17 Jul 2008

An ABC of the CPRS

By Ben Eltham
Everything you need to know about the Carbon Pollution Reduction Scheme Green Paper
What's covered under the Scheme?
The big three: power stations are IN, transport is IN, coal mining is IN.

All Kyoto greenhouse gases will be included, but not the fancy new ones — like those involved in flatscreen TV production, for example.

The emissions threshold which must be exceeded for businesses to require permits is 25,000 tonnes. In other words, it's pretty high and will only touch the biggest polluters, around 1000 companies. This simplifies the paperwork as there will be less people to audit.

Those who manage the technical wizardry of Carbon Capture and Storage (CCS) can make deductions from their total emissions.

And what's not covered?
Biofuels and biomass are OUT.

Agriculture is OUT for now but will be IN by 2015.

Deforestation is OUT - but reforestation is included as an eligible deduction.

So transport is in. What about fuel?
The scheme includes a fuel excise trade-off "adjustment". Here's what it says in the Summary Report. "The Government has committed to cut fuel taxes on a cent for cent basis to offset the initial price impact on fuel associated with the introduction of the Carbon Pollution Reduction Scheme. The Government will periodically assess the adequacy of this measure for three years and adjust this offset accordingly. At the end of the three year period the Government will review this adjustment mechanism."

How will all this affect households?
All money raised will be returned to households and business via tax breaks. Low- and middle-income households will be assisted through tax cuts and family payments and government benefits will be increased above inflation.

Is there any assistance for polluting industries that export?
Yes. The so-called "emissions-intensive trade-exposed" industries like aluminium smelting, concrete and steel making will get assistance in the form of free carbon permits.

20 per cent of permits will be given away free to exporters but the number of permits given away will decline over time. After 2020, if the rest of the world joins in, these free permits will be phased out.

And what's the deal for coal-fired power stations?
Coal-fired power stations will get a one-off, once-only cash payment. Brown coal-fired power stations will get more assistance than black coal plants, reflecting the higher number of carbon permits brown coal plants will need. Only power stations built or committed to being built by mid-2007 will qualify. Assistance level will vary according to number of jobs at stake and rural location. And whether it's a marginal seat: the "Latrobe Valley" effect...

Do any other industries get a hand?
Fishing and agriculture get a rebate and so do truckers and heavy transport users.

How will the Emissions Trading Scheme operate?
The Emissions Trading Scheme's currency is the permit, or Australian Emissions Unit. One permit equals one tonne of CO2 or its equivalent. Permits are eternal and bankable — companies can bank as many as they buy for as long as they like. They can be bought and sold internationally. Some borrowing of future permits is also allowed — up to 5 per cent of the next year's quota. A four year price cap has been set on the permits from 2010/11 to 2014/15.

Auctions for permits will be held quarterly, for permit vintages of the current years and one, two and three years in advance.

What are the emissions targets?
They haven't been settled yet. By the end of 2008 the Government will announce a 2020 target "range" including an upper and lower amount of emissions, to give the markets an idea of future supply.

The Government will set a rolling cap on emissions five years in advance, to be updated every year. If the Government signs up to a new Kyoto-style international emissions protocol, it will extend the five year guidance to the lifetime of that commitment.

Who holds the stick? How will reporting and compliance work?
The scheme establishes national bureaucracy to be called National Greenhouse and Energy Reporting System (NGERS — don't say it too quickly). Other related Federal Government schemes — like fuel excise — will also be brought into the fold.

Liable entities are required to monitor their emissions under an approved set of methodologies, and report annually to NGERS. The accounting entity is the corporation or individual in operational control of the pollution.

Companies have to report to NGERS before they can surrender their permits. Really large emitters (more than 125,000 tonnes) will need their emissions audited.

What new tax and accounting issues are raised by the Carbon Pollution Reduction Scheme?
Lots. A new income tax law will need to be written to cover permit deductions.

Permits will be tax deductible only when bought, sold or surrendered. Tax deductibility can be banked but not booked in advance. Revenue from permit sales, on the other hand, is taxable income. Free permits and industry assistance given to polluting companies will also be treated as taxable income. GST will apply.

How will State/Federal issues be dealt with?
COAG will work with State Governments to abandon their local renewable energy targets and schemes in favour of the national scheme.

Read the Green Paper and assorted Fact Sheets here.

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Bob Karmin
Posted Thursday, July 17, 2008 - 21:30

"One permit equals one tonne of CO2 or its equivalent."

Only in the imagination.

Bob Karmin
Posted Thursday, July 17, 2008 - 21:35

"Permits are eternal and bankable"

Just like everything else in reality.

Bob Karmin
Posted Thursday, July 17, 2008 - 21:38

"Some borrowing of future permits is also allowed"

I guess that means the future really is now.

Bob Karmin
Posted Thursday, July 17, 2008 - 21:41

If you look at the time between my posts, you can estimate the speed of my reasoning.

Dr Dog
Posted Friday, July 18, 2008 - 09:37

I presume you feel the same way about shares, Bob, as your logic applies equally to them. Possibly you are more of an anarchist than previous posts have led me to beleive.

Posted Friday, July 18, 2008 - 16:17

There is no real evidence to support the idea that taxing emitters will perforce reduce emissions.

Note that only 'businesses and individuals' are named by the government as needing to act - the government has mysteriously been left out.

Many questions unanswered such as - what if a power station decides to reduce emissions by shutting down in November (or whenever), what happens?

The entire Emissions Trading Scheme sounds like - more taxes and the government will just tell us what to do and punish us if we get it wrong.

No leading by example, no actual cuts to emissions, no research funding to CSIRO to develop emission reduction technologies, just a load of economic theory to justify a tax, the result of which is supposed to lower planetary temperatures.

As if!

Posted Friday, July 18, 2008 - 17:26


Ben and mbolan: you miss the point, the ETS/CPR has nothing to do with climate change and everything with creating the mother of all slush funds, possibly by as much as $16 billion a year (at the EU level of (now over) $40 per tonne on 400 million tonnes of CO2) and rising as exemptions are phased out and caps reduce. The slush fund arises from the extra costs of fuel, power and their embodiments in other goods including food transferred by Rudd from the rich to the poor, especially in marginal seats, to enable them to keep on "polluting"as much as before. As the poor are thus protected, so the "rich" will have to forced by ever rising permit costs to cut their emissions by more than 60 per cent to achieve the national target.

Posted Saturday, July 19, 2008 - 08:31

@Bob Karmin:

The only thing that can be seen from the time between your posts is the lack of thought involved in arriving at their content.