3 - Paul Leadbeater - FEDERAL GOVERNMENT POLICY ON EMISSIONS TRADING

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					FEDERAL GOVERNMENT POLICY
   ON EMISSIONS TRADING:
A review of current Federal Government
   directions and the implications for
             organisations

Paul Leadbeter, Partner, Norman Waterhouse Lawyers,

21-23 July 2008
                      Climate Change
   “a diabolical policy problem” – Garnaut

   Will result in

        Changes in rainfall patterns

        Ongoing water security issues

        Changes in ecosystems

        Sea level rise

        Impact on food sources

   Requires both mitigation and adaption strategies.

   Emissions trading schemes – a mitigation strategy
Presentation will outline:
   International conventions and mitigation.

   Nature and scope of emissions trading scheme (ETS)

   Garnaut Review proposal for ETS

   Observations on Federal Government Green Paper

   Implications of ETS for organisations
         International Background
   United Nations Framework Convention on Climate Change (1992)

        General statement

        Annex I and II countries

   Kyoto Protocol, 1997

             Specifies global obligations

             Australia only ratified – December 2007

             3 mechanisms

               (1)   Joint Implementation

               (2)   Emissions Trading Schemes

               (3)   Clean Development Mechanisms
    What is an Emissions Trading
              Scheme?
   “Cap and Trade” system – cap or total limit set on
    greenhouse gas emissions. Permits required by
    polluters to enable them to emit greenhouse gases
    up to prescribed limit

   Permits can be bought and sold

   Carbon offsets can be purchased

   As price of carbon emitting products increases –
    encourages use of alternatives
    Emissions Trading – We’re not
              the first!
   European Union Emissions Trading Scheme

       27 countries

       CO2 only (at present)

       Applies to power generators, refining, iron & steel, cement,
        glass, wine, bricks, ceramics, pulp and paper, and combustion
        activities with rated thermal input exceeding 20 megawatts

       11,500 installations in total

       45% of CO2 emissions in E.U. (2.1 billion tonnes CO2 p.a.)

       Permits issued by Member States

   N.Z., Canada, Japan – also implementing or considering
Emissions Trading Schemes
   Monitoring of emissions – to set overall cap and
    individual limits

   National Greenhouse & Energy Reporting Act, 2007
    – statutory requirement for defined corporations to
    monitor and report on their greenhouse gas
    emissions, energy production and energy
    consumption
           An ETS for Australia?
   Various Funding initiatives

   2004 – State Labor Government’s proposal for National
    Emissions Trading Scheme

   May 2007 – Prime Ministerial Task Group on Emissions Trading

   December 2007 – Rudd Government ratifies Kyoto Protocol

   March 2008 – Emissions Trading Scheme Discussion Paper

   4 July 2008 – Draft Report – Garnaut Climate Change Review

   16 July 2008 – Federal Government’s “Carbon Pollution
    Reduction Scheme Green Paper”

   30 September 2008 – Date for delivery of Final Garnaut Report
Garnaut Proposal for ETS
1.   Governance

        Independent authority to monitor & enforce
         compliance & issue permits

        Government sets scheme rules, initial budget
         trajectories, cap limit, appropriate offsets, penalty
         levels & permit revenue expenditure

        Green Paper – Independent Regulation &
         reviews every 5 years

        Uses term “Carbon Pollution Reduction Scheme”
         not ETS
Garnaut Proposal
2.   Setting Emissions Limit/Cap

        National emissions targets expressed as
         trajectory of annual emissions targets over time.

        Predict changes to cap level well in advance

        5 year notice period before moving from 1
         trajectory to another
Green Paper
   Reduce national emissions by 60% compared with
    2000 levels by 2050

   Significant emitters will need “carbon pollution permit”
    for every tonne of greenhouse gas emitted

   Government to provide indication for at least 10 years
    of limits on carbon pollution

   Consideration given to international developments
    when setting pollution limits

   Need to account for difference between national
    emissions and scheme cap

   2008 – Government will announce methodology for
    setting scheme cap for periods 2010-11 to 2014-15
3.   Who and What will Scheme cover?

