Emissions trading: One step forward and two steps back

Here's the Prime Minister's announcement:

NEW MEASURES FOR THE CARBON POLLUTION REDUCTION SCHEME

The Carbon Pollution Reduction Scheme will be phased in from 1 July 2011 and a new, ambitious 25 per cent by 2020 target has been put on the table, as part of a package of new measures announced today by the Rudd Government.

The package includes:

1. A delay in the start date of the Carbon Pollution Reduction Scheme of one year, to manage the impacts of the global recession.

To further assist businesses during these difficult economic times:

i. 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.

ii. 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.

iii. Eligible businesses will receive funding to undertake energy efficiency measures from 1 July 2009.

2. 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.

3. 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 the Australian 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.

This new commitment follows extensive consultation with environment advocates on the best way to maximise Australia’s contribution to an ambitious 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 Carbon Pollution Reduction Scheme legislation will be introduced when Parliament resumes.

Passage of the Carbon Pollution Reduction Scheme legislation this year – including these new measures announced today - is squarely in Australia’s national interest.

It delivers the investment certainty business needs during these difficult economic times.

And it enables us to advocate for the global agreement we need to protect future generations of Australians from the most damaging impacts of climate change.

CARBON POLLUTION REDUCTION SCHEME: SUPPORT IN MANAGING THE IMPACT OF THE GLOBAL RECESSION

The Rudd Government will delay the start of the Carbon Pollution Reduction Scheme by one year to help Australian companies manage the impacts of the global recession.

Australian businesses are currently dealing with the worst global recession since the great depression.

In this environment the Government has decided to act to further support jobs and assist businesses during these difficult economic times:

• A one year fixed price phase will apply between 1 July 2011 and 30 June 2012. During the fixed price phase, each carbon pollution permit will cost $10. From 1 July 2012, businesses covered by the scheme will need to purchase permits at the prevailing market price.

• A new Global Recession Buffer will be provided as part of the assistance package for emissions-intensive trade-exposed industries.

• Eligible businesses will receive funding to undertake energy efficiency measures in 2009-10 as part of a $200 million tranche of the Climate Change Action Fund.

CPRS start deferred to 2011 and permit price fixed at $10 for one year

To allow the Australian economy more time to recover from the impacts of the global recession, the CPRS will commence on 1 July 2011 with a one-year fixed price phase.

During the fixed-price phase, an unlimited number of permits will be issued to liable companies at a price of $10 per tonne.

Fixed-price permits from the first year will not be able to be banked for use in later periods.

The expanded Renewable Energy Target will be in place as planned from 2010 to drive investment in Australia’s vast renewable energy resources.

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

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, including to the terms of the five-yearly EITE review (see Attachment A).

Global Recession Buffer

An additional Global Recession Buffer will be provided for emissions-intensive trade-exposed (EITE) industries for the first five years of the Scheme.

This Buffer will provide an additional 5 per cent free permits for EITE activities eligible for 90 per cent assistance, giving an effective rate of assistance of almost 95 per cent to these highly emissions-intensive trade-exposed activities in the first year of the scheme.

The Buffer will provide an additional 10 per cent free permits for EITE activities eligible for 60 per cent assistance, giving an effective rate of assistance of 66 per cent to these moderately emissions-intensive trade-exposed activities in the first year of the scheme.

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.

Support through the Climate Change Action Fund

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 do have significant energy costs, to take action to reduce carbon pollution through energy efficiency before the scheme starts.

The $200 million tranche of the Climate Change Action Fund for 2009-10 will include:

. $20 million for a business information package to provide advice to businesses on how the CPRS will work and what impacts and opportunities may arise.

. up to $100 million for Early Action Energy Efficiency Strategies for Business, including energy audits and capital investment.

. $80 million for capital investment grants for businesses and community organisations.

Together, these measures will help businesses cope with the global recession while making a contribution to Australia’s comprehensive climate change response.

ATTACHMENT A

EITE ASSISTANCE PROGRAM

The CPRS legislation will include an ‘aims’ clause which directly relates the EITE assistance program to the impact of the scheme on the international competitiveness of EITE activities.

When conducting their five-yearly EITE reviews, the Expert Advisory Committee will consider the following issues (amending and building on the position in the White Paper):

(a) 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);

(b) 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;

(c) the extent to which the Scheme has resulted in an increase in the cost of electricity and the extent of pass through to EITEs;

(d) the extent to which EITE firms are making progress towards world’s best practice energy and emissions efficiency for their industry sector;

(e) the future shape of the permit price cap, recognising the need to balance the development of market mechanisms and business certainty;

(f) 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

(g) 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.

Five years’ notice will be provided for any modifications to the EITE assistance program, unless the modifications were required for compliance with Australia’s international trade obligations.

The continuation of the Global Recession Buffer beyond five years will be reviewed in light of domestic and international economic conditions and other relevant factors.

HELPING ALL AUSTRALIANS DO THEIR BIT ON CLIMATE CHANGE

The Rudd Government will establish the Australian Carbon Trust to help all Australians to do their bit to reduce Australia’s carbon pollution and to drive energy efficiency in commercial buildings and businesses.

The Government will also take into account the contribution of individual households that purchase accredited GreenPower in setting Carbon Pollution Reduction Scheme caps.

The $75.8 million Australian Carbon Trust will incorporate:

• a $50 million Energy Efficiency Trust, and

• a $25.8 million Energy Efficiency Savings Pledge Fund.

Australian Carbon Trust – Energy Efficiency Savings Pledge Fund

A new website will provide a one-stop shop for individuals and households to simply calculate their energy use and buy and retire carbon pollution permits under the Carbon Pollution Reduction Scheme.

Because the Pledge Fund will pool pledges, even small amounts can combine to make a big difference.

Households and individuals will be able to pledge as little or as much as they can afford to reduce carbon pollution.

The Pledge Fund will be entirely voluntary and contributions to the Pledge Fund will be tax deductible.

Australian Carbon Trust – Energy Efficiency Trust

The Government will provide $50 million in seed funding for an Energy Efficiency Trust to promote energy efficiency in the business sector.

The Trust will work by putting proposals to businesses to undertake energy efficiency measures that will save money over time.

The Trust would cover upfront capital costs of undertaking energy efficiency investments and put in place arrangements for business to repay the capital costs at a commercial rate as energy cost savings flow through.

For example, the Trust could identify lighting improvements in a business that would cost $2 million to undertake. The Trust would cover this $2 million cost, with the business contributing nothing upfront. The business would then pass the energy cost savings from the lighting improvements back to the Trust at a commercial rate until the full $2 million with interest is paid back to the Trust. Once the upfront capital is paid back, the business keeps the ongoing cost savings.

The Trust ensures participating businesses save money without having to tie up any capital.

The Trust also earns a solid rate of return on its investments and demonstrates to other businesses that energy efficiency pays dividends.

The Australian Carbon Trust will be developed in collaboration with the Carbon Trust in the United Kingdom, which is a leader in working with business to cut carbon and develop commercial low carbon technologies.

Supporting individual action through GreenPower

Many households, businesses and community organisations purchase accredited GreenPower to increase the supply of renewable energy and help Australia make the transition to a low pollution future.

As part of the new measures announced today, additional GreenPower purchases above 2009 levels will be directly recognised when the Government sets caps under the Carbon Pollution Reduction Scheme.

Additional GreenPower purchases will be measured annually and future caps will be tightened on a rolling basis.

The Rudd Government has listened to Australian households who have raised concerns that their individual efforts to reduce emissions will not be adequately taken into account under the CPRS.