On 17 March 2008, the Minister for Climate Change issued the Federal Government’s first detailed timetable for the introduction of a greenhouse gas emissions trading scheme in Australia.
The timetable contains the following milestones.
| March–June 2008 |
Phase 1 consultation with government and industry stakeholders to inform the development of a Green Paper on emissions trading scheme (ETS) design |
| July 2008 |
Public release of the Green Paper on ETS design |
| July–September 2008 |
Phase 2 consultations on the Green Paper |
| December 2008 |
Public release of exposure draft of legislative package |
| December 2008–February 2009 |
Phase 3 consultation on the exposure draft legislative package |
| End 2008 |
Firm indication of the planned medium term emissions trajectory for the ETS |
| March 2009 |
Bill for an ETS to be introduced into Parliament |
| Mid-2009 |
Passage of the Bill for an ETS |
| During 2009 |
Phase 4 consultation on emissions trading regulations |
| 3rd quarter 2009 |
Act enters into force and ETS regulator established |
| 2010 |
ETS will commence |
On 20 March 2008, Professor Ross Garnaut released his Emissions Trading Scheme Discussion Paper. The Discussion Paper contained numerous recommendations, some consistent with those previously made by the Prime Minister’s Task Group on Emissions Trading and by the National Emissions Trading Taskforce, but some significantly different. The following are some of the major recommendations.
Emissions limit
The Discussion Paper proposes that, in the period 2010–2012, the emissions limit should be based on Australia’s obligations under the Kyoto Protocol, which requires that greenhouse gas emissions be kept to within 108 per cent of 1990 levels (Trajectory A).
For the following period, the Discussion Paper suggests three alternative, successively more ambitious emissions limits (Trajectories B–D).
Trajectory B would be equivalent to the average of other developed countries based on existing commitments. Trajectory C would be consistent with the government’s stated objective of achieving 60 per cent emissions reductions compared to 2000 levels by 2050. Trajectory D would be adopted only in the context of a comprehensive global agreement (including developing nations) and would be consistent with stabilisation at between 450 and 550 parts per million of carbon dioxide equivalent. The Discussion Paper does not suggest actual figures, but Professor Garnaut’s Interim Report of February 2008 suggested that to achieve these outcomes, reductions by 2050 compared to 2000 levels of 70 per cent (for 550 parts per million) to 90% (for 450 parts per million) would be required.
The Discussion Paper recommends that a move from one trajectory to a more ambitious one occur only in the context of appropriate international developments (and not developments in the science alone) and would require the government to give scheme participants five years’ notice (which may require the government to purchase offsets internationally in the meantime, if international obligations dictated a faster move to that trajectory).
Scheme administration
Policy framework, including emissions limits, are to be set by the government. Other aspects to be administered by an Independent Carbon Bank modelled on the Reserve Bank.
Scheme coverage
All six recognised classes of greenhouse gases, and as far as possible all sectors, with stationary energy, industrial processes, fugitive emissions, transport and waste included from the outset, and agriculture and forestry to be included as soon as practicable.
Offsets
Unlimited use of domestic offsets permitted, but these will probably have a small role given the extensive scheme coverage. Limited use of international offsets (including in particular credits from the Clean Development Mechanism of the Kyoto Protocol).
Point of obligation
Liability for acquiring emissions permits would be set at the point of emission wherever practicable, but would be set either upstream or downstream as appropriate in cases where that is not practicable (for example, in the case of transport-based emissions).
Permit issuance
Permits would be issued frequently (perhaps quarterly or even monthly) so as to assist price discovery and avoid ‘bumps’ in the market. Subject to the following point, all permits would be auctioned (contrary to previous proposals which foreshadowed free allocation of at least some permits).
Use of auction revenues
The revenue from permit auctioning would be used to compensate households, industries and regions that suffer disproportionately from the introduction of the scheme. As a special case, trade-exposed emissions-intensive industries would continue to receive a high level of compensation (possibly in the form of free permits) for as long as relevant international competitors are not subject to a comparable carbon price signal.
In addition, auction revenue could be used to subsidise public infrastructure (in particular, public transport) and as a reserve to purchase international permits or offsets if the proposed five year notice period for switching emissions trajectories sees Australia’s domestic targets temporarily out of alignment with its international obligations.