        All six Kyoto prescribed greenhouse gases – CO2
         Methane, Nitrous Oxide, Hydroflurocarbons,
         Perflurocarbons, Sulphur Hexafluoride

        Broad as possible sector coverage – stationary
         energy, transport, fugitive emissions from fuel
         production and industrial processes – initially

        Waste and forestry sector at earliest opportunity

        Agricultural sector-desirable pending further
         emissions information and administration
Green Paper

   All 6 greenhouse gases

   All sectors recommended by Garnaut

   Proposed direct obligations on facilities with large
    emissions and obligations on upstream fuel suppliers
    for emissions resulting from combustion of fuel

   More sectors excluded – higher costs for included
    sectors and ultimately customers

   Forests – “opt in” option from scheme start up

   Transport – cut to fuel taxes on cent for cent basis to
    offset initial price impact on fuel
4. Domestic Offsets

   Are reductions or removals of greenhouse gas emissions used
    to counter balance emissions elsewhere

   A sector not covered by scheme might create offset credits for
    purchase by party covered by scheme

   Garnaut recommends offset credits be accepted from forestry

Green Paper

   Offset schemes are administratively complex

   Difficulties in objectively determining baselines

   Offsets do not increase national abatement – credits enable
    increased emissions

   Offsets only to be considered in uncovered sector (but not
    agriculture sector)
5. Points of Obligation


   Downstream measurements

    -   at source of emission

    -   works with industrial process emissions

   Upstream measurements

    -   measures carbon content at point where it enters economy

    -   eg mine operations, oil refineries, natural gas pipelines

    -   ideal for sectors with many small emitters eg transport
Green Paper


   Logical measurement point is where emissions are
    physically produced (direct obligation)

   In sectors like transport, measurement at upper point
    more efficient (indirect obligation)

   Also measurements downstream of emissions eg
    agricultural emissions – impose obligations on food
    processors such as abattoirs, dairies and mills
6. Issuing or Releasing Permits


   Allocate for free, auction them or combination

   Recommends auctioning

   Not supportive of fixing permit price

Green Paper

Auction majority of permits from outset. Eventually 100% auctioned

Some free allocation – transitionally assist emissions-intensive
  trade exposed industries & strongly affected industries
7. International Trade and Links

   Global mitigation requires international trade in emission permits

   Undertaken cautiously

   Requires compatibility between Australian market and the
    proposed link market

Green Paper

   Similar views

   Some initial limits on extent of trading allowed internationally

   Ultimately looking for open linking for effective global emissions
    constraint
8. Inter-temporality (flexibility in time of use of permits)

   Unlimited hoarding of permits should be permissible

   Advocates lending of permits by independent authority

Green Paper

   Carbon pollution permits – can be used in any year from or after
    year of issue (unlimited banking)

   Limited degree of borrowing to be allowed from future scheme
    caps

   Proposal to put cap on price ? Will be required to pay for permits
    from 2010-11 to 2014-15
    9. Trade Exposed Emissions Intensive Industries
   Noted that may be need for special arrangements for emissions
    intensive industries that are trade exposed eg by taxes/tariffs on
    imports from countries without equivalent emissions controls

   Essential to negotiate global & sectoral agreements to ensure
    comparable treatment of emissions by competitors

Green Paper

   Some free permits will be made available – only to most
    significantly exposed industries (around 30% of permits)

   Some scaled assistance to other moderately emissions intensive,
    trade exposed industries

   Assistance based on industry average activity emission intensities
    rather than intensity of particular firm or facility – thus incentive to
    reduce emissions

   Also proposes limited direct assistance to existing coal-fired
    electricity generators (Electricity Sector Adjustment Scheme)
    10. Penalties for Breach of Scheme
   Final penalty of an amount sufficient to deter would be
    non-compliers

   “Make good” requirement also

Green Paper

   Propose broad spectrum of measures for compliance

   Initial focus on education and outreach

   Application of “enforcement pyramid” concept used in
    other Commonwealth legislation
Implications of Emissions Trading
Scheme for Organisations?

   Will apply to approx. 1,000 companies

   Will not directly affect University sector

   Permit holders will pass costs onto consumers

   Increased energy and fuel costs

   Aim is to encourage and promote alternative fuel
    technologies
What can be done to reduce
impacts?
   Increase energy efficiency of all buildings

   Energy audits within organisations

   Develop tree plantings for carbon sequestration

         Statutory   arrangement

         Enables   3rd person to own sequestered carbon

         Can   improve biodiversity

         Can   assist in reducing salt levels in soil
What can be done to reduce
impacts?
   Examine organisation’s arrangements with motor vehicle use

       Size of cars (6 vs. 4 cylinder)

       Need for car pool

       Hybrid vehicles

       Biofuel use

   Examine arrangements for supply of goods and services?

       Is your supplier adopting carbon constrained behaviour?

       Group pressure can bring about results
Conclusion

   Climate change is “a diabolical policy problem”

   Emissions Trading Schemes but one of number of
    important measures

   Some hard decisions ahead

   Increased costs for all segments of community

   Action is necessary and overdue

				
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