With a planned commencement date of 1 July 2010, the Carbon Pollution Reduction Scheme (CPRS) White Paper sets out the Government’s plan to reduce emissions, adapt to climate change and help shape a global solution.

Introducing the scheme, Prime Minister Kevin Rudd said “We are the first generation empowered with the fullest understanding of climate change. And we are the first generation to experience the tangible effects of climate change on the planet.

“We simply cannot afford to ignore climate change any longer. The case for action is clear. The case and the cost of inaction is equally clear.”

Paper specifics

The White Paper is the Federal Government's primary policy tool for the mitigation of climate change. Following Treasury modelling, the Garnaut Review and over 1,000 submissions in response to the Green Paper, the White Paper sets a medium term target range for national greenhouse gas emissions and outlines the Government’s final design of the CPRS.

The Government has decided on a medium term target range to reduce emissions by between 5 and 15 per cent below 2000 levels by 2020, which it says balances the need to make a strong contribution to international efforts with a balanced and measured start to the scheme.

The paper states “It is in Australia’s national interest to achieve a comprehensive global agreement to stabilise atmospheric concentrations of greenhouse gases at around 450 parts per million of carbon dioxide equivalent. However, the Government recognises that achieving global commitment to such action in the near term will be challenging.”

Mr Rudd said “Our primary objective has been to get the balance right. To set in place a scheme that reduces carbon pollution and supports economic growth.”

Fuel credits

Outlined in the White Paper is the Government’s plan to introduce a ‘CPRS fuel credit’ payment that will assist the heavy on-road transport sector transition to a low-carbon economy. A credit will be provided for one year to compressed natural gas (CNG) and LNG users. A credit will also be provided to LPG users for three years. The total estimated cost of the fuel tax measures is $2.4 billion in 2010–11.

The White Paper says that the credits for LPG, CNG, and LNG will be provided at rates that reflect the lower emissions of these three fuels and will be reviewed at the time they are due to cease. LPG Australia (LPGA) believes the three-year fuel credit policy is fair. “Given the current financial crisis, this would seem a reasonable position,” an LPGA spokesperson said.

LNG for global connections and solutions

The Australian Petroleum Production and Exploration Association (APPEA) has said that the industry will be detrimentally affected under the scheme, as it does not recognise the benefits of natural gas in decreasing local and global greenhouse gas emissions.

Under the scheme, LNG will qualify for a 60 per cent allocation of free permits as an emission intensive trade exposed industry (EITE) provided it meets the eligibility criteria.

Despite this shift – under the Green Paper, LNG was not classified as an EITE industry – APPEA has said the industry should be exempt from the scheme until its competitors and customers are “subject to a similar impost.”

APPEA has said that “The industry will face a significant cost impact not faced by its competitors and customers and the growth and development prospects of the Australian industry will be adversely impacted as a direct result.

“Under a global carbon constraint, natural gas and the LNG industry could be expected to expand and Australia could play a key role in that global growth. The White Paper however, does not recognise the potential of domestic gas and fails to recognise cleaner global contributors, particularly LNG,” the association states in its White Paper review.

APPEA is continuing its call for the recognition of LNG as a ‘cleaner global contributor’ under a mechanism that would “offset international competitive disadvantage through the grant of permits representing the total of their direct and indirect emissions.”

Securing cleaner supplies at home

Meanwhile, Western Australia’s DomGas Alliance has voiced concerns that the scheme could result in domestic gas shortages, as domestic gas producers do not qualify for assistance under the scheme.

DomGas Alliance Chairman Stuart Hohnen has said that this will distort investment decisions in favour of LNG over domestic gas, as the gas supplier is not able to pass on to its customers the carbon costs incurred at every step in the gas supply chain.

He said “Where gas producers are able to pass on carbon costs to the domestic market, this will further increase the cost of natural gas for downstream industry.

“From a climate change perspective, it is illogical to discourage natural gas supply by providing a financial incentive for gas producers to export LNG rather than supply the domestic market. This could increase Australia’s greenhouse emissions and shift investment and energy use from gas to coal.”

The RET

One of the scheme’s complimentary measures is the proposed Renewable Energy Target (RET), which requires 20 per cent of Australia’s electricity be sourced from renewable generators by 2020. The target, designed in conjunction with state and territory governments through the Council of Australian Governments, proposes to bring the existing Mandatory Renewable Energy Target (MRET) scheme and existing state-based targets into a single national scheme.

Energy Retailers Association of Australia Executive Director Cameron O’Reilly said “Gas will inevitably be a winner [under the RET] as there will be more base-load, peaking and back-up gas generation required.”

However, many in the gas industry have stated that the RET does little to encourage the use of gas as an energy source and actually impedes the Government’s plan to reduce greenhouse gas emissions.

APPEA has said “The RET does not represent an efficient or cost effective greenhouse policy response.” Gas powered plants have the ability to ramp up and down more easily and efficiently than coal-fired plants and some in the industry have said that this may mean gas will be the first form of energy switched off as intermittent or renewable sources of energy come online.

Mr O’Reilly commented that a greater volatility in gas markets could ensue. “This is why we support the proposed Short Term Trading Market. Ultimately there is a concern that gas retail competition could decline due to this more volatile/risky scenario.

APPEA Chief Executive Belinda Robinson has said “While the design of the CPRS has taken a significant and positive step forward, as a country we still have a way to go in accepting that Australia’s gas reserves represent a major strategic asset for supplying Australia and the Asia-Pacific region more broadly with a substantially cleaner source of energy.”

“Given Australia’s massive reserves of natural gas and LPG, government should increase the focus on using gas. Better education and incentives about the benefits of gas over electric-storage hot water and electric heat pumps would also be better climate change policy,” has said an LPGA spokesperson.

Reviewing the scheme

The administration of the CPRS, the National Greenhouse and Energy Reporting System, and the RET scheme will be combined under a single independent regulator. Key functions of the regulator in relation to carbon pollution include enforcing compliance, maintaining the registry of domestic and international units, auctioning permits, and administering the permit allocation rules set out in legislation and regulations.

An independent expert advisory committee will be convened to conduct strategic reviews of the scheme, with the first review to be completed in 2014.