Cap and Trade Lives Down Under: A Harbinger for Things to Come?

The Commonwealth of Australia imposed through a new law enacted last week a quasi-cap and trade scheme on carbon emissions. It is a significant development in the inexorable march to impose restrictions on the use of carbon-based fuels using climate change as an impetus. 

Prime Minister Julia Gillard’s Clean Energy Futures plan will become law on July 2012, setting a cost of A$23 ($23.80) on each metric ton of greenhouse-gas emissions.(GHG) The carbon levy is fixed until 2015 and then a more or less cap and trade system will be installed.

Australia burns coal to produce about 80 percent of its electricity. The new law is intended to cut GHG emissions by 5 percent by 2020.

Australia has wrestled with GHG restrictions for the past few years. Once thought dead, like Lazarus, it was resurrected this past year. It is instructive to study the plan itself but its enactment also serves as a warning the issue of climate change and GHG restrictions are ever present

A few details are in order and remarkably similar to those we have seen: 

 The scheme will operate in two phases: a fixed-price phase commencing July 1, 2012, followed by a floating-price phase commencing automatically on July 1, 2015. It covers emissions from the stationary energy, industrial processing, resources and waste sectors. This is estimated to be 400-500 sources each having more that 25,000 tons in greenhouse gas emissions from covered activities. Entities will be required to surrender carbon permits to cover those emissions. Note: This is very similar to the proposal, structure and nomenclature of the bills considered in the last Congress.

Emissions-intensive trade-exposed industries and coal-fired power generators will be eligible to receive assistance, primarily in the form of free carbon permits. The carbon-pricing scheme will operate in two phases: a three-year, fixed-price phase from July 2012 to June 2015, moving to a floating-price phase on July 2015. In both phases, liable entities will be required to acquire and surrender carbon units equivalent to their annual emissions from activities covered by the new law.

 In the fixed-price phase, the carbon price will commence at $23 per ton, increasing each year. In this phase, the “Clean Energy Regulator” will sell to liable entities an uncapped number of units at the applicable fixed price, which will be automatically surrendered by those entities to meet their liability and cannot be traded or banked for future use

 In the floating-price phase, the Government will set annual caps on the number of carbon permits to be issued in each year and the price of those units will be determined the market. The exception is that, for the first three years of this phase, there will be a carbon unit floor price of $15 in 2015 and increasing each year. There is also ceiling price collar.

The new law covers the emissions of four of the six Kyoto Protocol greenhouse gases (carbon dioxide, methane, nitrous oxide and fluorocarbons) from the following economic sectors:

• Stationary energy such as electricity generation;
• Industrial processing such as aluminum smelting;
• Fugitive emissions such as emissions from the extraction of coal, oil and natural gas); and
• Emissions from landfill waste and waste water treatment.

The plan provides huge subsidies to consumers and increased pensions to try to offset higher price for energy.

So why is this important? What difference does it make that a country half way around the globe chooses to tax and restrict GHG emissions? 

• Australia is the 38^th nation to institute some sort of GHG restrictions, with the EU countries making up the largest group. It is an interesting development given the tenuous state of the world economy and the fact the country is a large exporter of raw materials, such as coal.
• Envoys from 190 nations meet on Nov. 28 in Durban, South Africa, to discuss climate rules. While the U.S. doesn’t have a national emissions trading system, California will start a trading system in 2013. International pressure, while weaker than several years ago, continues and seems to be gaining some strength.
• The US EPA continues to try to regulate GHG emissions thought a variety of new rules.  Congress has complains but has failed to block any attempt to rein in the EPA. The EPA rule making authority is being challenged in the courts but the outcome of those lawsuits is speculative.

The next election will be critical to the fate of any proposal to regulate GHG emissions. If Mr. Obama is re-elected, the EPA will continue its back door approach and, perhaps, there will be another legislative attempt to enact some sort of restrictions. Perhaps, he will sign some sort of international treaty or other commitment?

The Australian actions are significant, bears watching what impact they will have and how proponents of cap and trade will use this development to  promote similar actions. 

 So, cap and trade is not dead. The ablity and desire of governments to tax its citizens even in a downtrrun is still around. In fact,  it is alive and well down under. Keep an eye out. 

 

 

Comments

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