Posts Tagged ‘cprs’
It looks like Labor has shelved plans for an emissions trading scheme for the time being.
At the same time Republican Lindsey Graham withdrew his support for a similar bill in the US over immigration politics, effectively scuttling ‘cap and trade’ in the US until at least the next congress.
It’s been a long time since the US passed their Climate Change Bill through Congress but, so far, no progress has been made getting a similar bill through the Senate. There are some parallels with the passage of the CPRS here.
On Monday a new US Climate Change Bill is due to be presented to the Senate, proposed jointly by Democrat John Kerry, Republican Lindsey Graham and independent Joe Leiberman.
This is going to be the last real chance to get a bill passed before the US mid-term elections and the trio have been working hard to get bipartisan and industry support for the Bill. The outcome of the debate on this Bill is important for Australia for two reasons.
Firstly, the prospects for improving on the Copenhagen Accord will be bleak without meaningful US action. While the US has made a reduction commitment under the accord, as has Australia, we still need to see what policy the US will use to achieve the target.
Secondly, both major parties in Australia are keen to be seen to be in-line with US policy. With a Federal election looming, the outcome of debate on this bill in the US could influence policy here — or at least election posturing.
There have been claims in the media here that ‘cap and trade’ is dead and this means the US will move to a direct action model, in line with Coalition policy. On the other hand, we’ve recently had President Obama’s comments on the 7:30 Report that “you have to put a price on carbon of some sort”, in line with Labor policy.
We should know more details on the Bill this week and have a good idea of its prospects soon enough, but no one is suggesting it will pass easily, and most are suggesting it will fail. If the Bill does fail, does that mean the US won’t meet its reduction target? Does it mean ‘cap and trade’ is dead? And what does it mean for Australia?
I recently attended a presentation by from Frank Litz, a Senior Fellow from the World Resources Institute (WRI). He said that research still to be published by WRI has found that the US could still meet their reduction target without a national ‘cap and trade’ system. There are two reasons why. Firstly, there is already a regional emissions trading scheme in the US and there are two more in development. The Regional Greenhouse Gas Initiative is underway and covers the electricity sector in 10 mid-Atlantic states. The Western Climate Initiative will cover 11 Pacific states across the US and Canada and the Midwest Greenhouse Gas Reduction Accord will cover 7 more US states. It is clear that even without a national ‘cap and trade’ system, emissions trading will be a major driver of abatement in North America.
Also, the President has significant power to regulate emissions through existing legislation, such as the Clean Air Act. The Environmental Protection Authority has recently issued a finding that greenhouse gas emissions endanger public health and welfare with the support of the White House and following a ruling from the Supreme Court. This means they can begin to put in place performance standards on major emission sources such as vehicles, factories, and power plants. Other agencies such as the Department of Energy and the Department of Transport also have powers that could be used by the President to regulate emissions.
It’s important to distinguish this kind of ‘direct action’ from that proposed by the Liberal Party. The Liberal Party’s policy is to make direct investments in offsets and some renewable energy production and to provide grants to companies to reduce emissions. The policy placese no limit on emissions and makes no attempt to regulate emission sources.
Some people have gone further and suggested that the US EPA might have the power to implement a national emissions trading scheme under existing laws. But even without using existing laws there are some reasons to think the US will have a national scheme soon and if not during this congress, then probably in the next one. And if the US puts a price on carbon, Australia is pretty sure to follow suit.
One of the reasons there is doubt that the Kerry-Graham-Leiberman Bill will get enough support this time around is the looming mid-term elections, rather than insurmountable opposition to such a scheme. The Bill will need Republican support to pass and there is a view that after Obama’s success with Health reform, the Republicans don’t want to give the Democrats another high-profile win. Also, President Obama has indicated that the Financial Reform Bill is a higher priority and he also has a highly political Supreme Court nomination to deal with before the mid-terms. So climate change might not get the attention it deserves.
Direct regulation by the EPA is very unpopular with industry and is seen as a more expensive way to achieve emissions reductions. So we can expect to see renewed pressure from industry for a national trading scheme if and when they become subject to more stringent regulation of emissions. Again, there are echoes of the situation in Australia, where industry is calling for more certainty.
