Bills Digest no. 59 2009–10
Carbon Pollution Reduction Scheme Bill 2009 [No. 2]
Carbon Pollution Reduction Scheme Bill 2009 [No. 2]
Date introduced: 22 October 2009
House: House of Representatives
Portfolio: Climate Change & Water
The other Acts required to receive Royal Assent for sections 3 to 387 to come into effect are:
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 (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:
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. 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:
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. 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. The difference between using 1990 or 2000 may therefore become significant under future accounting rules.
Reintroduction of the Carbon Pollution Reduction Scheme Bills and this Digest
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.
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. 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. 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.
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.
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.
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. 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. 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. Japan is currently exploring options for replacing its voluntary ETS with a mandatory ETS. 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. 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. 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.
Details of other schemes and how they compare to the scheme proposed in the Bill are provided below.
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:
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.
These themes were carried over into the 2007 election where ALP policy was to introduce an ETS commencing in 2010. During the 2007 election campaign the then Labor opposition stated that a Rudd Labor Government would:
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.
In the subsequent election, official Coalition party policy stated:
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. NETT’s final report strongly endorsed the establishment of a national emissions cap-and-trade scheme as soon as possible.
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. 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. 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. The final government decisions on the broad outline of the proposed CPRS were released in a White Paper in December 2008. An exposure draft of the CPRS legislation and associated commentary was released on 10 March 2009, with comments invited by 14 April 2009. In response to submissions and feedback on the draft legislation, the Government announced substantial changes to the CPRS on 4 May 2009, 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 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:
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. 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.
Generally, direct obligations will apply to entities (i.e. companies, trusts, partnerships and the like), or individuals, that:
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.
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
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.
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:
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:
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.
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. 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.
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. Under the proposed Pledge Fund, individuals can calculate their savings from their investment in energy efficiency measures and buy/retire AEUs from the scheme. 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:
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:
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.
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. 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.
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. & 
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.  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. It has flagged that it still needs to consider its position on the Coalition’s call to delay the passing of legislation.
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. &  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.
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. & 
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. The APPEA would also like to see more assistance for the liquefied natural gas industry. & 
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). 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.
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.
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.
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. The CIF proposes that highly EITE industries should all receive 100 per cent of permits free.
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.
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. 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.
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. Other groups find the changes to the targets disingenuous and the slower start and increased compensation to EITE industries counter–productive.
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. 
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. 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. 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.
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.
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.
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: 
Coal Mine Emissions
Lower Electricity Prices
Compensation for Electricity Generators
Energy Efficiency and Voluntary Action
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 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’. It is intended to address some of the limitations of the broader emissions trading scheme’. 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.
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. 
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:
Any consequences of failure to pass – The CPRS Bills as double dissolution triggers
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. As they apply to the current situation, two of the main procedural conditions are:
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. 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. 
The following table outlines the potential financial impact on the federal budget of the proposed scheme.
Source: Explanatory Memorandum
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. The overall project fiscal outcome after this redistribution is shown in the following table.
Source: Explanatory Memorandum
There are several key issues that emerge from the above background in respect of the proposed scheme. Briefly, they are:
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.
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.
Economic theory suggests that a government may control efficiently the price of emissions, or their quantity, but not both at the same time. 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:
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. 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.
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. 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. 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. 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. 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.
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.
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:
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.
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. 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.
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.
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 CO2e, or between 10 and 25 per cent reduction if a global agreement is achieved for a stabilisation target between 450 and 550 ppm CO2e.
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. 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.
Alternative views of Australia’s fair contribution
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. 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.
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.
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. 
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.
Table 5: Absolute and per capita emissions reduction targets for different countries and the EU with respect to 1990 levels
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. 
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:
Briefly the term carbon leakage refers to either:
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:
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
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.
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. 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. 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.
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:
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.
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).
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. However, there are currently no entities that import or manufacture more than the liability threshold of 25,000 tonnes CO2e of synthetic greenhouse gases.
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:
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.
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?’
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:
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.
There have been various concerns expressed about allowing credits for reforestation activities, including that
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). 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.
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. 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.
Agriculture represented about 16 per cent of Australia’s net greenhouse gas emissions in 2006, making it the second largest emissions sector. 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.
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.
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, 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.
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. 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. The Government is also considering coverage of the sector through upstream (indirect) liability or a combination of upstream and downstream liability.
Table 6: Farm numbers and emissions coverage for various emissions thresholds in the agricultural sector
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.
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.
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.  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). 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.
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. 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. 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. 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’. 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.
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 changes also included a commitment to GreenPower purchases after 2009 when setting the annual emissions caps.
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. 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.
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.
