Deferral of operation
On 4 May 2009, the Government announced 'a delay in the start date of
the Carbon Pollution Reduction Scheme of one year to manage the impacts of the
The delay will also be accompanied by a fixed permit price of $10 for the first
compliance year of the scheme (July 2011–June 2012). This change to the timing
and structure of the scheme is designed to provide greater business and
Table 5.1 shows the revised timetable for the introduction of the CPRS.
Table 5.1: Revised timetable
for introduction of CPRS
Mar- June 2009
Consultation on exposure draft legislation; Senate committee
Bills introduced into
Desired passage of bills
Sept qtr 2009
Dec qtr 2009
tabled in parliament
Copenhagen UN Climate Change Conference
First half 2010
Scheme caps to 2014–15 and
gateways for 10 following years set
Start of first compliance
year (with fixed price permits)
First half 2012
First auction of permits
End of first compliance
year (with fixed price permits)
Start of second compliance
Deadline for lodging of
emissions reports for first year
Deadline for surrender of
permits for first year
Source: from White Paper,
table 16.2; Minister for Climate Change, Press Release, 47/09, 27
February 2009; Prime Minister, Treasurer and Minister for Climate Change and
Water, 'New measures for the carbon pollution reduction scheme', Media release,
4 May 2009.
The global financial crisis and the delayed start
The economic outlook has deteriorated sharply over the past year. The
size of the deterioration is illustrated by Chart 5.1. This shows the growth of
global real GDP since 1950 (the upper line) and two forecasts—one based on the
current International Monetary Fund projections and one based on those made a
The chart is on a logarithmic scale, so the slope of the lines represents
The lower line in the chart shows the path of global CO2
emissions. It is notable that the price signals arising from the mid-1970s oil
crisis led to a marked slowing in emissions relative to economic activity.
Chart 5.1: Global
real GDP and CO2 emissions
Sources: Chart generated by
Secretariat based data from IMF, World Economic Outlook; A Maddison, The
World Economy: Historical Statistics, OECD, 2003; World Resources
Institute, CAIT database.
The Department of Climate Change explained that the global financial
crisis drove the delayed start date, (as well as the use of a fixed price for
the first year of the scheme and the augmentation of the emissions-intensive
Professor Garnaut does not believe that the global financial crisis is a
good economic reason for delaying the start date but concedes it makes prompt
action more politically difficult:
It does affect the political difficulty of achieving an
Australian and international policy outcome that reflects Australia’s national
interests. The depth of recession is a good time to invest in the new processes
and industries that will make Australia’s low emissions economy of the future
[but]...as we know from long history that includes the depressions of the 1890s
and 1930s, the recession makes the political process even more vulnerable than
usual to pressures from vested interests.
The World Wildlife Fund was concerned that the recession should not be
seen as buying us time compared with the required path:
Our view is very strongly that this scheme should be
implemented as soon as possible. However, I think the main consequence of the
fixed price, the postponement for a year, and indeed the global recession
buffer and the additional money for energy efficiency is that it will quite
significantly mute the near term signal to foster transformational low
emissions technologies, not just garden variety low emissions technologies like
wind but really significant low emission technologies like geothermal, marine
or very large scale solar.
The deferral of the starting date was welcomed by many business
We welcome the delay in the CPRS commencement date...
A start date of 2011 will allow resolution of the complex
EITE process, improving Australia's prospects of getting the right policy both
designed and legislated.
Intergen (Australia) welcomes...a deferred start date till 1
...the CPRS should not start operation until economic
conditions return to normal and there is a greater probability of this occurring
However, some business representatives were critical of the delay:
A delay to the start date has the simple effect of delaying
commitments to low emissions investments.
...delaying the commencement of the Scheme will have
significant disadvantages for both the liable entities covered by the Scheme,
as well as the carbon market services sector who are critical in providing
The Department of Climate Change also noted the impact of the crisis on
some businesses' ability to prepare for the scheme, given the additional
resources required to survive the recession:
In terms of deferral, some businesses had raised a question
of preparedness in advance of the scheme, but that was also partly in the
context of the global financial crisis, because a number of firms were
essentially saying that it was difficult for them to allocate additional time
to those issues in the context of the current economic circumstances.
Most witnesses and submitters who argued for a delay in the scheme were focussed
on factors other than the global recession, including the importance of waiting
for an international agreement to be reached, the damage that a premature start
may have on Australian exporters' international competitiveness or the
perceived deficiencies in the proposed scheme.
