Thursday, 26 November

It looks like the Carbon Pollution reduction Scheme Draft Bill will pass the Senate. I spent the afternoon today in reading and trying to understand what is in the Bill. The copy of the Bill as it was brought to the Senate can be downloaded from the Australian Parliament web site for Bills. The following are the notes I took while reading the legislation. I could not locate an official document on the amendments that came about after Wong-McFarlane negotiations but there was sufficient reporting in the press and I tried to note the amendments based on what I read in the press in the last couple of days.

WARNING -- The following is based on a half--a-day reading of about 500 pages (skimming through most of it) and please do not rely on these notes for any decision that matter.

The stated intended outcome of the Act is reduction of the net greenhouse gas emissions to 60% below 2000 levels by 2050; and by 5% to 15% below 2000 levels by 2020. A more stringent target would apply if there is global consensus towards measures capable of stabilizing CO2 levels at 450 PPM or lower. You form your own judgement but it does not look this is going to happen soon. Therefore, the applicable limit is between 5% and 15% by 2020. This represents an unconditional commitment to reduce it by 5% and a sort of aspirational target to achieve a 15% reduction.

The original bill did not have exclusions but the exclusions for the following industries were added through the negotiations between Wong and Mcfarlane:

• Agricultural emissions to be permanently excluded
• Fugitive emissions from coal mining to be excluded
• Electricity generation is still included but there is now a Transitional Electricity Cost Assistance Program to provide $1.1b to help mining and manufacturing industries that consume more than 300 MWh per year.

  How is the scheme going to work?

  The scheme begins on 1 July 2011 and operates on a financial year basis. It is a cap-and-trade scheme. Under the scheme, companies are assigned emission units (EU) at the beginning of each financial year. This is like their emission allowance. During the year, they surrender one EU for each tonne of CO2 they produce. They are also assigned emission numbers (EN). The emission number corresponds to the number of CO2-equivalent tonnes they emit in the year (Art 19). During the year, the realized emission numbers (tonnes of CO2 emitted) cancel the emission units (permits for emitting those tonnes). The cancellation is done by sending a notice to the Authority to surrender tour EUs. If at the end of the year, the surrendered EUs are less than the ENs, one would have a “unit shortfall” (Art 128 and 130) and would have to pay a penalty. The penalty for the financial year starting on 1 July 2011 is $11 per the unit shortfall (Art 133-1a). In other words, if you have no free EUs assigned and if you do not buy any EUs and if you emit 3 million of tones of CO2 in the financial year 2011/2012, you would be liable to pay $33m. The penalty for future years will be 110% of the average auction price of the preceding year unless specified otherwise by the Authority (Art 133-1b). Alan Kohler says that this will follow the international price but i could not a reference in the legislation to that effect. The current spot price on the European Climate Exchange for a tone of CO2 is €12.64, or $A20.59.

  There is a limited number of EUs and they are auctioned at the beginning of the year, but some EUs may be issued free or at a fixed charge. The caps for the years 2011,2012, 2013, 2014, and 2015 will be set by 1 July 2010 and after that the caps will be defined for each year five years in advance.

  Small enterprises emitting less than 25000 tonnes/year are exempt from the obligations of this Act. The exemption threshold is smaller for landfill operations (10000 tonnes).

   

  The fuel producers are not liable if they sell fuel to a customer large enough to be registered as a liable entity on its own right. It is only when the CO2 is emitted when it gets accounted. This was a bit confusing for me at the first reading, because at the beginning of the document the fuel suppliers are said to be accountable as if they were executing the actual emissions. However, later in the text it is stated that this obligation is passed on to the operation that burns the fuel. If, however, the operation that burns the fuel is the retail consumer, as is the case of natural gas or petrol, the CO2 liability rests with the retail supplier of the natural gas or petrol.

  An Australian emissions unit is personal property and is transmissible by assignment( Art 94). Some units are bought in an auction, some are distributed at fixed charge or free of charge. Article 103B says that some of the freely-given units may be purchased back by the Authority at the rate of $10x per unit where “x” is a factor to be specified in regulations. This is only available to receivers of trade-exposed assistance or coal-fired generator assistance.

  Free EUs may be issued to the following industries (there are conditions):

• Trade-exposed industries
• Coal-fired electricity generators

  Free EUs may also be issued for

• reforestration projects (Part 10) or
• destruction of synthetic greenhouse gases (Part 11) (e.g. CO2 sequestration projects)

  Click here for the rest of the blog