What does this all mean for Australia and our upcoming Federal election?
Right now neither of the major parties has a strong or popular position on climate change, but both parties will hope to get some political mileage from the outcome of debate on this bill. If the US bill does get up then it will provide strong support for Labor’s policy and may see Rudd want to make even more of climate change as an election issue. Despite his failure to pass the CPRS Bill and the disappointment of Copenhagen, he is back talking about emissions trading now and definitely sees it as an area where he has stronger credentials than the Coalition.
Tony Abbott seems quite happy to make up new policies on the run, so what he will do is anyone’s guess. If the Bill fails it should be good news for him because the media will interpret this as a trend away from emissions trading towards direct action. However, President Obama will still want to show international leadership on climate change and demonstrate to partners that the US is taking action to meet its commitment under the Copenhagen Accord ahead of COP16 in Mexico. He will probably draw to attention to the trading schemes that are already underway in the US and use his executive powers to start regulating emissions with new performance standards.
This kind of action is quite different to what the Coalition is proposing, which lets polluters off the hook entirely. And the US will probably get a national emissions trading scheme, sooner or later.
In a media statement released today, the WA State Government announced that the Forest Products Commission (FPC) will close down its carbon division.
The decision, announced by the Forestry Minister, Terry Redman, will doubtless be well received by the other main players in Australia’s developing forest carbon sector. Companies like Carbon Conscious , CO2 Australia and Rewards Group have been arguing for a while now, and with some justification, that a State Goverment owned entity should not be competing against the private sector in the carbon space.
FPC had previously completed deals with Synergy (5000 hectares) and BP but uncertainty over a start date for emissions trading had already forced an organisation restructure late last year.
The immediate future of existing contracts is not made clear in the statement, however FPC “will be exploring ways it can transfer this work to the private sector” according to Minister Redman.
The government has released the details of proposed changes to the CPRS to obtain Coalition support. The detail includes more transition support for emissions intensive trade exposed industry, electricity generators and coal mines.
East Perth Power Station. Setting a trend for coal-fired power generation in Australia?
Unsurprisingly, the proposed CPRS legislation was rejected in the Senate yesterday in what was a sad day for the environment and Australian politics.
In 2007, Rudd was voted in with a campaign that promised an Emissions Trading Scheme. Even before this Howard had announced his government’s support for an ETS. Here we are, nearly 2 years later following significant community and industry consultation and the chance to show some leadership in the global response to climate change, and our political parties can’t get past the bickering to pass the law or even to enter into meaningful negotiations.
So what now? The Government has two options: Negotiate changes to the bill to gain further support; or do nothing and table the bill in November with the aim of triggering an early election before taking it to a joint sitting. Either way, both approaches will take time – one of the most precious resources in the climate change response.
So what can you do? Rather than wait out the politics, why not use this time wisely to prepare? A cost of carbon is inevitable in some shape or form. Now is the ideal time to start educating your workforce, conduct a risk assessment and develop a long-term strategic response to climate change.
Malcolm Turnbull today finally make his case on an alternative model to the CPRS.
The independent research commissioned by the Coalition and Independent Senator Nick Xenophon was completed by Frontier Economics and illustrates emissions cuts of 10% by 2020 — double that of the 5% committed to by the Rudd government.
More information on the report can be read here.
Malcolm Turnbull has recently issued a statement of the Coalition’s support for the introduction of an emissions trading scheme.
This is probably more about avoiding an early election than a real change in the position of some views in the coalition. Bad politics aside, this is good news for moving forward on climate change.
In his statement, Turnbull set out nine issues he wants the government to address. One of his main concerns is that the scheme should provide more support to industry and should be more in line with legislation being introduced in the US (Waxman-Markey) — in fact he is calling for Australia to delay passing any legislation until Waxman-Markey has passed.
One specific amendment he asks for is that emissions intensive trade exposed industries should receive full compensation for the cost of carbon, saying:
“Emissions Intensive Trade Exposed industries (EITEs) should at least be on a level playing field with the United States and other advanced economies and should therefore receive full compensation [emphasis added] for higher energy costs until the bulk of their competitors (measured as in Waxman Markey by global market share) face a similar carbon cost.”
