No it didn't. But that's ok. I'd prefer to see opinion from a more mainstream source- I don't know anything about Business Green.
Here 'tis
Just a factual.
The new Australian Coalition Government has stated that its first order of business will the repeal of the Carbon Pricing Mechanism (CPM) or the so called "carbon tax". Indeed new Australian PM Tony Abbott promised in his victory speech that "in three years' time, the carbon tax will be gone".
There is a lot of debate on if and how this will happen, the extent to which the National Labor Party (NLP) will or will not stand in the way, and if they do how this will impact on the seven to nine independent Senators in the Upper House? Let's move quickly past these debates and assume that the new Government is successful.
If the Senate supports the Repeal Bill the CPM will be repealed by 1 July 2014 at the latest. If the Senate blocks the Bill then the Government will need to resort to the double dissolution process triggering another election. Assuming they again win this then the CPM will likely be repealed eight to nine months following such an election.
Either way let's consider what the CPM will be replaced with. As a starting point the new Government has made a clear commitment to stick to Australia's international target to reduce greenhouse gas (GHG) emissions to five per cent below 2000 levels by 2020. So if they are going to repeal the CPM they need to deliver an alternative to achieve this. That alternative is their Direct Action Plan (the "DAP"), which the Government aims to commence by 1 July 2014. It is often portrayed as a pot of money to be used to buy domestic emissions reductions or low cost abatement. There is actually more to it than that.
At its simplest the DAP is an incentive based policy designed to support emissions reduction activities through:
a capped government fund which will purchase "lowest cost abatement" from projects that reduce or avoid greenhouse gas emissions (Emissions Reduction Fund - "the Fund"), and
the imposition of financial penalties on businesses which exceed their "business as usual" emissions baselines.
The details of the DAP will be developed through a white paper process. Submissions will be sought by 7 October, consultation will take place between 6 November and 16 December, and implementing legislation will be ready by 5 February 2014. We note that legislation to introduce the DAP will be subject to the same hurdles as discussed above for the Repeal.
The Fund will consist of $300m in the first year, $500m in the second and $750m in the third. Although the exact details of the Fund will be finalised during the White Paper process, it is currently proposed that Low Carbon Australia (which will be demerged from the Clean Energy Finance Corporation to act as administrator of the Fund) will buy the "lowest cost per tonne abatement" from entities which:
reduce emissions through a project approved under the existing and/or expanded Carbon Farming Initiative (CFI), or
create abatement by operating below their "business as usual" baseline.
Low Carbon Australia will purchase abatement through a reverse auction where entities can voluntarily place bids based on the lowest price they are willing to sell their abatement for. Low Carbon Australia will be able to enter into forward contracts with entities to purchase abatement which may be delivered over a five to seven year period. Funding, however, will only be delivered once abatement is actually achieved.
One issue which will need to be determined during the White Paper process is whether there will be any consequences for a project which does not deliver its contracted abatement. Although it is clear that the project will not receive payment if the abatement is not delivered, consideration may need to be given as to whether there will be other incentives or penalties included to guarantee the contracted abatement. This will be particularly important where the Government is relying on the contracted emissions reductions to achieve its 2020 target.
Greg Hunt, the likely new Climate Minister, has indicated that a Coalition Government will not pick and choose what types of projects it will purchase abatement from (for example, through funding categories or "bands" based on sector or abatement type), but rather, will simply purchase the lowest cost abatement offered through the auctions. He has expressed it as "buying up the cost curve". This approach may raise issues about the viability of existing or proposed CFI projects if they find that they are unable to compete with other project types participating in the auctions. For example, it is widely anticipated that energy efficiency projects are likely to be the lowest cost form of abatement and that with aggregation, these types of projects may easily absorb a large part of the allocated funding for the Fund. Conversely, land sector projects (such as reforestation), which often have significant upfront capital costs and long lead times for abatement to be realised, may struggle to compete for funding under the Fund.
Most speculation, argument and analysis has focused around the first limb, the Fund and not the system of financial penalties to be imposed on businesses whose emissions exceed their "business as usual" emissions baselines. This criticism of the Fund has centered on whether or not this will be enough money to purchase sufficient abatement to meet the 5% target. Abbott has stated clearly that there will be no more money made available and so it will have to do. So perhaps this is where the baseline and penalty part of the DAP will play its part in addressing any abatement shortfall.
The exact details of who will be liable to pay financial penalties under the DAP and the value of those penalties is expected to be consulted on and finalised through the White Paper process. The Government has, however, referred to the fact that the "business as usual" emissions baselines will be calculated on an individual firm basis, will be based on a firm's average emissions over the past five years using data reported via the National Greenhouse and Energy Reporting Scheme (NGERS) and may potentially be linked to a firm's emissions intensity.
One has to ask the obvious question. What is the fundamental difference between a scheme such as the CPM where a liable entity has a cap on their emissions for which they will incur a financial penalty if their emissions exceed this cap and a scheme where an entity will incur a financial penalty if their emissions exceed a business as usual "baseline"? In both cases if their emissions are below the cap or baseline they can sell the excess emissions. In fairness, it is not clear under the DAP if those businesses who exceed their "baseline" can purchase abatement "credits". Under the CPM liable entities for whom reducing emissions would be highly expensive could purchase cheaper reductions from those who found it cheaper to reduce their emissions. Not to mention their free allocation and compensation many were entitled to.
Therefore it is not beyond the realms of possibility to imagine that what could emerge from this latest round of Australian consultation and legislating on climate change is some form of reincarnated market mechanism with a new name and brand. After all Australia has under both shades of Government been designing emissions trading schemes, issuing white papers and running consultations on this for over 10 years now. At least the CPM made it to the statute books even if a betting man would not put a great deal of money on it remaining there for too long.
Perhaps the smart advocates of an effective, efficient and functioning market mechanism to mitigate climate change in Australia should be putting their efforts into ensuring that this second limb of the DAP is as well designed and effective as possible. The Carbon Pricing King is Dead, Long live the Carbon Pricing King!
Anthony Hobley is global head of sustainability and climate change at Norton Rose Fulbright
