In April this year, the Senate Economics Committee noted in its report
on the CPRS Exposure Draft that many submitters had expressed concern that
'voluntary' action by households would not lead to a reduction in Australia's
greenhouse gas emissions.
The argument is as follows. Many households (as well as businesses, local and
state governments) take action to reduce their emissions, which is primarily
motivated by altruistic concern for the environment.
However, under the proposed CPRS, these additional reductions will simply free
up more permits for liable entities to purchase and to increase their
emissions. This criticism of the CPRS, therefore, is one of design—it would set
not only a ceiling on emissions, but also a floor.
A leading consumer advocacy organisation welcomed the Committee's
CHOICE is encouraged by the Committee's recognition of the
importance of voluntary action and the recommendation for the government to
develop policies in this area. We look forward to working with the government
to identify practical means to recognise and account for consumer’s voluntary
In February 2009, the Minister for Climate Change, Senator the Hon.
Penny Wong, rightly noted that voluntary action to invest in energy efficient
practices will not only save households money, but will also help make it
easier for governments to set even more ambitious targets in the future.
The Exposure Draft stated that in making a recommendation to set the national
scheme cap, the Minister may have regard to 'voluntary action which is
expected to be taken to reduce Australia's greenhouse gas emissions'.
The Commentary to the draft noted that 'voluntary action to reduce greenhouse
gas emissions can help ameliorate the economic implications associated with
various levels of national scheme caps, making it more likely that more
stringent caps can be set over time'.
On 4 May 2009, the Government announced that it would make changes to
the Exposure Draft of the CPRS bill to enable households to have direct
influence on the carbon permit market. First, the government committed to
establish an Energy Efficiency Savings Pledge Fund to allow households to
retire carbon permits. Second, GreenPower purchases above 2009 levels will be
directly recognised when the Government sets CPRS caps. This chapter examines
these initiatives and the mechanism in the CPRS bill for the Minister to take
voluntary action into account when setting scheme caps and gateways.
Finally on 7 June the Government announced it would hold public
consultation workshops across the country to look further at how voluntary
action can best be taken into account when setting future caps. Voluntary
actions to be taken into account may include increases in the uptake of energy
efficient appliances, the construction or renovation of houses to a star-rating
above the minimum required and the use of public transport.
Accounting for voluntary action in setting the
A key concern of the Senate Economics Committee in its inquiry into the
Exposure Draft of the CPRS bill was that clauses 14 and 15 would not ensure
that voluntary action is recognised transparently and systematically.
Accordingly, the committee recommended in its report that subsection 14(5) be reworded
such that the Minister 'shall have regard' (rather than 'may have regard') to
The Department of Climate Change told this committee that the Government
had taken legal advice on this recommendation and decided to address this issue:
...through a statement in parliament and in a commitment to
address voluntary action in that statement. The approach that has been adopted
addresses the committee’s concerns by ensuring that voluntary action will be
taken into account in a transparent way.
The CPRS bill now requires a written statement to be tabled in
parliament outlining the Minister's reasons for regulations underlying scheme
caps and gateways.
Buying and retiring permits
A related concern of the Senate Economics Committee was that the
voluntary action problem could not be adequately solved by households buying
and surrendering permits on the open market. The Government has emphasised the ability
of any person to purchase and cancel Australian emissions units, and for the
Government to subsequently cancel a Kyoto unit. The Department of Climate
Change explained that the original CPRS (as set out in the Exposure Draft) allowed
'anyone to purchase permits and essentially submit them to the regulator to
have them torn up'.
The Senate Economics Committee report commented that the ability of
concerned citizens to buy and cancel permits is not in itself a sufficient
outlet for voluntary action. The committee cited—and agreed with—the comments
of Professor Alan Pears of RMIT that buying and surrendering permits is
'not very emotionally satisfying'.
Professor Pears argued that taking permits out of the system leaves the
additional abatement action to the liable entities, not those who surrender the
permits. This effectively takes from them the ability to reduce emissions in a
manner that also achieves other goals. As Dr Richard Denniss, Director of the
Australia Institute observed, under the proposed CPRS a household that spends
$3000 to replace its off-peak electric hot water heater with a solar hot water
system would have no impact on greenhouse gas emissions. However, it would make
a significant impact on the level of emissions if instead they purchased permits
and ripped them up.
How else can households' voluntary actions count?
One way to ensure that voluntary action counts in addition to the
national target is to establish a secondary market to audit and verify
households' emission reductions. The permits accrued in this secondary market
would be removed from the CPRS market.
The Centre for Energy and Environmental Markets at the University of New
South Wales has proposed that voluntary action could be recognised through an Additional
Action Reserve (AAR). The AAR would annually set aside a proportion of emission
units which would be retired if governments, businesses or individuals take
emission reduction measures which go beyond a baseline target that emitters are
expected to achieve. Through setting aside a fixed proportion of units
annually, the Action Reserve would limit recognition of voluntary action and
limit potential losses of auctioning revenue. If the allocated emission units
are not retired in a given year, they would be returned to the market. The
Centre argues that a scheme along these lines would provide a mechanism for
'defined and limited' strengthening of the national emission target which would
drive domestic emission reductions rather than potentially draw on international
carbon credit markets.
The Committee believes that while there is merit to the idea of a
systematic mechanism (such as an offsetting secondary market) to calculate and allow
for voluntary action, the precise detail of this type of scheme may be
contentious. The AAR would need to determine how to calculate the baseline
target that emitters are expected to achieve and the proportion of permits that
are to be set aside annually. These may be difficult—and administratively
costly—issues to resolve.
