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Sustainability Insight

May 2009

Carbon Pollution Reduction Scheme – delay and other important changes

On 4 May 2009 the Federal Government delayed the introduction of the Carbon Pollution Reduction Scheme (CPRS) until 1 July 2011 due to the impacts of the global recession and announced significant changes to the CPRS. We summarise these changes to the CPRS below.

Delay to the CPRS start date

The CPRS will now commence on 1 July 2011 instead of 1 July 2010 in a bid to manage the ongoing impacts of the global recession. This means that liable entities will only have to surrender carbon permits (known as Australian Emissions Units (AEUs)) by December 2012 for their direct greenhouse gas emissions during the 2011/12 financial year. The covered sectors remain the same as outlined in the White Paper and the draft legislation.

Fixed price AEUs for first year

A one year fixed AEU price will apply from 1 July 2011 to 30 June 2012, with each AEU costing $10 (for a tonne of CO2e) instead of the previously anticipated cost of $25/t CO2e. These AEUs can only be surrendered for emissions during the 2011/12 financial year.

Extra assistance for Emissions-Intensive Trade-Exposed industries

Adjustments to the assistance program for entities undertaking Emissions-Intensive Trade-Exposed (EITE) activities have been announced.

As reported in our Sustainability Insight last December (link), assistance by way of free AEUs is to be provided to cover either 90% or 60% of emissions of EITE industries (depending upon the baseline of emissions per unit of output for the relevant EITE activity).

Extra EITE assistance will be provided with a Global Recession Buffer (GRB) applying to the EITE allocation baselines at a rate of:

• 5% for EITE activities receiving the 90% assistance rate; and
• 10% for EITE activities receiving the 60% assistance rate.

For example, for ‘Activity A’ which is eligible to receive assistance at the 90% rate, the free AEU (per unit of output) incorporating an extra 5% GRB will be:

Industry average emissions baseline for ‘Activity A’ x GRB of 1.05 x Assistance rate of 0.9

The GRB will operate for the first 5 years of the CPRS. Its future extension will be considered as part of the EITE assistance review for the first 5 years of the CPRS. The rate of EITE assistance will still decline at 1.3% annually as set out in the White Paper.

Increased reduction target for 2020 if global agreement reached

The Government will increase the upper limit of the emissions reduction target for 2020 from a reduction of 15% from 2000 levels announced in the White Paper to a reduction of 25% from 2000 levels if the world agrees to stabilise levels of CO2e at 450 parts per million.

The world agreement (to be discussed and scheduled to be determined at international negotiations in Copenhagen in December this year) must meet the following conditions in order for the 25% reduction target to be adopted under the CPRS:

• comprehensive coverage of gases, sources and sectors including the forest and land sectors;
• a clear global trajectory, where the sum of all economies’ commitments is to stabilise emissions of CO2e at 450 parts per million or lower and with a nominated early deadline year for peak global emissions no later than 2020;
• advanced economy reductions of at least 25% below 1990 levels by 2020;
• major developing economies committing to slow growth and then reduce their absolute levels of emissions over time, with a collective reduction of at least 20% below business-as-usual by 2020 and a nominated peak year for individual major developing economies; and
• global action which mobilises greater financial resources, including from major developing economies, and results in fully functional global carbon markets.

Up to 5 percentage points of the 25% reduction target could be met by Government purchase of international credits, such as avoided deforestation credits, using CPRS revenue no earlier than 2015.

Funds allocated to energy efficiency from the Climate Change Action Fund

The Government announced the allocation of $200 million of the Climate Change Action Fund (CCAF) for 2009/10 and an increase in the total CCAF funding of $300 million over the life of the CCAF. The funds in the CCAF will now total $2.75 billion over the period from 2008/09 to 2014/15 (which may be extended to 2015/16 due to the delayed commencement of the CPRS). The CCAF is designed to assist in smoothing the transition for businesses and others to an environment that includes a price on carbon.

The $200 million allocated to the CCAF for 2009/10 is targeted at reducing carbon pollution through energy efficiency before the CPRS commences and includes:

• $20 million for business information packages to advise businesses on how the CPRS will work and what impacts and opportunities may arise. This will be targeted at businesses that fall below the EITE assistance thresholds;
• up to $100 million for Early Action Energy Efficiency Strategies for Businesses, including energy audits and capital investment. An energy costs threshold will be set for entitlement to this assistance. A component of this assistance will be available to all entities that meet the threshold. The balance of this assistance will be provided to large energy users that meet the National Greenhouse and Energy Reporting Scheme thresholds but are not eligible for EITE assistance or support under the Electricity Sector Adjustment Scheme; and
• $80 million for capital investment grants.

Establishment of the Australian Carbon Trust and adjustment of CPRS caps for GreenPower take up

The Australian Carbon Trust (ACT) will be established to support individual action by households and businesses in reducing their emissions. The ACT will incorporate the following:

• an Energy Efficiency Savings Pledge Fund - to enable individuals and small businesses to calculate their energy use, pledge savings from the installation of energy efficiency devices or donations to the fund and for the fund to buy and retire AEUs under the CPRS. This will mean that less AEUs will be available for purchase by liable entities; and
• an Energy Efficiency Trust – to provide funding to businesses to become energy efficient. The Government will provide $50 million in seed funding. The trust would cover capital costs of undertaking energy efficiency measures and put in place arrangements for the repayment of the capital costs as energy cost savings are achieved.

The Government will also take GreenPower purchases above 2009 levels into account in setting the CPRS scheme caps. Any additional GreenPower purchases will be measured annually and used to set caps 5 years in advance. For example, the 2016/17 cap (being the first cap to be set after the caps have been set for the first 5 years of the CPRS) will be tightened to reflect the difference between 2009 and 2011 GreenPower sales, multiplied by a factor to reflect the emissions saved.

Keeping you informed

The Government is committed to introducing the draft legislation (incorporating these recent changes) when Parliament resumes later this month, with the aim of the having the legislation passed in June 2009. We will continue to provide you with information on any significant developments regarding the CPRS.