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. 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:
Australia is aiming to reduce its GHG emissions on either of the following bases:
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. 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:
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).
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 (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:
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:
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:
For a manufacturer the ‘netted out number’ under subclause 27(7) is:
The above definitions of ‘netted out numbers’ do not address situations where:
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 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:
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. 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’:
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:
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. 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. 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 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. 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:
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:
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’. 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:
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:
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.
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 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:
Additional criteria for being granted these certificates are:
Subclause 181(3) provides that power generation projects that:
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:
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:
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. 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:
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.
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:
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:
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:
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 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).
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:
These latter two terms are not elsewhere defined in the Bill. However the Explanatory Memorandum notes that:
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:
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). 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).
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:
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. 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:
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:
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).
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:
In addition, the Authority is required to publish additional information, including:
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.
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. 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 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:
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:
© Copyright Commonwealth of Australia
. 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.
. 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.
. 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.
. 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.
. DCC, ‘National greenhouse gas inventory – Kyoto Protocol accounting framework’.
. 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.
. 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.
. L Neilsen and others, Carbon Pollution Reduction Scheme Bill 2009, Bills Digest, no. 165, 2008-9, Parliamentary Library Canberra, viewed 28 October 2009, http://www.aph.gov.au/Library/pubs/bd/2008-09/09bd165.pdf
. S Weart, ‘The discovery of global warming: the carbon dioxide greenhouse effect’, American Institute of Physics website, June 2008, viewed 8 April 2009, http://www.aip.org/history/climate/co2.htm#survey.
. Intergovernmental Panel on Climate Change (IPCC), Climate change 2007: the physical science basis, Cambridge University Press, Cambridge and New York, 2007, pp. 5–9.
. J Styles, Climate change: the case for action, Research 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.
. For a
short history of the IPCC see: WMO/UNEP, ‘Intergovernmental Panel on Climate
Change—16 years of scientific assessment in support of the climate convention’,
IPCC website, December 2004, viewed 8 April 2009,
. R Garnaut, The Garnaut climate change review: final report, Cambridge University Press, Cambridge, 2008, p. 65.
. New Zealand Government, ‘International examples of emissions trading’, New Zealand’s climate change solutions website, viewed 29 May 2009, http://www.climatechange.govt.nz/emissions-trading-scheme/international-examples.html.
. 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’, New Zealand’s climate change solutions website, viewed 29 May 2009, http://www.climatechange.govt.nz/emissions-trading-scheme/regulations.html.
. A Tuerk & H Kimura, ‘Emerging Japanese emissions trading schemes and prospects for linking’, Institute for Global Environmental Strategies, October 2008, viewed 5 June 2009, http://www.indiaenvironmentportal.org.in/content/emerging-japanese-emissions-trading-schemes-and-prospects-linking.
. 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 .
. 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.
. See ‘International comparisons’ below, p. 49.
. 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.
. J Fitzgibbon (Shadow Minister for Mining, Energy and Forestry), Labor’s plan for a secure, affordable and sustainable energy future, ALP policy document, 7 October 2004, p. 5.
. K Rudd, P Garrett and C Bowen, Labor’s 2020 target for a renewable energy future, Election 2007 policy document, ALP, October 2007, viewed 8 April 2009, http://www.alp.org.au/download/now/071030_renewable_energy_policy____xx.pdf.
. C Evans, Labor’s plan for a stronger resources sector, Election 2007 policy document, ALP, October 2007, viewed 17 April 2009, http://www.alp.org.au/download/now/071122___labors_plan_for_a_stronger_resources_sector222_xx.pdf.
. Prime Ministerial Task Group on Emissions Trading, Report of the prime ministerial task group on emissions trading, Australian Government, Canberra, 31 May 2007, pp. 7 – 13.
. Liberal Party of Australia, Australia: strong prosperous and secure, National Progress, 12 October 2007, p. 27, viewed 8 April 2009, http://australianpolitics.com/elections/2007/liberal-policy/07-10-12_AustraliaStrongProsperousAndSecure.pdf.
. Garnaut Climate Change Review, Emissions Trading Scheme Discussion Paper, Canberra, March 2008, p. 10.
. National Emissions Trading Taskforce, Possible design for a national greenhouse gas emissions trading scheme: Final framework report on scheme design, December 2007.
. R Garnaut, The Garnaut climate change review: final report, p. xiii.
. Australian Government, Carbon Pollution Reduction Scheme – green paper, Canberra, July 2008.
. Australian Government, Australia’s low pollution future – the economics of climate change mitigation, Canberra, 30 October 2008.
. Australian Government, Carbon Pollution Reduction Scheme – Australia’s low pollution future – white paper, Canberra, 15 December 2008.
