Federal Government announces changes to the CPRS

The Government today (4 May 2009) announced that it will delay the start of the Carbon Pollution Reduction Scheme by 12 months to 1 July 2011. The Government has said it is delaying the commencement of the CPRS to assist business through the current financial downturn.

The Government also announced a number of additional measures in support of Australian business. These are:

• A one year fixed price phase for carbon. This will apply between 1 July 2011 and 30 June 2012, during which each carbon pollution permit will cost $10. An unlimited number of permits will be issued to liable companies at this fixed price.  Fixed price permits will not be able to be banked for use in later periods.  From 1 July 2012, businesses covered by the scheme will need to purchase permits at the prevailing market price.
• A new Global Recession Buffer for emissions-intensive trade-exposed (EITE) industries, in addition to assistance measures already announced. The Buffer will provide an additional 5 per cent free permits for EITE activities eligible for 90 per cent assistance.  The Buffer will provide an additional 10 per cent free permits for EITE activities eligible for 60 per cent assistance. Rates of assistance will decline at a rate of 1.3 per cent per year, in line with the Carbon Productivity Contribution set out in the White Paper. The Government has confirmed that the Buffer will be reviewed after five years, in light of domestic and international conditions and other factors, as appropriate.
• The Government has allocated up to $200 million to the Climate Change Action Fund in 2009-10 to support businesses and community organisations that do not receive EITE assistance but who do not have significant energy costs to take action prior to the commencement of the Scheme in order to reduce carbon pollution through practical energy efficiency measures. This funding will include $20 million for a business information package to provide advice to businesses on how the CPRS will work; up to $100 million for Early Action Energy Efficiency Strategies for Business, including energy audits and capital investment; and $80 million for capital investment grants for businesses and community organisations.

In addition, the expanded Renewable Energy Target will be in place as planned from 2010 to drive investment in renewable energy in Australia.

Reforestation projects will be eligible to voluntarily generate permits for carbon stored from 1 July 2010, in order to encourage carbon pollution reductions before the scheme starts and creating economic opportunities in regional Australia.

The Government has announced that a price cap will apply from commencement of the Carbon Pollution Reduction Scheme, with the 5-year EITE review to look at whether the price cap should continue into the future.

A number of other changes have been made to the EITE assistance program. These changes include:

• The inclusion of an ‘aims’ clause which directly relates the EITE assistance program to the impact of the scheme on the international competitiveness of EITE activities.
• Five yearly reviews: the Expert Advisory Committee will consider the following issues (amending the position in the White Paper, as taken from today’s announcement):
  1. the review of eligibility assessment for activities (e.g. taking into account falls in commodity prices etc as outlined in policy position 12.8 in the White Paper);
  2. whether modifications should be made to the EITE assistance program on the basis of whether it continues to be consistent with the rationale for assistance or is conferring windfall gains on entities conducting activities;
  3. the extent to which the Scheme has resulted in an increase in the cost of electricity and the extent of pass through to EITEs;
  4. the extent to which EITE firms are making progress towards world’s best practice energy and emissions efficiency for their industry sector;
  5. the future shape of the permit price cap, recognising the need to balance the development of market mechanisms and business certainty;
  6. international developments, including the extent to which Australia has entered international agreements, tangible emissions abatement commitments have been made by countries which compete with EITE industries, and major partners or competing countries have introduced carbon constraints into their own economies; and
  7. whether broadly comparable carbon constraints (whether imposed through an explicit carbon price or by other regulatory measures) are applying internationally, at either an industry or economy-wide level, or an international agreement involving Australia and all major emitting economies is concluded, in which case the Committee would make recommendations to Government with regard to the withdrawal of EITE assistance; this assessment will draw on analysis by an independent expert body (initially the Productivity Commission) of quantitative measures of carbon prices or shadow carbon prices in major economies.

Any changes or modifications to the EITE assistance program will be given five years notice, unless those modifications were required for compliance with Australia’s international trade obligations.

The Government has also announced that it will adopt a 25 per cent emissions reduction target, but will only do so as part of an ambitious international agreement to stabilise greenhouse gases in the atmosphere at 450 ppm CO2-e or lower. The Government has stipulated five conditions for this target to be met:

• comprehensive coverage of gases, sources and sectors, with inclusion of forests (e.g. Reducing Emissions from Deforestation and forest Degradation – REDD) and the land sector (including soil carbon initiatives (e.g. bio char) if scientifically demonstrated) in the agreement;
• a clear global trajectory, where the sum of all economies’ commitments is consistent with 450 ppm CO2-e or lower, and with a nominated early deadline year for peak global emissions no later than 2020;
• advanced economy reductions, in aggregate, of at least 25 per cent below 1990 levels by 2020;
• major developing economy commitments to slow growth and then reduce their absolute level of emissions over time, with a collective reduction of at least 20 per cent below business-as-usual by 2020 and a nominated peak year for individual major developing economies;
• global action which mobilises greater financial resources, including from major

Further information about the deferral to the CPRS is available on the Department of Climate Change website here.