations to be made by way of regulations. Basically, the
regulations mandate the similar requirements in keeping records as
those under the Australian taxation regime, including the
requirement that relevant information be kept for a period of five
years.[197] This
level of rigor is required to enable the Authority and auditors to
review the accuracy and completeness of information.
Clauses 303 and 304 require
fuel suppliers and recipients to keep records for five years of
relevant information on the use of Obligation Transfer Numbers
(OTN) (see clauses 52 to 64 for
OTN provisions).
Clause 308 provides for an inspector to enter
premises with either the consent of the occupier, or under a
monitoring warrant, for compliance purposes or to substantiate
information provided for CPRS purposes.
Clause 309 gives the inspector a wide variety
of powers to carry out these tasks. Clause 311
gives the inspectors powers to ask questions and require the
production of relevant documents. Under clause 312
self-incrimination is not an excuse for failing to answer a
question or produce a document. A failure to comply with clause 311
carries a maximum penalty of 6 months imprisonment, or 30 penalty
units ($3 300), or both.
If a premises is inspected under a monitoring warrant the
occupier has the right to observe this inspection under
clause 319, but, under the provisions of
clause 320, they must provide the inspector with
all reasonable facilities and assistance. These warrants must be
issued by a magistrate under clause 321.
Subclauses 324(2)-324(3) define the degree of
negligence and recklessness that an executive officer must manifest
in relation to a contravention of the CPRS by a body corporate so
as to attract personal liability for Part 21 civil penalty. The
meanings of negligence and recklessness are taken directly from
Division 5 of the Criminal Code Act 1995. The NGER Act
will also be amended so as to expose all the corporation's
executive officers to such liability on the same terms as under the
CPRS Bill. Provisions establishing personal liability for corporate
executive officers are not uncommon in Commonwealth
environment-related legislation.
Civil penalties are imposed by
courts, but are not criminal offences, and hence only require the
court to be satisfied on the balance of probabilities (rather than
the criminal standard of beyond reasonable doubt ) that the
relevant contravention occurred. From this perspective, it may make
an alleged contravention easier to prosecute.
Clause 327 sets out how the relevant court
determines the amount of a pecuniary penalty under the civil
penalty provisions of the Bill. These relate to the particular
circumstances of the case. Subclause 327(4) sets
an upper limit for corporations of 10,000 penalty units ($1.1
million), except in certain situations where the court can estimate
the corporation has benefited from the contravention. In that case
a penalty of three times the value of the benefit can be imposed.
Subclause 327(6) provides that for an individual,
the upper limit is 2,000 penalty units. Clause 338
deals with penalties for continuing contraventions and caps the
daily penalties that apply for most continuing contraventions of
the CPRS Bill at five per cent of the maximum penalty for the
contravention. This is a change from the proposal under the
exposure draft legislation, where the daily penalty could be the
same as the maximum penalty for the contravention.
Clause 346 lists which of the decisions under
the Act are reviewable decisions . Where
a decision is listed, and the decision was made by
delegate of the Authority, a person affected by the
relevant decision can ask the Authority to reconsider the decision.
If after that, the person is still not satisfied, they may apply to
the Administrative Appeals Tribunal for a review: subclause
350(1). If the original decision was made by Authority
(rather than a delegate), the application for review is to be made
direct to the Administrative Appeals Tribunal: subclause
350(2).
Clause 353 requires that periodic reviews of
the proposed CPRS are conducted by an expert advisory committee
covering various matters, including:
- the effectiveness and efficiency of the scheme
- whether national emissions targets should be changed
- regulations to be made for the purposes of clause
14 (national scheme cap) and national scheme gateway
(clause 15)
- the policies and procedures for AEU auctions
- the surrender of AEUs and other eligible emissions units
- governance, functions and posers of the Authority, and
- other such matters that are specified by the relevant
Minister.
The relevant expert advisory committee must include public
consultation as part of the review process: subclause
353(5).