. Australian Government, Exposure Draft – Carbon Pollution Reduction Scheme Bill 2009, Canberra, 10 March 2009.
. K Rudd (Prime Minister), W Swan (Treasurer) and P Wong (Minister for Climate Change and Water), New measures for the carbon pollution reduction scheme, joint media release, Canberra, 4 May 2009.
. Australian Government, White paper, p. 4–23.
. 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.
. These are carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons
. International Energy Agency, CO2 emissions from fuel combustion, 2008 edition.
. Australian Government, White paper, p. 6–1.
. K Rudd (Prime Minister), W Swan (Treasurer) and P Wong (Minister for Climate Change and Water), Carbon pollution reduction scheme: Support in managing the impact of the global recession, joint media release, Canberra, 4 May 2009.
. ‘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 emissions intensity using a value added metric, viewed 12 June 2009, http://www.climatechange.gov.au/emissionstrading/publications/pubs/assessing-emissions-intensity.pdf
. The Hon. Greg Combet AM MP, Address to the Minerals Council of Australia Annual Minerals week Conference, Sydney, 27 May 2009, p 7 & 8, viewed 9 June 2009 http://www.climatechange.gov.au/minister/parl_secretary/speeches/pubs/minerals_council_of_australia_speech.pdf .
. Department of Climate Change (DCC), Assessment of activities for the purposes of the emissions–intensive trade–exposed assistance program: guidance paper, DCC, February 2009, viewed 25 May 2009, http://www.climatechange.gov.au/whitepaper/assistance/pubs/guidance_paper.pdf.
. 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.
. This is similar to the way in which the United Kingdom’s Carbon Trust operates.
. K Rudd (Prime Minister), W Swan (Treasurer) and P Wong (Minister for Climate Change and Water), Helping all Australians do their bit on climate change, joint media release, Canberra, 4 May 2009.
. K Rudd (Prime Minister) and M Ferguson (Minister for Resources, Energy and Tourism), Global carbon capture and storage initiative, media release, Canberra, 19 September 2008.
. See J Styles and A Talberg, ‘Budget 2009–10: climate change and energy’, Budget Review 2009–10, Parliamentary Library, Canberra, viewed 25 May 2009, http://www.aph.gov.au/Library/pubs/RP/BudgetReview2009-10/Climate_Energy.htm.
. S Yudhoyono (President Republic of Indonesia), K Rudd (Prime Minister of Australia), Australia Indonesia Joint Leaders Statement on Climate Change, media release, Jakarta, 13 June 2008, viewed 15 April 2009, http://www.pm.gov.au/media/release/2008/media_release_0315.cfm#carbon.
. J Breusch, ‘Business divided on climate change’, Australian financial review, 30 April 2009, p. 7.
. Senate Standing Committee on Economics, Exposure draft of the legislation to implement the Carbon Pollution Reduction Scheme, final report, April 2009, p. 10, viewed 3 June 2009, http://www.aph.gov.au/senate/committee/economics_ctte/cprs_09/report/report.pdf; Origin Energy, Origin supports Carbon Pollution Reduction Scheme, media release, 30 April 2009, viewed 1 May 2009, http://www.originenergy.com.au/news/article/asxmedia-releases/1018.
. Business Council of Australia, Australia needs the right emissions trading scheme, media release, 26 May 2009.
. Greig Gaiely, President of the Business Council of Australia, Federal government announcement regarding changes to the proposed carbon pollution reduction scheme, media release, Melbourne, 4 May 2009.
. Australian Industry Group, Ai Group welcomes changes to CPRS, media release, Canberra, 4 May 2009.
. Australian Industry Group, Submission to Senate Economics Committee, Inquiry into the exposure drafts of legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 26 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub90.pdf.
. Australian Industry Group, We need to work to get the best emissions trading scheme possible, media release, 26 May 2009.
. Australian Chamber of Commerce and Industry, Carbon Emissions: Delay helpful but more work needed on costs, media release, Canberra, 4 May 2009.
. Australian Chamber of Commerce and Industry, ACCI Submission to Senate Standing Committee on Economics Inquiry into CPRS draft legislation, Canberra, March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub124.pdf.
. ‘Business Reaction to CPRS delay’, ABC Radio National, Australian Broadcasting Corporation, 28 May 2009, viewed 2 June 2009, http://www.abc.net.au/rn/breakfast/stories/2009/2582792.htm.
. ‘ETS delayed’, ABC Radio National, Australian Broadcasting Corporation, 5 May 2009, viewed 2 June 2009, http://www.abc.net.au/rn/breakfast/stories/2009/2560831.htm.
