THE FIRST piece of Australia’s emissions trading puzzle — the Federal Government’s Green Paper — was officially unveiled to the public last week.
The much-anticipated report sets out the Government’s position on many aspects of the proposed Emissions Trading Scheme, now officially known as the Carbon Pollution Reduction Scheme.
While the Green Paper has run with a fair number of the recommendations set out in the Garnaut Review Draft Report which was released on July 4, there are a few key points of divergence.
One of the most striking, though not entirely unexpected, departures from the Garnaut Draft Report is the Green Paper’s proposal to compensate coal-fired power plants.
The Garnaut Draft Report stated, somewhat controversially, that there was no environmental or economical reason for compensating coal-fired power plants and that any decision to do so would be a purely political one. Nevertheless the Government has confirmed that it will provide some “direct assistance” to coal-fired power plants that were in existence before June 2007, though many of the finer details of this remain unclear.
According to Allens Arthur Robinson partner Grant Anderson, the lack of detail on this issue is likely due to the fact that the Government will be required to balance some competing interests.
“I think the Government is treading a little carefully partly because … this is a difficult issue, I suspect. They’ll be in discussion with coal-fired generators and they simply haven’t come to a resolution as to quite how to address the issue,” Anderson said.
“[The owners of coal-fired power plants] will like it because they’ve been saying they need to ensure an orderly transition to an emissions trading scheme. But, of course, if you give free permits to one sector of industry, it means the other sectors of industry have to take up more of the burden of emissions trading — so it is a trade-off that the Government has got to make.”
On the hot-potato issue of petrol, the Government has now confirmed that transport will be included in the scheme from the outset, which is in line with Professor Garnaut’s recommendations in his report.
However, to soften the blow, it has also announced that it will cut fuel taxes on a cent-for-cent basis to offset the initial price impact on fuel from the introduction of the scheme.
According to Anderson, this runs counter to Professor Garnaut’s recommendations. “I think from Garnaut’s point of view, he would see chopping the excise tax as something that is muting the carbon-price signal to consumers. [With the tax cut], when consumers go to the pump, they won’t see the carbon price, then of course they do nothing to try and alter their behaviour,” he said.
“Though the Government’s argument for that is that we’ve had a reasonably sustained period of high petrol prices, and that, in itself, will have some impact on consumer’s behaviour.”
Anderson believes that in some respects the Green Paper actually goes further than the Garnaut Draft Report — particularly in regards to its treatment of the forestry sector. The Garnaut Report recommended allowing forestry offsets to be included in the scheme, however the Government has taken an extra step.
While forests owners will be able to elect to be included in the scheme and they will be able to get credits for carbon sequestering by their forests, they will also have to account for any carbon that is released, for example, through harvesting.
“I think it’s a good move,” Anderson said. “People are going to have to think very carefully.
“If you’re someone that plants forests and harvests them, your profile is going to look a bit like a see-saw and you’ll have to weigh up carefully the benefit to you [in opting into the scheme].”
The draft legislative package for the scheme is scheduled to be publicly released by the Government in December this year.