The affect of this would be to shift more of the burden of EITE emissions to other parts of the economy.
Turnbull’s concern with EITEs and the need to follow Waxman-Markey makes the timely comments from Dr Martin Parkinson, made the day before Turnbull’s statement was released, particularly interesting.
Dr Parkinson is the Secretary of the Department of Climate Change, who was addressing the Financial Review Carbon Reduction Conference. In his speech he made specific reference to comparisons between the CPRS and Waxman-Markey:
“[C]ontrary to some claims, neither the US proposal nor the EU Emissions Trading Scheme guarantees 100 per cent assistance to industries at risk of carbon leakage.
Both the EU Emissions Trading Scheme and Waxman-Markey set hard caps as a share of overall permits on the amount of support for EITEs. In both schemes, support will be pro-rated if total EITE emissions exceed the share of permits allocated, as seems quite possible.
It is a matter of mathematics in both schemes that the support for EITEs in total will then decline at the same rate as the national cap. And if total EITE emissions are growing on the back of output growth, the rate of support per unit of output will fall even faster.Because these claims continue to be made despite this information already being on the public record, let me say again that Waxman-Markey does not guarantee 100% assistance to industries at risk of carbon leakage [emphasis added].
The crucial point here is that we have designed the CPRS and the EITE provisions for Australia. Those who argue that we should instead simply adopt the Waxman-Markey model fail to recognise that it has been designed for the United States and does not necessarily suit the Australian situation. We need a scheme built for us and for our national interests.”
It’s unlikely that the government will make any changes to the CPRS legislation between now and August 13th, when it is due to be debated. The Coalition, the Greens, and Senator Fielding will all vote against the bill, with only Xenephon’s vote being uncertain. We can then expect the bill to be re-presented in November.
Between now and then you can expect more negotiations, more lobbying from industry and environmentalists and more political shenanigans, but one thing is certain, Australia will have an emissions trading scheme sooner or later.
Australia is betting big on carbon capture and storage (CCS). It’s a bet that Martin Ferguson is backing. The Federal Resources and Energy Minister recently opined against renewables in The Australian and said that “no serious response to climate change can ignore the need to clean up coal.”
The big question is how much will CCS cost? A recent report from Harvard found that ‘first-of-a-kind’ carbon capture and storage plants will cost approximately $150/tCO2 avoided.
Treasury’s modeling for the CPRS forecast that in 2050 — as far forward as they modeled — the cost of carbon would be $124.91 (2005 dollars — CPRS-15 scenario). So $150/tCO2 doesn’t look like a great investment at first glance. However, the Harvard report also found that as CCS technology matures and if construction costs reduce from 2008 levels then the costs could reduce to as low as $25/tCO2 avoided.
A primary reason for the emissions trading scheme is to encourage business to invest in abatement. Businesses that don’t reduce their emissions — that simply purchase permits at auction — risk becoming uncompetitive and unsustainable. So all businesses — not just electricity generators — have strategic investment decisions to make right now.
In stark contrast to the bad politics and bad science in the Australian parliament, the US has moved forward and it’s equivalent to our CPRS legislation passed the lower house yesterday.
If you want to read more, there are lots of news reports. It’s also the subject of Barrack Obama’s weekly address to the US nation:
“[We] have seen other countries realize a critical truth: the nation that leads in the creation of a clean energy economy will be the nation that leads the 21st century global economy. […] Now my call to every Senator, as well as to every American, is this: We cannot be afraid of the future. And we must not be prisoners of the past. Don’t believe the misinformation out there […]”.
The subject of the proposed first compliance year, 2011–2012, came up in a recent conversation with a client. The latest plan treats the first year in a special way: an unlimited number of Australian Emissions Units (AEUs) will be made available at a fixed price of $10. For those campaigning for a carbon tax, they got one, but only for one year.
The client asked whether they would be able to purchase AEUs in 2011–2012 and bank them to acquit against their liability in future years. Our off the cuff answer was that that wouldn’t be possible, but it didn’t seem to be clearly spelt out in the legislation.