. Minerals Council of Australia, Senate Economics Committee Inquiry Carbon Pollution Reduction Scheme Bill 2009 and associated legislation, Submission, March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub69.pdf.
. Minerals Council of Australia, ‘23,510 jobs lost in the minerals industry by 2020 under emissions scheme’, media release, 22 May 2009.
. Australian Coal Association, Submission to the Senate Economics Committee, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 25 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub106.pdf .
. Australian Coal Industry Association, CPRS changes positive but leave Australia’s largest export out in the cold, media release, 4 May 2009.
. Australian Institute of Petroleum, Submission to the Senate Economics Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 27 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub115.pdf.
. Australian Petroleum Production and Exploration Association, Submission to the Senate Standing Committee on Economics Inquiry into the Exposure Drafts of the legislation to implement the Carbon Pollution Reduction Scheme, March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub111.pdf.
. Australian Petroleum Production & Exploration Association Limited, Progress made on CPRS – changes still required to deliver significant results, media release, Canberra, 4 May 2009.
. Australian Bankers Association, Submission to the Senate Standing Committee on Economics, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 26 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub107.pdf .
. Australian Bankers Association, ABA comments on Federal Government’s changes to the proposed Carbon Pollution Reduction Scheme, media release, Sydney, 4 May 2009.
. Energy Supply Association of Australia, Submission to the Senate Standing Committee on Economics, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 23 March 2009, viewed 16 April 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub21.pdf.
. Australian Pipeline Industry Association, Submission to the Senate Standing Committee on Economics, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 26 March 2009, viewed 16 April 2009 http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub06.pdf.
. Australian Aluminium Council, Submission to the Senate Standing Committee on Economics, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 26 March 2009, viewed 16 April 2009http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub59.pdf.
. Cement Industry Federation, Submission to the Senate Standing Committee on Economics, Inquiry into the exposure drafts of the legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 19 March 2009, viewed 16 April 2009 http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub14.pdf.
Plantation Products and Paper Industry Council, Submission to the Senate
Standing Committee on Economics, Inquiry into the exposure drafts of the
legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 26
March 2009, viewed
. Australian Landfill Owners Association, Inquiry into the CPRS Exposure Draft Legislation, Submission prepared by the Australian Land Fill Owners Association, 2009 viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub50.pdf.
. H. Rideout, CPRS landfill waste changes a victory for common cause, media release, Australian Industry Group, 14 May 2009; J Breusch, ‘Government compromises on landfill emissions’, Australian Financial Review, 15 May 2009, p. 4.
. The Southern Cross Climate Coalition consists of the Australian Council of Social Service, Australian Council of Trade Unions, the Climate Institute, and the Australian Conservation Foundation. See WWF–Australia, Time to move on climate action and the low carbon economic recovery, media release, Sydney, 4 May 2009, viewed 9 June 2009, http://wwf.org.au/news/time-to-move-on-climate-action/.
. Nature Conservation Council of NSW, Joint statement to Prime Minister Kevin Rudd about the Carbon Pollution Reduction Scheme amendments, 5 May 2009, viewed 9 June 2009, http://nccnsw.org.au/index.php?option=com_content&task=view&id=2798&Itemid=646; Greenpeace, ETS still off target, media release, 4 May 2009, viewed 9 June 2009, http://www.greenpeace.org/australia/news-and-events/media/releases/climate-change/ets-still-off-target.
. Total Environment Centre, Submission to Senate Economics Committee: Inquiry into the exposure drafts of legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 25 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub79.pdf.
. Australian Conservation Foundation, Submission to Senate Standing Committee on Economics: Inquiry into the exposure drafts of legislation to implement the Carbon Pollution Reduction Scheme, Canberra, 25 March 2009, viewed 16 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub141.pdf.
. O Pascoe (Australian Conservation Foundation), Testimony before the Senate Standing Committee on Economics, Inquiry into the exposure drafts of legislation to implement the Carbon Pollution Reduction Scheme, Proof Committee Hansard, 24 March 2009, p 46. The reasons for this are that ACF view the targeted emissions reductions are too small, the number of free permits as excessive and the support for renewable energy and voluntary action as inadequate.
. Australian Conservation Foundation, Coalition climate targets are welcome, proposed delay is not, media release, 26 May 2009.
. Climate Institute, Regional Australia is clean energy jobs winner, media release, 25 May 2009, viewed 28 May 2009, http://www.climateinstitute.org.au/index.php?option=com_content&view=article&catid=39:media-releases&id=434:regional-australia-is-clean-energy-jobs-winnier&Itemid=36.