The Committee acknowledges concerns that the global recession means that
an early implementation of the CPRS may place undue pressure on some businesses.
However the Committee feels that the crisis does not diminish the need for the
implementation of the CPRS's comprehensive and ambitious mitigation strategy in
the near future.
Business certainty and timing of the legislation
What is relevant for businesses making long-term investment decisions is
not the timing of when the scheme starts but the rules that will govern the
scheme over the medium- to long-term. For this reason, even if it is accepted
that the global financial crisis is a valid reason for deferring the starting
date, many business representatives called for the legislation to be passed in
...certainty about the timing and the rest of the details of
the CPRS were essential to enable business to plan for and respond to the
impacts of the CPRS.
BP continues to support the case for policy action and
certainty around climate change: until energy producers and consumers know and
pay the cost of carbon, the uncertainty associated with planning and investing
in the transition to a low carbon economy will remain high...we believe that the
Government has largely 'got it right' with respect to many of the emissions
trading design issues. 
We support passage of the legislation this year...our members
say that uncertainty is disruptive to business planning and is causing
investment to be withheld.
We note that after significant debate over many years, both
the current Government and its predecessor reached the conclusion that a cap
and trade scheme was the best way forward...The longer we wait to address
climate change, the more it will cost in the long term and the less flexibility
Australia will have to transition to a lower-emissions economy when we do
decide to start. We would like to see legislation passed to effect this cap and
trade regime as soon as possible to address the continuing uncertainty for
business, particularly in relation to capital intensive investment decisions.
...the Shergold report, which said that waiting until a truly
global response emerges before imposing an emissions cap will place costs on
Australia by increasing business uncertainty and delaying or losing investment.
We encourage the Government and opposition parties to move
forward with the legislation by resolving the serious outstanding issues and
complexities and passing the Bills.
Uncertainty in the regulatory framework is hindering
IGCC supports the introduction of the CPRS and supports its
early passage through the parliament...Until a clear start date for emissions
trading is set by the parliament, both debt-financing arrangements for these
emissions‑intensive assets and companies, and investment activities to
support them will be delayed.
One counterargument is that, to the extent the legislation is predicated
on there being an international emissions trading scheme, it may be better to
wait until after the Copenhagen Conference, or beyond, when more may be known
about the design of other countries' schemes.
The Department of Climate Change disagreed with this view, arguing that
the Copenhagen agreement will not be:
... predicated on a particular view of a way mitigation is
carried out at least uniformly in the rest of the world. It is predicated
really on the view that, to the extent that Australia will take on emissions
reductions commitments, it is desirable to use a mechanism that is the lowest
possible cost way of achieving those emissions reductions.
Other witnesses agreed that the discussions at Copenhagen will centre on
targets, not the design of schemes. There is therefore no reason to delay
legislation on aspects of the scheme other than the targets.
We are not going to have any more insight about the optimal
design of our domestic scheme as a result of the outcome at Copenhagen.
...we ought to, and we can, design a system that accommodates
the range of possible outcomes from Copenhagen and subsequent international
Professor Ross Garnaut explained to the Committee his view that even
before the Copenhagen Conference, it is clear that the direction in which the
rest of the world is heading is towards a cap-and-trade emissions trading
... it is very clear the way the Europeans are going. They are
putting a lot of effort into cleaning up their ETS...There is no doubt where
Europe is headed... The [United States] congress is now headed towards a cap and
trade system and ETS... Japan and Korea will be heading that way. The main
developed countries will be heading that way.
The Committee notes that there had been claims that there was inadequate
time to prepare if the legislation passed in 2009 envisaged a starting date in
July 2010. On the same logic, delaying passing the legislation until 2010 would
cause problems in meeting a July 2011 starting date.
Credibility at Copenhagen
The other main argument for passing the legislation soon is to bolster
Australia's credibility at Copenhagen:
...with respect to the international negotiations, Australia
going to Copenhagen with a scheme capable of delivering large emissions
reductions will have an impact on the international negotiations which, through
that process, leads to an outcome in terms of potential global emissions.
...passing this legislation now will be of assistance. It will
send important signals to the international negotiations that an advanced
country can actually tackle these elements.
...the proposal to delay the vote on the emissions trading
scheme until next year would weaken Australia’s negotiating impact at the
crucial UN talks in Copenhagen in December.
