THE RELEASE of the Garnaut Review Draft Report — the precursor to the Federal Government’s “Green Paper” — was eagerly anticipated by the legal profession.
Within days — and, in some cases, hours — of the Draft Report’s release on 4 July, most of the big law firms had released briefing papers reviewing the Draft Report’s major findings, recommendations and implications for clients.
The Garnaut Review was only ever intended to be one of a number of sources that the Government would take into account when nutting out the finer details of the proposed Emissions Trading Scheme (ETS). However it’s obvious from the enthusiasm of the media and law firms alike that it is positioned to be a highly influential one.
Blake Dawson, for one, put out its “Greenhouse Update” on 8 July, and it comprises no fewer than seven separate articles analysing different aspects of the scheme. The Draft Report is more than 500 pages long and canvasses everything from the science of climate to policy options and the likely impact of climate change on Australia. However, according to Blake Dawson partner Tony Hill, the key area of interest for clients is chapter 15, which deals with the design and implementation of the ETS.
One of the more controversial — but not unexpected — recommendations is having all ETS permits auctioned, with no free allocations or compensation given to high-emitting businesses.
The Draft Report concludes there is no economic or environmental rationale for such compensation, and the decision to do so would be a purely political one. However, according to Hill, there are mixed feelings regarding this recommendation within the business community.
“There’s been competing views depending on where you sit in the business sector,” he said. “In response, I think it does make a difference to some sectors of business, particularly if you’re in the business of owning and operating power stations. I think some of the economics may be based on the assumption that there’s an ability to pass through all of the costs, and that assumption may be tested.”
Hill also questions the Draft Report’s second rationale for this recommendation, which is that it would be too difficult to devise a scheme for free allocations within the given timeframe and it would require “value-based” judgements.
“The law has various existing regimes and statutes aimed at compensating people, for example, when the government compulsorily buys your land…. The fact that something is difficult to implement shouldn’t be an impediment to properly compensating people if the policy is adopted that they should be compensated,” he said.
The Draft Report does, however, recommend compensating trade-exposed business, albeit with high materiality thresholds for eligibility.
Another issue raised by the Draft Report is the timing between the ETS’ proposed implementation in 2010, and the end of the first Kyoto Protocol Commitment period in 2012.
Professor Garnaut’s preference is for a fully market-based ETS from 2010 with all permits auctioned and no constraints on their price. However, the Draft Report has also put forward an alternative option which would involve a “transition period” between 2010 and 2012 — in which time permits would be issued on demand for a set price, rather than being auctioned off.
Hill believes that this timing dilemma is one of the biggest concerns for both businesses and the government.
“The dilemma faced by the Government is balancing its political commitment to commence the ETS in 2010 in the absence of any international agreement on [emissions reduction] targets post-2012,” he said.
“I think the Garnaut Report really highlights that dilemma, in that it canvasses options for the design of the ETS to deal with the transition period between that political commitment in 2010 and … 2012.”
The Garnaut Review Final Report is scheduled for release at the end of September.