. The Climate Institute, Submission to the Senate Economics Committee, – Inquiry into the Exposure Draft Legislation to Implement the Carbon Pollution Reduction Scheme, Canberra, March 2009, viewed 17 April 2009, http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/submissions/sub105.pdf.
. The M Turnbull MP, Leader of the Opposition, ‘Colation Plan to Save Jobs and Reduce Costs’, media release, 18 October 2009, http://www.liberal.org.au/news.php?Id=3975 , viewed 26 October 2009
. Senator O’Brien, Selection of Bills Committee Report No. 15 of 2009, Senate, Debates, 17 September 2009, p. 6913
. Appendix, Selection of Bills Committee Report No. 15 of 2009.
. Section 57 in part provides: ‘If the House of Representatives passes any proposed law, and the Senate rejects or fails to pass it, or passes it with amendments to which the House of Representatives will not agree, and if after an interval of three months the House 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 Representatives by effluxion of time.’
. Note that only one Bill is required to form the double dissolution trigger.
. This issue of requiring the text of the Bills to be the same (‘textual identity’) is explored in more depth in K Magarey, Alcopops makes the House see double: 'the proposed law' in section 57 of the Constitution Research paper, no. 32, 2008–09, Parliamentary Library, Canberra, 2009, viewed 20 October 2009 http://www.aph.gov.au/Library/pubs/rp/2008-09/09rp32.pdf. 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.
. See http://www.climatechange.gov.au/en/minister/wong/2009/transcripts/October/tr20091019.aspx, viewed 20 October 2009.
. See further Anthony Green, ‘An Early Double Dissolution?’, ABC Elections, May 14 2009, viewed 10 June 2009, http://blogs.abc.net.au/antonygreen/2009/05/by-announcing-i.html;
Rob Lundie, Australian elections timetable, Background Note, 4 June 2008,Parliamentary Library, 2008, viewed 10 June 2009, http://www.aph.gov.au/Library/pubs/BN/2008-09/Aust_elections.pdf.
. Australian Government, Explanatory Memorandum to the Carbon Pollution Reduction Scheme Bill 2009 (hereafter ‘Explanatory Memorandum’), 15 May 2009, p. 24.
. Explanatory Memorandum, p. 23.
. For example, in Europe the first trading period for the European Emissions Trading Scheme saw unexpected reductions in carbon dioxide emissions in Eastern Europe by the simple expedient of using hard black coal in power stations that were previously fired by brown coal. Nobody saw this coming!
. Concrete evidence for this particular claim is scant. See DM Driesen, ‘Does Emissions Trading Encourage Innovation?’, Environmental Law Reporter, Vol. 32, January 2003. However, it is early days yet for most cap and trade schemes and early emissions reductions are likely to be due to changes in operations and fuel switching as much as from more costly technical innovation. The alternative argument is that over time, the economic incentives could be hoped to lead to the development of such measures.
. L Nielson, Emissions – Who is trading what?
. M Weitzman, ‘Prices vs Quantities’, The Review of Economic Studies, Vol. 41, Issue 4, October 1974, pp. 477–491.
. The proposed Canadian emissions trading scheme is the only potential example of an emissions intensity based trading scheme on a national scale. See Canadian Government, Environment Canada, Turning the Corner – Regulatory Framework for Industrial Greenhouse Gas Emissions, March 2008. For a briefing on the proposed Canadian Emissions Trading Scheme see Parliamentary Library, Climate Change Website, Governance and Policy, Foreign Government Action, Canadian Emissions Trading Scheme, viewed 14 April 2009, http://www.aph.gov.au/library/pubs/ClimateChange/governance/foreign/canadian.htm.
. W McKibbin and P Wilcoxen, ‘Building on Kyoto: Towards a realistic climate change agreement’, Working Paper 13/2008, Australian National University Centre for Applied Macro Economic Analysis, June 2008.
. An example of the baseline and credit approach is the NSW Greenhouse Gas Abatement Scheme. This scheme will cease trading operation when the proposed CPRS commences.
. For a short summary of existing and proposed schemes see L Nielson, Emissions – Who is trading what?, background note, Parliamentary Library, Canberra, 15 August 2008, viewed 8 April 2009, http://www.aph.gov.au/library/pubs/BN/2008-09/emissions.htm. There have been further developments since this paper was written. For example the new American President has requested that Congress forward cap and trade emissions trading legislation for his consideration. Drafts of such legislation are now being considered by the US Congress.
. K Rudd (Prime Minister), W Swan (Treasurer) and P Wong (Minister for Climate Change and Water), A new target for reducing Australia’s carbon pollution, media release, Canberra, 4 May 2009.
. K Rudd (Prime Minister), W Swan (Treasurer) and P Wong (Minister for Climate Change and Water), A new target for reducing Australia’s carbon pollution.