The first review must be completed by 30 June 2014 and each
subsequent review must be completed within five years after the
Commonwealth s response to the previous review was tabled in
Parliament: subclause 353(3). Under clause
354 the report of these reviews must be tabled in
Parliament, as must the Commonwealth s response to any
recommendations arising from these reviews. The Commonwealth must
table a response to the report within six months of receiving
it.
Clause 355 provides for special reviews to be
undertaken by the expert advisory committee on matters specified by
the relevant Minister. The report of these special reviews must
also be tabled in Parliament within 15 sitting days of the Minister
receiving these reports. As soon as practicable after receiving
these reports the relevant Minister must respond to any
recommendations and table that response within 6 months of
receiving the report in question.
Under clause 357 the Minister may establish
expert advisory committees. Clause 360 requires
that the members of such committees have substantial knowledge of
and significant standing in at least one of a number of relevant
fields, including:
- law and/or economics
- Australian industry, financial markets and/or trading
environmental instruments
- climate science, energy and/or greenhouse gas measurement and
reporting
- greenhouse gas abatement.
Under clause 361 an expert advisory member s
term must not exceed five years.
The proposed CPRS has been subject to critical comment from a
number of sources. The positions of significant interest groups, as
well as those of the non-government political parties and
independents, are summarised to the extent possible, on pages 27-39
of this Digest. Additional information is available from the
reports of the various Parliamentary Committees mentioned on page
26.
Whatever scheme is eventually adopted will be somewhat of a
compromise between various factors and thus likely to continue to
attract some amount of criticism. However, perhaps what is most
important is that the relevant legislation, and accompanying policy
settings, contains an appropriate balance between:
- flexibility (so as to accommodate matters such as developments
in international cooperation and agreements on emissions targets,
and future economic cycles, technology developments etc, and
progressive revisions in climate change projections and associated
environmental impacts that may demand tougher or more immediate
action), and
- certainty (in particular to allow economic and social
investment to be planned and carried out with reasonable
confidence).
- Achieving this balance will be extremely difficult. However,
the extensive policy development process, combined with the
evidence garnered through the activities of the Parliamentary
Committees, as well as the wide range of Australian and
international climate change activities, does provide Parliament
with extensive information on which to base its deliberations on
this important and complex issue.
Copyright Commonwealth of Australia
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2495.
[1]. The
Bills for these proposed Acts are all currently before Parliament.
Similarly to the CPRS Bill and others in the CPRS package, all have
designation [No. 2] attached.
[2]. Carbon
dioxide equivalent is calculated for non CO2 GHGs by
their global warming potential (GWP). The six GHGs controlled under
the Kyoto Protocol are carbon dioxide (CO2), methane
(CH4), nitrous oxide (N2O),
hydrofluorocarbons (HFCs, a class of gases containing carbon,
hydrogen and fluorine), perfluorocarbons (PFCs, a class of gases
containing carbon and fluorine), and sulphur hexafluoride
(SF6). A gas GWP is defined as the relative ability of
1kg of that gas, compared with 1 kg of CO2, to warm the
atmosphere over a 100 year time horizon (or other defined
timeframe). Thus each gas is assigned a multiplier, ranging from 1
for CO2 to as high as 22,200 for SF6; See IPCC, Chapter
2: Changes in Atmospheric Constituents and in Radiative Forcing ,
Climate change 2007: the physical science basis.
Contribution of Working Group I to the Fourth Assessment Report of
the Intergovernmental Panel on Climate Change, Cambridge
University Press, Cambridge and New York, 2007.
[3].
Australia ratified the Kyoto Protocol to the UNFCCC on 12 December
2007. Domestic abatement action should be the primary means by
which Annex I countries such as Australia meet their emissions
target. The Kyoto Protocol also sets out three flexibility
mechanisms that Annex I parties may use as a supplementary means of
meeting their targets. International emissions trading is one such
mechanism, enabling countries that emit less than their assigned
targets, to sell surplus credits to countries that have exceeded
their targets. Domestic emissions trading schemes, which are
independent of the Kyoto Protocol, may also be established by
countries, and they may be usefully operationally linked to credits
generated by the flexibility mechanisms.
