The Carbon Pollution Reduction Scheme

Releasing the Garnaut Climate Change Review Draft Report on 4 July Professor Ross Garnaut told Australia that climate change is a diabolical policy problem.

“Without strong and early action by Australia and all major economies we are likely to face severe and costly impacts on Australia’s prosperity and enjoyment of life,” said Professor Garnaut.

The Garnaut Climate Change Review was commissioned by Australia’s federal and state governments to examine the impacts, challenges and opportunities of climate change for Australia.

Less than two weeks after the Draft Report’s release, the Federal Government has released a Green Paper containing proposals for a new plan to tackle climate change by reducing carbon pollution through the CPRS.

Minister for Climate Change and Water Penny Wong said “At the heart of the CPRS is emissions trading, in which the government sets a limit on how much carbon pollution industry can produce, and then the government sells permits up to that limit, creating an incentive to look for cleaner energy options.”

Under such an emissions trading scheme (ETS), companies can buy and sell permits from each other depending on how much they value them, thereby enabling the market to find the most efficient way to reduce carbon pollution.

The government intends to implement the CPRS in 2010. It will cover stationary energy, transport, fugitive emissions, industrial processes, waste and forestry sectors, as well as the six greenhouse gases counted under the Kyoto Protocol from the time the scheme begins.

The industry responds

In response to the Garnaut’s Draft Report and the CPRS, gas industry stakeholders and representatives have urged the government to recognise that natural gas is a viable cleaner energy source capable of reducing carbon emissions today.

The Australian Pipeline Industry Association’s (APIA) Chief Executive Cheryl Cartwright said “It will be a major task to establish and implement a CPRS and the process will change Australia forever.”

“Australia is embarking on a brave new world to address carbon emissions,” Ms Cartwright said.

APIA has said that earlier greenhouse gas emissions reduction targets can be addressed if increased use of natural gas is introduced into the energy mix sooner rather than later.

The Australian Petroleum Production and Exploration Association (APPEA) has responded to the proposed national ETS advising that the scheme should recognise that LNG projects will help Asia-Pacific nations address climate change.

APPEA Chief Executive Belinda Robinson said “Australia’s vast gas reserves mean that we have the capacity not only to assist our own nation to move to a much less greenhouse polluting future but to triple LNG exports to 60 million tonnes (MMt) over the next ten years.

“This could result in 120 MMt of greenhouse gas pollution being avoided in the Asia-Pacific and also generate an additional $10 billion per year of tax revenue.”

The Energy Networks Association (ENA) praised the Draft Report’s recognition of the importance of a well integrated national energy network with the capacity to cope with potentially large shifts in energy flows that accommodates structural change following the introduction of an ETS.

ENA Chief Executive Andrew Blyth said a key step in ensuring that energy infrastructure plays this role will be the recognition by the Australian Energy Regulator of all the costs and risks faced by networks in making the required structural changes.

CPRS and households

The Energy Supply Association of Australia (ESAA) also welcomed the release of the Green Paper. However ESAA Chief Executive Brad Page said that establishing the emissions reduction targets is another important element that has yet to be considered.

The ESAA recently released the results of economic modelling that examines the potential impact on the stationary energy supply system in Australia of two potential emission reduction scenarios to 2020. The findings foreshadow an increase in consumer electricity prices that would flow from the operation of an ETS.

Looking forward

The Federal Government has said that the CPRS Green Paper sets out a proposed framework for dealing with these challenges and there is now an opportunity for each industry sector, including the gas sector, to make a proper assessment about the implications of the policy proposal for them.

The Green Paper will be followed by a White Paper on climate change later this year, which will outline the policy measures necessary to implement the CPRS, including a proposed medium-term trajectory for the scheme.