. IPCC, Climate change 2007: mitigation of climate change, Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, 2007, p. 229.
. IPCC, Climate change 2007: mitigation of climate change, p. 230; R Garnaut, The Garnaut Climate Change Review: final report, p. 102; J Styles, Climate change: the case for action.
. Ad Hoc Working Group on Long–Term Cooperative Action Under the Convention, Fulfilment of the Bali Action Plan and components of the agreed outcome, United Nations Framework Convention on Climate Change, 18 March 2009, viewed 6 May 2009, http://unfccc.int/resource/docs/2009/awglca5/eng/04p02.pdf.
. R Garnaut, The Garnaut climate change review: final report, p. 43.
. IPCC, Climate change 2007: mitigation of climate change, p. 102.
. R Garnaut, The Garnaut Climate Change Review: final report, p. 102.
. P Wong (Minister for Climate Change and Water), China and Australia: shared interests in finding a solution to climate change, Speech to the Australia–China Climate Change Forum, the Australian National University, Canberra, 15 April 2009.
. Australian Government, White Paper, p. 4–6.
. R Garnaut, The Garnaut Climate Change Review: final report, pp. 278–279.
. R Garnaut, The Garnaut Climate Change Review: final report, pp. 279–283.
. R Garnaut, The Garnaut Climate Change Review: final report, p. 209.
. A Morton, ‘China slams Rudd’s climate “u–turn”’, Age, 16 May 2009, viewed 26 May 2009, http://parlinfo.aph.gov.au/parlInfo/download/media/pressclp/KXKT6/upload_binary/kxkt60.pdf; C Milne, China exposes Rudd’s 25% climate fig leaf, media release, 16 May 2009.
. Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol, A proposal for amendments to the Kyoto Protocol pursuant to its Article 3, paragraph 9, UNFCCC, 14 May 2009, viewed 26 May 2009, http://unfccc.int/resource/docs/2009/awg8/eng/07.pdf.
. Australian Government, Economic cost as an indicator of comparable effort, Submission to the AWG–KP and AWG–LCA, March 2009, viewed 26 May 2009, http://www.climatechange.gov.au/international/publications/Australia_Economic-Cost.pdf; Australian Government, Australia’s national ambition, Submission to the AWG–LCA and AWG–KP, March 2009, viewed 26 May 2009, http://www.climatechange.gov.au/international/publications/australian_national_ambition.pdf.
. R Garnaut, The Garnaut Climate Change Review: final report, pp. 209–210.
European Commission, European Environment Agency Website, EU action against
climate change – leading global action to 2020 and beyond, brochure, 2008,
viewed 20 April 2009, http://ec.europa.eu/environment/climat/pdf/brochures/post_2012_en.pdf;
UK: HM Treasury, Budget 2009: Building Britain’s future, 22 April 2009,
UK Government, p. 8, viewed 30 April 2009,
. Points sourced from J Reinaud, International Energy Agency, ‘Issues behind competitiveness and carbon leakage – Focus on heavy industry’, IEA Information Paper, October 2008, p. 43 and following; J P M Sijm, O J Kuik, M Patel, V Oikonomou, E Worrell, P Lako, E Annevelink, G J Nabuurs and H W Elbersen, ‘Spillovers of Climate Policy – An assessment of the incidence of carbon leakage and induced technological change due to CO2 abatement measures’, Netherlands Research Program on Climate Change, Report 500036 002, December 2004, Appendix C, p. 160.
. Australian Government, White paper, pp. 169–170.
. The Climate Institute, Clearing the Air – Clean energy investments to power a low carbon future – and the myths polluters sue to stall progress, Sydney, December 2008, p. 12, viewed 1 June 2009, http://www.climateinstitute.org.au/images/clearingtheair.pdf.
. Paul Gravey, ‘Minimum impact on the worst polluters’, Australian Financial Review, 17 December 2008, p. 5.
. R Garnaut, Garnaut Climate Change Review: final report, p. 497; Additional discussion of this topic can be found in L Nielson, What makes a carbon leak?, Background Note, Parliamentary Library, Canberra, 23 December 2008, viewed 7 April 2009, http://www.aph.gov.au/library/pubs/BN/2008-09/carbonleaking.htm.
. Australian Government, Department of Climate Change, Assessment of activities for the purposes of emissions-intensive trade-exposed assistance program; Guidance Paper, Canberra, February 2009, p. 8 and additional material on Department of Climate Change website.
. European Commission, Questions and Answers on the revised EU Emissions Trading System, media release, MEMO/08/796, Brussels, 17 December 2008.
