Emissions trading Emissions trading can take many forms, but in essence it is a regulatory mechanism to reduce the emissions of a group of parties down to a level set by the government. The main benefits of an emissions trading approach compared to a straight ‘carbon tax’ is that it allows businesses to seek out the cheapest reductions in the group through the trading of emission permits.

Coverage of CPRS Corporations with sites that have annual greenhouse gas emissions equivalent to 25 kilotonnes of CO2 or over will be required to match each tonne of carbon dioxide equivalent gas they emit with an emissions permit under the CPRS. This is expected to cover approximately 70 per cent of Australia’s greenhouse gas emissions. The price of these permits will be decided via auctions but is widely expected to start around the $20 per tonne range.

Costs of carbon The ongoing price of permits will be heavily determined by the preparedness of industry in metering compliance with the scheme. Companies that are adequately trained and prepared will have the skills and foresight to adjust their permit appetite in accordance with the alignment between permit costs and the cost of reducing emissions internally. If industry as a whole is unprepared then the price of permits could easily rise toward the cost of Kyoto based Clean Development Mechanism credits (around $40) or the per ton penalty for compliance under CPRS – which has not yet been finalised.

Effect of CPRS on the clean energy industry The introduction of a carbon cost opens up exciting opportunities for energy efficiency and clean energy technology; essentially, a $20 permit price provides an additional $20 of cost to coal powered electricity per megawatt per hour (MWh) of electricity generated in New South Wales, Queensland, South Australia and Western Australia and $26 per MWh in Victoria. Coupled with Renewable Energy Credits revenue – currently around $45 per MWh – the introduction of the CPRS will help level the playing field for the clean energy industry.

Does cost matter? Look up while walking through the city at night and you can see by the number of lights left on in office buildings that costs do not always drive efficiency. Many of these culprits will be captured and made liable to the CPRS. The needless cost of leaving these lights on is around $150 per MWh and has been for the last five years. Will an extra $20 really make a difference?

To emphasise the point again, preparedness and planning is key for companies in ensuring that they are not met with hefty costs under the CPRS. Responsible companies will ensure cross collaboration between operations managers and chief financial officers to enforce changes to operations that reduce the emissions intensity of their activities.

Importance of other schemes A 2–3 cent increase of the cost of creating coal fired electricity will not be enough to encourage the level of further investment and growth in the energy efficiency and the clean energy sector that Australians desire.

Energy efficiency trading schemes are being developed in many states to attempt to overcome this barrier, primarily by allowing third parties to implement efficiency measures, funded through liabilities placed on electricity retailers. Similarly, policies such as the Mandatory Renewable Energy Target and its rebates are vital to foster the growth of the renewable energy industry.

Going beyond the cap Climate change threatens the future of the planet; and many of its citizens feel the urge to respond beyond the levels of greenhouse gas set by government. Scientists and academics often warn that proposed targets may be too soft and that greater action is needed to stave off disaster from increased concentration of atmospheric greenhouse gases.

There are a large number of voluntary actions being taken every day by businesses and individuals in Australia, such as installing renewable energy systems, purchasing GreenPower or participation in Australian based voluntary offsetting programs.

One of the main concerns raised about the proposed design of the scheme is that it currently does not have any provision to allow voluntary actions by individuals or businesses to create additional greenhouse gas savings beyond those set as our national cap by the government.

Summary

There are a number of issues highlighted within this article; each of which pose unique challenges in designing the emissions trading scheme. A well designed system will allow for complementary measures and voluntary actions to enable corporations as well as consumers to act effectively against the threat of climate change.