Beyond Neutral

Greenhouse Solutions

Carbon Pollution Reduction Scheme (CPRS)

The Carbon Pollution Reduction Scheme (CPRS) is a cap-and-trade scheme currently being set up by the Australian Government. 

The CPRS aims to reduce Australia’s GHG emissions by 60% in 2050 using 2000 as a baseline, through putting a cap on GHG emissions that corporations are allowed to emit.  The Government has commited to a medium-term national target of 5–15% below 2000 levels by the end of 2020. 5% is an unconditional commitment irrespective of other nations’ actions. 15% will be the commitment if there is a global agreement where major economies commit to substantially restrain their emissions and where all developed countries agree to comparable reductions.

Late in 2008, a White Paper was released. A legislation exposure draft is expected to be released for public comment in late February 2009, with the intention of introducing the relevant bills into Parliament in the 2009 winter session. It is expected that the Scheme will begin on 1 July 2010.

The CPRS is to be the primary mechanism used to meet the emission reduction objectives. The other major elements will include:

  • an expanded Renewable Energy Target;
  • investment in renewablee nergy technology;
  • carbon capture and storage (geo-sequestration); and
  • action on energy efficiency.

These measures are to have supporting measures for households and industry.

The CPRS will operate as follows:

  • Emissions from liable entities will be monitored, reported and audited (through the NGERS).
  • Liable emitters will need to acquire a permit for every tonne of greenhouse gas emitted.
  • A permit will need to be surrendered at the end of each year for each tonne of emissions produced in that year.
  • Each year the Government will limit the number of permits issued.
  • Firms will compete to purchase the permits needed, either at auction or on a secondary trading market, or it will be cheaper to reduce emissions.
  • Some firms will have permits allocated to them which can then be used or sold.

The CPRS will:

  • cover around 75 per cent of Australia’s emissions and involve mandatory obligations for around 1000 entities.
  • cover all six greenhouse gases that are covered under the Kyoto Protocol.
  • cover emission from stationary energy, transport, fugitive, industrial processes, waste and forestry sectors.
  • will be achieved through a combination of placing CPRS obligations directly on some emitters, and, in other cases, placing obligations further ‘upstream’ in the production chain.
  • not cover emissions from agriculture though the Government will make a determination in 2013 whether or not to cover agriculture emissions from 2015.
  • not cover emissions from Australian deforestation.
  • allow unlimited access to international abatement through the Kyoto Protocol’s project-based flexibility mechanisms (i.e. Clean Development Mechanism and Joint Implementation).

The role of offsets:

  • Offsets could be potentially created by those sectors not covered by the CPRS.
  • Offsets cannot be created in sectors already covered by the CPRS — it is expected that there will be little scope to pursue offset activities, especially if agriculture is included.
  • The CPRS will not include domestic offsets from agriculture emissions in the period prior to 2013 and the determination on coverage of these emissions.
  • The potential for carbon offsets from savanna burning in Northern Australia will be investigated.
  • Greenhouse Friendly™ offsets from projects in sectors covered by the CPRS will be unlikely to be able to meet Greenhouse Friendly™ financial additionality requirements once the CPRS commences, so they will only be eligible to generate credits until the CPRS commences.

Carbon pollution permits will be:

  • created as personal property.
  • tradable.
  • able to be banked indefinitely–they will have a vintage but no expiry date.
  • able to be borrowed from the next year (up to 5%).
  • financial products for the purposes of the Corporations Act 2001.
  • banned from being exported in the CPRS’s initial years.
  • have a transitional cap on their price.