It could be argued that it is particularly necessary for Australia to
have legislation already passed, rather than just promised, as Australia could
be viewed as having 'form' for not implementing agreed measures. After
successfully negotiating a very favourable target at the Kyoto negotiations,
Australia did not ratify the treaty (until a decade later).
The main counterargument is a claim that Australia is so unimportant
that anything it says or does will be ignored:
...we are a small player here. We are one per cent of emissions
and we have about that same sort of level of influence worldwide... Not only
are we relatively trivial... Certainly, when I have visited overseas and talked
about Australia’s climate policy nobody has known anything about it. We really
do not count.
The Committee found more convincing the evidence from other witnesses
that what Australia says and does will matter. For example, Professor Ross
Garnaut, who in addition to being a distinguished economist is a former
ambassador to China, said:
Australia in isolation will have a significant effect on the
global discussion of climate policy which will affect global climate... it is a
fact of political science and economic science that what Australia does is
relevant to a global agreement.
Daniel Price, an expert on electricity markets, gave an example of how
Australia can be very influential in energy policy reforms:
Australia was in fact a year ahead of the UK in spot
electricity markets... I know from my own experience that there has been a conga
line of advisers coming to Australia over the last decade to see how we have
gone about doing that. So Australia can play an important policy leadership
He also commented that the global press had reported Australia delaying
the start of the CPRS scheme:
Very interestingly, the delay was actually reported in
newspapers in China, Japan, Korea and also in Europe. It was relevant to the
Among the advanced economies Australia ranks in the top five emitters,
behind only the US, European Union, Canada and Japan. Furthermore, as the
largest per capita emitter in the OECD, Australia's stance will be more closely
watched than its share of global emissions might suggest.
The transitional fixed-price year
The final CPRS legislation introduced by the government includes a
transitional price cap of $10 for the compliance year beginning July 2011 (see Table
The Garnaut Review advocated stating with a fixed price, albeit
twice as high:
During the transition period, permits should be sold by the
independent regulatory authority at $20 per tonne...
The Australian Industry Group does not believe that the certainty
created by the $10 price cap will influence investment decisions:
The substantial incentive for investment in renewable energy
is the long-run price curve for carbon. It is not really what the price will be
in 2011-12 because no-one seriously makes an investment looking only at that
term. We are talking about investments that live for 20-plus years. If anyone
looks at that price curve, that is what the key driver of renewable energy will
be and that is why even the renewable energy target scheme is proposed to be
phased out, because it is recognised that that is the driver of investment in
renewable energy... One-year price caps’ impact on that is very much at the
The WWF was far from strong in their support of the fixed price aspect
of the Government's changes:
4L67Eggleston, Sen Alan0Senator EGGLESTON—Some people were a bit critical of the fact
that there will be an unlimited number of permits issued at a fixed price of
$10 per tonne for the first year... What do you say about that? Would you rather
see auctions instituted immediately?
unknown8unknown1Mr Toni—In an ideal world I would. As I said, the WWF is
supportive generally of the proposals that the government has put...
The Australian Conservation Foundation:
...oppose a low fixed starting price of carbon at $10 per
tonne. We think the market should be operating fully and we support a market
operating from 2010. So, no, we do not think a fixed price for permits is the
way to go. Certainly we should allow the strengthening mechanism to operate and
to provide that carbon pricing. We need to encourage investment in clean energy
and energy efficiency. A $10 carbon price really does not provide the incentive
that you need to see off the mark.
Treasury's modeller has said that:
...the one-year delay is unlikely to significantly change the
results [of the economic modelling] over the average to 2020.
Impact on Revenue
Some witnesses expressed concern about the impact of the price cap on
revenue. Environment Business Australia's view is that:
Well, firstly, if all the permits in the CPRS were auctioned
and that money hypothecated depending on whose analysis you use, that would
create anywhere between $14 billion and $20 billion a year.
The revenue raised in the first year could be as little as half what
was originally anticipated because of the price cap (Table 1.1). This reduces the
revenue available to the Government for household assistance. However, the
lower assistance should be offset by similarly smaller increases in prices for
household items such as electricity as a result of the lower carbon price.
The Committee feels the $10 price cap is an appropriate transitional
mechanism which will allow for the early introduction of a carbon price and
then appropriate market based price flexibility once the results of the
Copenhagen negotiations are known.
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