Now that the legislation has passed the lower-house, this is the subject of one of the amendments, and we now have confirmation:
Excess surrender of Australian emissions units with a vintage year beginning on 1 July 2011 [amendments 19 and 20]2.15 Generally, surrender of excess Australian emissions units will generate an excess surrender number which is used by the liable entity in the following year (see clause 143).2.16 Special provisions are needed to address surrender in relation to the financial year 2011–2012. Currently clause 143(3) of the CPRS Bill prevents an excess surrender number occurring where excess free Australian emissions units that have a vintage year beginning on 1 July 2011 have been surrendered.Summary of amendments2.17 The amendment to this clause has the result that no Australian emissions units with a vintage year beginning on 1 July 2011 can create an excess surrender number if more of these units are surrendered in relation to compliance for the first year of the scheme than the person’s emission number.2.18 This covers Australian emissions units issued under the emissions-intensive trade-exposed assistance program, in accordance with Part 9 (which deals with coal-fired generation) and for a fixed charge of $10.2.19 This will ensure that units issued for a fixed charge of $10 are not, in effect, carried over for use against a future liability, and is consistent with not allowing banking for this period. This changed is achieved by the omission of the word ‘free’.
Banking and borrowing rules are something we cover in detail in our Auction master-class.
Greensense, in partnership with tradeslot, recently completed a CPRS Auction Masterclass for Horizon Power. The recently announced delay to the start of the Carbon Pollution Reduction Scheme (CPRS) has given liable organisations the opportunity to better prepare themselves participation in the scheme. The sessions focused on the background to the CPRS, the supporting legislation, the format of the auction, the alternative permit and abatement options, the roles that will be required and different auction strategies that may be adopted. The day ended with a simulated online auction.
Feedback from Horizon Power was extremely positive. The session gave them an opportunity to explore the impact of the auction process, the data required to effectively participate and greater insight into the scheme and how it will fit into their overall carbon management and emissions trading strategy.
With the original timeframes for the CPRS, many organisations were struggling to effectively prepare themselves, but the current delay has allowed the time to have a more strategic approach to emissions trading. These sessions are a great way of kicking off this process. If you are interested in having a tailored CPRS auction simulation in your organisation then contact Greensense.
From The Australian: Rudd signs off on emissions trading scheme compromise.
The highlights:
- Start delayed for 12 months
- Carbon permits will cost $10 per tonne of carbon in 2011-12
- Emissions reduction target of up to 25 per cent of 2000 levels by 2020 (subject to a broad global agreement)
- Additional support for Emissions Intensive Trade Exposed Industries — a “Global Recession Buffer”
- Establishment of the “Australian Carbon Trust” to better support voluntary action
The Australian Carbon Trust seems to have two parts; the Energy Efficiency Savings Pledge Fund and the Energy Efficiency Trust.
The Energy Efficiency Savings Pledge Fund will take the form of a web site that enables individuals to buy and surrender CPRS pollution permits (AEUs) by making ‘pledges’. These pledges will be tax deductible. It will be interesting to see what effect this has on the existing voluntary offset market.
The Energy Efficiency Trust will provide funding for businesses to undertake energy efficiency projects. “For example, the Trust could identify lighting improvements in a business that would cost $2 million to undertake. The Trust would cover this $2 million cost, with the business contributing nothing upfront. The business would then pass the energy cost savings from the lighting improvements back to the Trust at a commercial rate until the full $2 million with interest is paid back to the Trust. Once the upfront capital is paid back, the business keeps the ongoing cost savings.”
The Energy Efficiency Trust will be run in conjunction with The Carbon Trust, a UK-Government funded business that runs a similar scheme for the UK Government.
The legislation for the CPRS will be introduced when parliament resumes later this month. Given the changes above, it seems likely that it will be supported by the Coalition, but not the Greens, which will mean the Government will also need the support of independents Nick Xenephon and Steve Fielding.
In early March, the Senate referred the exposure draft of the legislation to implement the Carbon Pollution Reduction Scheme (CPRS) to the Senate Standing Committee on Economics. The committee published it’s report a couple of weeks ago.