[4]. See
generally K Rudd (Prime Minister), W Swan (Treasurer), P Wong
(Minister for Climate Change and Water), A new target for
reducing Australia s carbon pollution, joint media release,
Canberra, 4 May 2009.
[5].
Department of Climate Change (DCC), National greenhouse gas
inventory Kyoto Protocol accounting framework , DCC website, viewed
9 June 2009, http://www.ageis.greenhouse.gov.au/.
[6]. DCC,
National greenhouse gas inventory Kyoto Protocol accounting
framework .
[7]. See A
Talberg, The Kyoto Protocol accounting rules, Background
note, Parliamentary Library, Canberra, 2009, viewed 25 May 2009,
http://www.aph.gov.au/Library/pubs/BN/2008-09/KyotoAccRules.htm.
[8]. For
example, under the UNFCCC accounting rules, Australia s emissions
in 2000 were nearly two per cent higher than in 1990. Therefore, if
Australia s emissions reduction commitments are applied under the
UNFCCC rules, a five per cent reduction from 2000 levels translates
to only a 3.3 per cent reduction from 1990 levels. See UNFCCC,
Greenhouse gas inventory data detailed data by party , UNFCCC
website, viewed 9 June 2009, http://unfccc.int/di/DetailedByParty.do.
[9]. L
Neilsen and others, Carbon Pollution Reduction Scheme Bill
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[10]. S
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[11].
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change 2007: the physical science basis, Cambridge University
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[12]. J
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paper, no. 28, 2008 09, Parliamentary Library, Canberra, 2009,
viewed 22 April 2009, http://www.aph.gov.au/library/pubs/rp/2008-09/09rp28.pdf.
[13]. For
a short history of the IPCC see: WMO/UNEP, Intergovernmental Panel
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April 2009,
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[14].
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[15]. R
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[16]. New
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[17]. The
Climate Change Response (Emissions Trading) Amendment Act
2008 established the New Zealand Emissions Trading Scheme.
The Act describes the legal details of the emissions trading
scheme. See: New Zealand Government, Climate change regulations ,
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http://www.climatechange.govt.nz/emissions-trading-scheme/regulations.html.
[18].
A Tuerk &
H Kimura, Emerging Japanese emissions trading schemes and
prospects for linking , Institute for Global Environmental
Strategies, October 2008, viewed 5 June 2009,
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[19]. See
Western Climate Initiative website, viewed 9 June 2009 http://www.westernclimateinitiative.org/
[20]. See
Regional Greenhouse Gas Initiative website, viewed 9 June 2009
http://www.rggi.org/home and
the US Environmental Agency Website, Cap and Trade Programs, viewed
9 June 2009 http://www.epa.gov/captrade/programs.html
and United States House of Representatives, Energy and Commerce
Committee, Chairman Waxman and Markey Introduce the American Clean
Energy and Security Act, viewed 9 June 2009
http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1622&catid=155&Itemid=55
.
[21]. See
L Nielson, Climate Change Policy: Brazil, China, India and Russia ,
Background Note, Parliamentary Library, Canberra, 25
February 2008, viewed 1 June 2009, http://www.aph.gov.au/LIBRARY/Pubs/bn/2008-09/ClimateChange.htm.
[22]. See
International comparisons below, p. 49.
[23]. K
Thompson (Shadow Minister for Sustainability, the Environment and
Heritage), Labor s plan for environment and heritage, ALP
policy document, 6 October 2004, p. 10.
[24]. J
Fitzgibbon (Shadow Minister for Mining, Energy and Forestry),
Labor s plan for a secure, affordable and sustainable energy
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[25]. K
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[26]. C
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[27].
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[28].
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[29].
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[30].
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[31]. R
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[32].
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[33].
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[34].
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[35].
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[36]. K
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[37].
Australian Government, White paper, p. 4 23.
[38]. The
legislation states that the Minister is required to take all
reasonable steps to ensure that the advance notice on caps as
specified here is met. However, the Explanatory Memorandum notes
that the phrase take all reasonable steps has been adopted in these
provisions because, despite his or her best endeavours, a Minister
cannot guarantee that regulations are made and not disallowed , p.