. The Waxman–Markey bill. which, while not yet passed, is also known in the US as the American Clean Energy and Security Act of 2009, Sections 782, 765, 767, 764; J Styles, The US Waxman–Markey climate change bill, Background note, 2008–09, Parliamentary Library, Canberra, 2009, viewed 15 June 2009, http://www.aph.gov.au/Library/pubs/BN/2008-09/ClimateChangeBill.pdf.
. Department of Climate Change, National Greenhouse Gas Inventory, 2006, June 2008.
. Australian Government, White paper, December 2008, p. 6–43.
. UNFCCC, Ad Hoc Working Group on Further Commitments from Annex I Parties under the Kyoto Protocol (AWG–KP), ‘Compilation of technical information on the new greenhouse gases and groups of greenhouse gases included in the Fourth Assessment Report of the Intergovernmental Panel on Climate Change’, viewed 7 May 2009, http://unfccc.int/national_reports/annex_i_ghg_inventories/items/4624.php; Australian Government, View on the coverage of greenhouse gases and other relevant methodological issues, Submission to the AWG–LCA and AWG–KP, November 2008, viewed 12 June 2009, http://www.climatechange.gov.au/international/pubs/081121-gases.pdf.
. L Nielson, ‘Tax deductible carbon sink forests?’, Research paper, No. 4, 2008–09, viewed 11 May 2009, http://www.aph.gov.au/library/pubs/rp/2008-09/09rp04.pdf.
. Australian Government, White paper, p. 6–48.
. Australian Government, ‘Section 6.13: Reforestation, Chapter 6: Coverage’, Carbon Pollution Reduction Scheme: Australia’s low pollution future, White Paper, December 2008, p. 6–46.
. K Burns, J Vedi, E Heyhoe and H Ahammad, Opportunities for forestry under the Carbon Pollution Reduction Scheme (CPRS): an examination of some key factors, Australian Bureau of Agricultural and Resource Economics, March 2009, viewed 12 May 2009, http://www.abare.gov.au/publications_html/ins/insights_09/a1.pdf.
. P Cosier, Wentworth Group of Concerned Scientists, Testimony before the Senate Select Committee on Climate Policy, Reference: Emissions trading and reducing carbon pollution, Proof Committee Hansard, 15 April 2009, p. CP74.
. Department of Climate Change, National greenhouse gas inventory 2006.
. Australian Government, White paper, p. 6–61.
. Department of Climate Change, National greenhouse gas inventory 2006.
. Department of Climate Change, Agenda paper: options for coverage of agriculture, Emissions trading stakeholder roundtable, Canberra, 5 June 2008, viewed 11 May 2008, http://www.climatechange.gov.au/emissionstrading/consultation/pubs/ets-roundtable4-paper2a-agriculture.pdf.
. Australian Government, White paper, p. 6–46.
. See IPCC, ‘Chapter 8: Agriculture’, Climate change 2007: mitigation of climate change, Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, 2007; United Nations Framework Convention on Climate Change, Challenges and opportunities for mitigation in the agricultural sector, Technical Paper, 21 November 2008, p. 5, viewed 11 May 2009, http://unfccc.int/resource/docs/2008/tp/08.pdf ; McKinsey and Company, An Australian cost curve for greenhouse gas reduction, February 2008.
. P Cosier, Wentworth Group of Concerned Scientists, Testimony before the Senate Select Committee on Climate Policy, Reference: Emissions trading and reducing carbon pollution, Proof Committee Hansard, 15 April 2009, p. CP74.
. Department of Climate Change, Agenda paper: options for coverage of agriculture, p. 3.
. Department of Climate Change, Agenda paper: options for coverage of agriculture, p. 3.
. Department of Climate Change, Agenda paper: options for coverage of agriculture.
. B Fargher, National Farmers Federation, Testimony before the Senate Select Committee on Climate Policy, Reference: Emissions trading and reducing carbon pollution, Proof Committee Hansard, 15 April 2009, p. CP3.
. 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; VCMA, CPRS can readily accommodate voluntary action, media release, 3 May 2009, viewed 12 June 2009, http://www.vcma.org.au/?p=217.
Government, ‘Section 6.15: Offsets, Chapter 6: Coverage’, Carbon Pollution
Reduction Scheme: Australia’s Low Pollution Future – White Paper, December
2008, viewed 1 June 2009, http://www.climatechange.gov.au/whitepaper/report/index.html,
. See Tropical Savannas Cooperative Research Centre, ‘The West Arnhem Land Fire Abatement Project (WALFA)’, viewed 11 May 2009, http://savanna.cdu.edu.au/information/arnhem_fire_project.html; and CSIRO, ‘Carbon dynamics in Australia’s tropical north’, viewed 11 May 2009, http://www.csiro.au/science/SavannaCarbonDynamics.html.