Intertemporality
Unlimited hoarding or ‘banking’ of permits would be permitted. Borrowing against future permit allocations would be permitted subject to constraints on quantities and times set by the Independent Carbon Bank.
Penalties
Payment of the penalty for emitting without holding sufficient emissions permits would not discharge the obligation to acquire those permits. The penalty would be high and would not act as a carbon-price ceiling (contrary to the recommendations of the Prime Minister’s Task Group on Emissions Trading).
International linkages
Linkages with overseas emissions trading schemes should be sought in a ‘judicious and calibrated manner’, balancing the economic advantages of a wider emissions permits market against the disadvantages of effectively importing the design deficiencies, and the carbon price, of overseas schemes. Because the European Union’s emissions trading scheme has limited support for forestry-based emissions abatement, Australia should consider building a regional trading market including New Zealand, Papua New Guinea and Indonesia. In the case of credits generated under the Clean Development Mechanism of the Kyoto Protocol, consideration should be given to allowing their use in the Australian domestic market only where they are generated in ‘least developed’ countries.
Timelines for reports
A draft of Professor Garnaut’s complete report is due by 1 July 2008 and the finalised report is due by 1 October 2008. It may or may not be significant that these events are not included in Minister Wong’s timetable reported above.
The 23 November 2007 edition of Environment Quarterly reported on the enactment of the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act).
Following extensive consultations since the second half of 2007 and the release of a number of interim discussion papers, the Department of Climate Change on 4 February 2008 issued a Regulations Policy Paper (policy paper) which contains what are probably the final proposals for the making of regulations and other ancillary instruments under the NGER Act. The proposals fall short, however, of being draft regulations.
The proposals cover such matters as:
- the precise hydrofluorocarbons and perfluorocarbons which will fall within the NGER Act’s definition of a greenhouse gas
- the carbon dioxide equivalence of greenhouse gases
- the crucial definitions of ‘facility’ and ‘operational control’ of a facility
- the extent of the reporting obligations for controlling corporations which meet one of the NGER Act’s thresholds
- the processes by which one member of a joint venture or partnership may be nominated as the ‘responsible entity’ with the result that its controlling corporation has the obligation to report under the NGER Act
- requirements for ‘greenhouse gas projects’ which reduce or remove greenhouse gases
- requirements for external auditors under the NGER Act, and
- many administrative matters, including matters related to disclosure of information and compliance/enforcement.
Facility
The policy paper proposes that the activity or activities constituting a ‘facility’ will generally consist of a single ‘principal activity’ together with a number of ‘secondary’ and ‘ancillary’ activities which are situated in or attributable to a single physical location (with the exception of transport). An ‘activity’ must be attributable to an industry sector pursuant to the Australian and New Zealand Standard Industrial Classification 2006 (which is also used by the Australian Bureau of Statistics).
The ‘principal’ activity will be the activity which delivers goods or services beyond the boundaries of the facility and which also delivers the greatest value added. ‘Secondary’ activities will be those which also deliver goods or services outside the facility but which deliver less value added than the principal activity. ‘Ancillary’ activities will be those which deliver goods or (especially) services exclusively for use within the facility. Specific provisions are proposed for vertically integrated industries, transport, transmission and distribution (for example via pipelines), construction, mining and other sectors.
Operational control
The policy paper proposes not to make any regulations to expand the definition of ‘operational control’ in the NGER Act but clarifies that, in general, where more than one corporation could be considered to satisfy the requirements of that definition, it will generally be the facility operator rather than the facility owner that will be considered to have ‘operational control’ of the facility. Specific guidelines are also given in relation to pipelines, electricity transmission and distribution, and commercial property facilities.
Extent of reporting obligations
The policy paper proposes that where a controlling corporation meets any of the group thresholds under the NGER Act, that controlling corporation will be required to report on the greenhouse gas emissions, energy production and energy consumption of the entire corporate group, at both an aggregated group level and at the level of individual corporations. However, when a controlling corporation meets only a facility threshold for a member of its corporate group, it will only have to report in relation to that facility.
All relevant submissions periods in relation to the NGER Act consultative processes have now closed and the regulations are expected to be in place in time for the first reporting period commencing on 1 July 2008.
More information
For information regarding possible implications for your business, contact