However, in preferring the less structured approach proposed in the CPRS
bill, the Committee strongly urges the Government to clarify how clauses 14 and
15 of the bill will operate. The Committee is encouraged that the Government
has stated its intention to do so (see paragraph 4.6).
Energy Efficiency Savings Pledge Fund
As part of a suite of changes to the Exposure Draft legislation
announced on 4 May 2009, the Government proposed to establish a $25.8
million Energy Efficiency Savings Pledge Fund.
The Pledge Fund will enable households to calculate their energy use, to
pledge to reduce their emissions through investing in energy efficient
appliances and to buy carbon pollution permits. The Government will establish a
website for this purpose and the pledges will be pooled with all contributions
The Fund will enable households to verify their greenhouse gas
emissions, invest to reduce these emissions and to use the money saved from
their lower energy use to retire permits from the CPRS market. Although the
money paid by households to retire permits is tax deductible whether it is paid
to the government or to not‑for‑profit environmental groups, the
Pledge Fund's official sanction may encourage
more people to engage in this process. Moreover, as the following
section notes, the Government has established a mechanism to recognise directly
the emission–reducing investments made by households when setting the cap.
Supporting voluntary action through GreenPower
GreenPower is a government accredited renewable energy programme whereby
energy providers supply energy to households from sources such as hydro, wind
power and biomass at an additional cost to the standard electricity account.
This cost is then invested in the renewable energy sector. The Government's
GreenPower website states that for the period 1 October to 31 December 2008, 'over
877 000 Australian homes and 34 000 businesses are voluntarily
purchasing GreenPower', which represents roughly 10 per cent of Australian
The Government has identified GreenPower as the key 'voluntary' action
undertaken by households. In its 4 May announcement, the Government stated
Additional GreenPower purchases above 2009 levels will be
directly recognised when the Government sets caps under the Carbon Pollution
Reduction Scheme. Additional GreenPower purchases will be measured annually and
future caps will be tightened on a rolling basis.
The Explanatory Memorandum to the CPRS bill elaborates:
The Government has indicated that additional GreenPower
purchases will be measured annually and taken directly into account in setting
scheme caps five years into the future, on a rolling basis. For example, the
2016-17 cap will be tightened to reflect the difference between 2009 and 2011
GreenPower sales, multiplied by a factor to reflect the emissions saved. This
will achieve emissions reductions beyond Australia’s national targets as it
will be backed by the cancellation of Kyoto units.
The Committee welcomes this announcement. It notes that several
submitters to the Senate Economics Committee's inquiry into the Exposure Draft
of the CPRS legislation suggested that the Government could take GreenPower
purchases into account when setting the national cap.
A leading consumer advocacy organisation praised the measure, although
wanted it taken further:
CHOICE welcomes the Federal Government’s acknowledgement that
voluntary actions by consumers should be additional to the mandatory actions of
the CPRS. The government’s decision to recognise voluntary actions by counting
new GreenPower purchases as additional when setting CPRS caps, backed by the
cancellation of Kyoto units, is a small first step to implement this
Recognising other voluntary actions
The Senate Economics Committee noted in its April 2009 report that in
addition to GreenPower, 'there is publicly available data such as reduced
energy consumption by households' that could be used to take account of voluntary
This committee is pleased that the Explanatory Memorandum (EM) to the CPRS bill
details those voluntary actions—other than GreenPower—that may be taken into
account by the Minister when setting scheme caps and gateways. The EM states:
A range of other indicators of voluntary action may also be
taken into account. As a matter of policy, the Government will monitor annual
emissions from the household sector, and will monitor and consider the uptake
of certain energy efficiency activities among households and businesses where
there are clearly defined business-as-usual benchmarks, and where improvements
can be detected. In doing so, the Government will consider trends in the
construction or renovation of houses to a star-rating above the minimum required,
the use of public transport and the expansion of public transport services, and
the uptake of more energy efficient appliances (particularly those that consume
a significant proportion of household energy such as water heaters and
airconditioners) beyond regulated levels. Action in these sectors could be
taken into account by assessing the extent to which the uptake exceeds
historical trends, factoring in electricity price changes, regulation and any
direct government assistance.
For example, the Government would collect data on the
proportion of houses with a 6 star rating that are being constructed, compare
this with historical trends and calculate the reduced emissions likely over the
full life-cycle of the buildings. This calculation could inform the
Government’s cap setting decision. Another example could be monitoring the
overall fuel efficiency of the passenger vehicle fleet in Australia. The trend
improvements in fuel efficiency could then be compared to historical trend
improvements, taking account of fuel price changes and other relevant factors.
Estimates of emissions reductions could then be used to inform the Government’s
decision regarding appropriate scheme caps and gateways.
The Explanatory Memorandum recognises that it is not possible to list
all household and individual actions that could be measured and taken into
account by the Minister. It rightly notes that these 'will evolve over time in
response to changing carbon prices, technological developments and other
economic and social developments'.
The committee welcomes the Government's decision to hold public workshops to
further determine how voluntary action can best be taken into account when
setting caps and urges the Government to continue to promote and monitor
voluntary action by households and individuals, with a view to taking these
emission reductions into account when setting future caps and gateways.
The Committee emphasises that the task of reducing Australia's CO2 emissions extends beyond the CPRS market for
liable entities. It is important that the voluntary actions of households to
reduce their emissions are taken into account not only when the Minister sets
scheme caps and gateways, but also in the trade of permits. In this context,
the Committee welcomes the Government's initiatives to enable households to
retire carbon permits and to recognise directly GreenPower purchases above 2009
levels. All these initiatives send the right message to households that they
can play a valued role in reducing greenhouse gas emissions.
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