77.
[39].
These are carbon dioxide, methane, nitrous oxide, sulphur
hexafluoride, hydrofluorocarbons and perfluorocarbons
[40].
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combustion, 2008 edition.
[41].
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[42]. K
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[43].
Value added refers to the net contribution of an industry to the
output in the economy, or the wealth created by the industry. It is
calculated as earnings less costs of bought in goods and services.
See Australian Government, Discussion paper: assessing
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2009,
http://www.climatechange.gov.au/emissionstrading/publications/pubs/assessing-emissions-intensity.pdf
[44]. The
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[45].
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[46]. For
a list if these considerations, see: K Rudd (Prime Minister), W
Swan (Treasurer) and P Wong (Minister for Climate Change and
Water), Carbon Pollution Reduction Scheme: Support in Managing
Impact of Global Recession, media release, 4 May 2009, p 4,
viewed 25 May 2009,
http://www.climatechange.gov.au/whitepaper/measures/pubs/mr_carbon_pollution_scheme.pdf.
[47]. This
is similar to the way in which the United Kingdom s Carbon Trust
operates.
[48]. K
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Climate Change and Water), Helping all Australians do their bit
on climate change, joint media release, Canberra, 4 May
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[49]. K
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2008.
[50]. See
J Styles and A Talberg, Budget 2009 10: climate change and energy ,
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[53].
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[54].
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[55].
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[56].
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[57].
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[58].
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[59].
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[60].
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[61].
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[66].
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[78]. H.
Rideout, CPRS landfill waste changes a victory for common
cause, media release, Australian Industry Group, 14 May 2009;
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[79]. The
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passes it with amendments to which the House of Representatives
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of Representatives, in the same or the next session, again passes
the proposed law with or without any amendments which have been
made, suggested, or agreed to by the Senate, and the Senate rejects
or fails to pass it, or passes it with amendments to which the
House of Representatives will not agree, the Governor General may
dissolve the Senate and the House of Representatives
simultaneously. But such dissolution shall not take place within
six months before the date of the expiry of the House of
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that only one Bill is required to form the double dissolution
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That paper discusses whether very minor, non-substantive,
variations in text would be permissible under section 57. It also
reviews the suggestion that textual identity is not enough and that
contextual identity (commonality of surrounding circumstance and
legal effect) is also required under section 57, noting however
that any such requirement would be problematic.
[96]. See
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[154].
The Voluntary Carbon Market Association (VCMA) states that
Australia has developed an active, vibrant and innovative carbon
market that has been supporting a growing number of dynamic
businesses to date . It has expressed disappointment in the
exclusion of the voluntary carbon market, and has called for
voluntary domestic action to be counted as abatement under the
CPRS. See VCMA, CPRS amended to include voluntary action but
further changes needed, media release, 5 May 2009, viewed 12
June 2009, http://www.vcma.org.au/?p=205;
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Richard Denniss, Executive Director of the Australia Institute, has
been one of the most vocal critics of the CPRS treatment of
voluntary or household energy efficiency measures. See for example
R. Denniss, Fixing the floor in the ETS , Research Paper,
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Part 2, clause 14(5)(c)(iv).
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[163].
Though the text of the bill remains unchanged from the exposure
draft on the treatment of voluntary action, the Explanatory
Memorandum details the intended extent of the regard to be accorded
voluntary action as revised in the 4 May changes. In particular, it
discusses the treatment of GreenPower purchases and trends in
uptake of energy efficiency measures such as energy efficient
appliances, fuel efficiency of vehicles, and the proportion of new
or renovated houses achieving a six star rating. See Explanatory
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[164].
See for example McKinsey and Company, Pathways to a low carbon
economy, Version 2 of the Global Greenhouse Gas Abatement Cost
Curve, 2009; and McKinsey and Company, An Australian Cost Curve
for Greenhouse Gas Reduction, 2008. The latter report
identifies several household and commercial energy efficiency
measures that deliver carbon abatement at negative cost (i.e.,
measures that save money while reducing emissions).