. Explanatory Memorandum, Carbon Pollution Reduction Scheme Bill 2009, p. 89.
. See R. Webb, S. Kompo–Harms and J. Styles, Appropriation (Nation Building and Jobs) Bill (No. 1) 2008–09, Bills Digest, no. 95, Parliamentary Library, Canberra, 2009, viewed 10 June 2009, http://www.aph.gov.au/library/pubs/bd/2008-09/09bd095.pdf.
. 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, No. 59, The Australia Institute, November 2008, viewed 10 June 2009, https://www.tai.org.au/file.php?file=fixing_the_floor_in_the_ets.pdf.
. Part 2, clause 14(5)(c)(iv).
. Senate Standing Committee on Economics, Exposure draft of the legislation to implement the Carbon Pollution Reduction Scheme, April 2009, Recommendation 4, pp. 73–74.
. P Wong (Minister for Climate Change and Water), Public consultation on voluntary action, media release, 7 June 2009, viewed 9 June 2009, http://www.environment.gov.au/minister/wong/2009/mr20090607.html.
. 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 Memorandum, pp. 80–81.
. 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).
. Council of Australian Governments, National strategy on energy efficiency 20092020: Memorandum of Understanding, 30 April 2009, viewed 6 May 2009, http://www.coag.gov.au/coag_meeting_outcomes/2009-04-30/docs/National_strategy_energy_efficiency_MOU.pdf.
. Senate Standing Committee on Economics, Exposure draft of the legislation to implement the Carbon Pollution Reduction Scheme, April 2009, Recommendation 3, p. 73.
. R Taylor, Australia’s Greens want import limits on CO2 offsets, Reuters, 18 March 2009.
. During the financial year commencing on 1 July 2001 an unlimited number of AEUs will be sold at a price of $10 per unit.
. The term ‘carbon price’ is not otherwise defined but may be assumed to be the price of an Australian Emissions Unit.
. It should be noted that such regulation would be disallowable by either House of Parliament in accordance with the Legislative Instruments Act 2003.
. 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.
. 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.
. These changes will be effected by the Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009.
. This is referred to as the Category A transfer test.
. This is referred to as the Category B transfer test.
. Explanatory Memorandum, paragraph 1.254, p. 68.
. 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.
. The ‘national scheme cap number’ is defined in clause 14.
. For more information on the Kyoto Protocol accounting methods see A Talberg, The Kyoto Protocol accounting rules, Background Note, Canberra, 21 January 2009, viewed 22 April 2009, http://www.aph.gov.au/library/pubs/BN/2008-09/KyotoAccRules.htm.
. See P Wong (Minister for Climate Change and Water), Building confidence towards and effective global climate change agreement – an Australian perspective, Address to the Peace Institute, New York - USA, 27 March 2009, viewed 22 April 2009, http://www.environment.gov.au/minister/wong/2009/sp20090327.html.
. Legislative Instruments Act 2003, Section 42.
. Extendable to 210 days in certain circumstances under subclause 177(8).
. Paragraph 181(3)(b) sets out the matters to be considered in determining whether a project was ‘fully committed’.
. G Combet, ‘Second Reading Speech: Carbon Pollution Reduction Scheme Bill 2009’ Senate, Debates, 14 May 2009, p. 3865.
. 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.
. Clause 240 contains the definition of ‘carbon sequestration right’.
. Supplementary Explanatory Memorandum, Carbon Pollution Reduction Scheme Bill 2009, p. 5.
. 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.
. Explanatory Memorandum, paragraph 6.75, p. 174.
. Supplementary Explanatory Memorandum, Carbon Pollution Reduction Scheme Bil 2009l, pp. 15-16.
. Crown land that is Torrens system land would be covered by subclauses 240(1)-(3).
. Crown land that is Torrens system land would be covered by subclauses 241(1)-(2).
. Supplementary Explanatory Memorandum, Carbon Pollution Reduction Scheme Bill, p. 19, paragraph 1.14.
. United Nations Environment Project (UNEP), ‘Capacity Development for Clean Development Mechanism (CD4CDM) and EcoSecurities BV’, Guidebook to financing CDM projects, UNEP RISOE Centre, Denmark, 2007, p. 77, viewed 23 March 2009, http://www.cd4cdm.org/Publications/FinanceCDMprojectsGuidebook.pdf.
. 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 Library, Canberra, 20 August 2008, viewed 1 May 2009, http://www.aph.gov.au/library/pubs/rp/2008-09/09rp03.pdf.
. Explanatory Memorandum, paragraph 9.19, p. 216.