Market News

 May 04, 2009
Australia to delay Climate Change Plan

 The Government of Australia announced today that it will delay implementation of its controversial Carbon Pollution Reduction Scheme (CPRS) by one year. 

As part of a package of new measures announced by the Rudd government, the CPRS scheme will now be phased in from 1 July 2011 and a new ambitious 25 per cent by 2020 target has been put on the table. 

The Carbon Pollution Reduction Scheme involves two distinct elements - a  cap on carbon pollution and a market wherein which businesses could buy or sell carbon emission permits. The cap is designed to reduce carbon pollution while the ability to trade permits ensures carbon pollution is reduced at the lowest possible cost.

The Government will set a cap on the total amount of carbon pollution allowed in each regulated sector (agriculture is excluded) and would issue permits up to the annual cap each year. Industries generating carbon pollution would need to acquire a ’permit’ for every tonne of greenhouse gas they emit. They would be closely monitored and at the end of each year would need to surrender a permit for every tonne of carbon pollution produced.  

Firms would compete to buy the permits needed either at auction or on a secondary trading market. For some firms, it will be cheaper to reduce emissions than to buy permits. As a transitional assistance measure, certain categories of firms might receive some emissions permits for free. These firms could use these permits or sell them.  

The price of permits will emerge from the market. If a firm can reduce carbon pollution more cheaply than the prevailing market price of permits, it may opt to do so rather than to buy permits. This provides a strong incentive for participants to reduce their own carbon pollution.

To assist businesses during difficult economic times, a one year fixed price period will be introduced. Permits will cost $10 per tonne of carbon in 2011-12, with the transition to full market trading from 1 July 2012.

As well, a new Global Recession Buffer will be provided as part of the assistance package for emissions intensive trade exposed industries. Industries eligible for 60 per cent assistance will receive a 10 per cent buffer, while industries eligible for 90 per cent assistance will receive a 5 per cent buffer. Eligible businesses will receive funding to undertake energy efficiency measures from 1 July 2009. 

Senator Penny Wong, the Minister responsible for Australia’s Climate Change agenda, noted that we have to recognise that the Australian economy is suffering the effects of the global financial crisis, and that’s why we have a phased in start up. But at the same time, she added he government is providing business with the certainty and the incentives it needs to make the investments needed for a low pollution future. 

The Rudd government also proposes a commitment to reduce carbon pollution by 25 per cent of 2000 levels by 2020 if the world agrees to an ambitious global deal to stabilise levels of CO2 equivalent in the atmosphere at 450 parts per million or less by 2050. 

If the world achieves this ambitious agreement, Australia will meet this 25 per cent target by harnessing the CPRS, the expanded Renewable Energy Target, and with substantial investment in clean, renewable energy and energy efficiency and strategic investment in carbon capture and storage. 

Up to five percentage points of the 25 per cent target could be achieved through Government purchase of international credits, such as avoided deforestation credits, using CPRS revenue no earlier than 2015. Should the world achieve this ambitious agreement, the Government would seek a new election mandate for increased 2050 targets.

Finally the government proposes the establishment of Australian Carbon Trust to allow households to do their bit by investing directly in reducing Australia’s emissions and to drive energy efficiency in buildings. 

In developing this package, the government has embraced the views of Australian business community. "We have listened to calls from the business community for a later, more gradual start to the Carbon Pollution Reduction Scheme and additional assistance to help manage the impacts of the global recession," notes the public statement from the Rudd government released today.

This new commitment follows extensive consultation with environment advocates on the best way to maximize Australia’s contribution to an positive outcome in international negotiations at Copenhagen this December. 

"We have listened to Australian households who have raised concerns that their individual efforts to reduce emissions had not been adequately taken into account under the CPRS. Together this package of measures strengthens our response to climate change, ensuring Australia plays its part in global efforts to tackle climate change while managing any impacts on our economy. We will also continue to work with interested groups on an ongoing basis to deal with other technical matters as they arise," the statement continues. 

The government plans to introduce the revised Carbon Pollution Reduction Scheme legislation - including these new measures - when Parliament resumes. It hopes the legislation will pass this year in order to deliver the investment certainty business needs.  

The full statement is available here.

Publication Date: 5/04/2009

For More Information: Government of Australia