The bottom line is that the committee recommended the bills be passed, largely in their current form. However, the Coalition, the Greens and Senator Nick Xenephon all published their own findings expressing different views.
The Committee made five recommendations in the report:
Recommendation 1
- The Committee recommends that the bills should be passed without
delay.Recommendation 2
- The Committee recommends that the Government coordinates and
advances a whole of government approach to jobs and skills in emerging low
pollution industries.- The Committee further recommends that a process be developed which
ensures effective implementation of all Government programs and policies which
support green jobs and skill development throughout all sectors of the economy.- The Government should also develop Australia’s current and future
skills base to ensure it has sufficient skills to take advantage of emerging
employment opportunities driven though the CPRS and other complementary
climate change policies.Recommendation 3
- The Committee recommends that the government develop policies
complementary to the CPRS to encourage voluntary action.Recommendation 4
- The Committee recommends that the wording of section 14(5) of the
CPRS Bill 2009 be amended so that in making recommendations on emissions
caps the Minister “shall have regard” rather than “may have regard” to
“voluntary action”.Recommendation 5
- The Committee recommends that the Government continues to seek ways
to assist the commercial scale development of renewable energy sources and
sequestration technology as a priority.
The transcripts from the hearings are also available. For example, here in Perth, The Chamber of Minerals and Energy, Griffin Energy, Australian Council of Social Service, Carnegie Corporation, WASEA, Professor Ross Garnaut, and Alcoa all made submissions.
I found these transcripts quite interesting, particularly for their local context. For example the representatives from Griffin Energy talked about the differences between the energy market in Western Australia and the National Electric Market on the east coast.
Perhaps the most troubling comments in the Perth transcripts, for me at least, were made by Professor Garnaut. We already know that most of the revenue from the sale of permits is being redistributed to households and industry as compensation — in some respects defeating the purpose the ETS in the first place.
But, Professor Garnaut suggested that the CPRS might not actually be self-funding and so this compensation could be at the expense of the tax-payer: “It depends on the targets. If you tighten the targets [e.g. from 5% to 15%, then a] higher proportion of the permits will go to the trade-exposed industries if the trade-exposed industries are growing relatively fast. So there is at least a reasonable possibility that the scheme will not be self-funding.”
Reading this report won’t necessarily give you any more insight into when and in what form Australia will start an emissions trading scheme, but I came away feeling more positive that something will happen, and hopefully sooner rather than later.
The government today released the draft CPRS legislation amongst media reports that the emissions trading scheme would be delayed. Meanwhile, there are continuing reports that climate change is accelerating faster than previously feared.
The preamble to the draft legislation sets out a clear rational for action and action now.
“Climate change is the greatest social, economic and environmental
challenge of our time. Scientific evidence confirms that human activities,
such as burning fossil fuels (coal, oil and natural gas), agriculture and land
clearing, have increased the concentration of greenhouse gases in the
atmosphere. As a consequence, the earth’s average temperature is rising
and weather patterns are changing. This is affecting rainfall patterns,
water availability, sea levels, storm activity, droughts and bushfire
frequency, putting at risk Australian coastal communities, health
outcomes, agriculture, tourism, heritage and biodiversity for current and
future generations.“
Perhaps the scheme proposed by the government is flawed: perhaps the targets are too low and the subsidies too high. But the CPRS does commit us to action and it does set us firmly down the path to carbon reduction.
We are pleased to announce Greensense has become a consulting partner with Carbon Navigator, a leading online carbon management solution developed by Tradeslot
Tradeslot are members of the Emissions Trading Scheme Advisory Panel of the Australian Department of Climate Change and have developed a unique carbon management software offering. Carbon Navigator not only manages an organisation’s carbon inventory but can also help establish financial liablity and the most cost effective approach to meet regulatory obligations as well as provide guidance on auction strategy.
Greensense and Tradeslot will shortly be announcing a series of master classes to be run in Perth. These sessions will focus on the auction process of the CPRS and will allow delegates to participate in mock auctions and familiarise themselves with the auction interface.
To register your interest in attending these sessions please email contact peter@greensense.com.au