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[168].
During the financial year commencing on 1 July 2001 an unlimited
number of AEUs will be sold at a price of $10 per unit.
[169].
The term carbon price is not otherwise defined but may be assumed
to be the price of an Australian Emissions Unit.
[170].
It should be noted that such regulation would be disallowable by
either House of Parliament in accordance with the Legislative
Instruments Act 2003.
[171].
The term facility is defined in clause 5
as having the same meaning as in the National Greenhouse and
Energy Reporting Act 2007. According to subsection 9(1) of
that Act, a facility , is an activity, or
a series of activities that involve the production of greenhouse
gas emissions, the production of energy or the consumption of
energy and that:
form a single undertaking or enterprise and meet the
requirements of the regulations or
are declared by the Greenhouse and Energy Data Officer to
be a facility under section 54
but does not include an activity, or a series of
activities in the exclusive economic zone, except to the extent
that it is an oil or gas extraction activity or a series of oil or
gas extraction activities.
[172].
Clause 5 defines a liquid petroleum gas marketer
to be a person or entity who is supplied liquid petroleum gas from
various types of bulk storage for the purposes of
re-supply.
[173].
These changes will be effected by the Carbon Pollution Reduction
Scheme (Consequential Amendments) Bill 2009.
[174].
This is referred to as the Category A transfer test.
[175].
This is referred to as the Category B transfer test.
[176].
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[177].
The Kyoto Protocol flexible mechanisms are the Clean Development
Mechanism , the Joint Implementation Mechanism and Emissions
Trading of Assigned Amount Units (AAUs) between countries. Only
emissions credits generated by the first two flexible mechanisms
will be accepted in the proposed CPRS but see later
discussion.
[178].
The national scheme cap number is defined
in clause 14.
[179].
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[181].
Legislative Instruments Act 2003, Section 42.
[182].
Extendable to 210 days in certain circumstances under
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[183].
Paragraph 181(3)(b) sets out the matters to be
considered in determining whether a project was fully committed
.
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3865.
[185].
The Torrens land title system operates in every state and territory
in Australia. It replaced the cumbersome General Law system of land
whereby property was transferred by deed and placed an unreasonable
chain of title search burden on the purchaser, with a requirement
that property is transferred by way of registration of title.
Paragraphs 209(4)(a) and 209(5)(a) effectively
require that reforestation projects on private land can only be
declared eligible reforestation projects for the purposes of Part
10 if the land is Torrens system land.
[186].
Clause 240 contains the definition of carbon
sequestration right .
[187].
Supplementary Explanatory Memorandum, Carbon Pollution Reduction
Scheme Bill 2009, p. 5.
[188]. This is because such non-Torrens
title Crown land will not be general law land, and thus potentially
eligible under paragraph 209(5)(b). See further discussion in the
Explanatory Memorandum, Carbon Pollution Reduction Scheme Bill 2009
[No. 2], at paragraphs 6.34 and 6.58.
[189].
Explanatory Memorandum, paragraph 6.75, p. 174.
[190].
Supplementary Explanatory Memorandum, Carbon Pollution Reduction
Scheme Bil 2009l, pp. 15-16.
[191].
Crown land that is Torrens system land would be covered by
subclauses 240(1)-(3).
[192].
Crown land that is Torrens system land would be covered by
subclauses 241(1)-(2).
[193].
Supplementary Explanatory Memorandum, Carbon Pollution Reduction
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[194].
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For further information on the European Emissions Trading Scheme
see L Nielson, The European Emissions Trading Scheme lessons
for Australia, Research paper, no. 3, 2008 09, Parliamentary
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[196].
For further information see Acid Rain Retirement Fund website,
viewed 1 May 2009, http://www.usm.maine.edu/~pos/arrf.htm.
[197].
Explanatory Memorandum, paragraph 9.19, p. 216.
Leslie Nielson
Julie Styles
Anita Talberg
Juli Tomaras
29 October 2009
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