Water Journal : Water Journal September 2011
feature article 54 SEPTEMBER 2011 water feature articles A decade has passed since the Howard Government's Australian Greenhouse Office (AGO) published its emissions trading discussion papers and initiated national consultation on the design of a potential carbon pricing scheme. The announcement of the set price, which is planned to commence in July 2012, is causing a few of the big industrial players to anticipate how much of an impact this price will have on their operation, and has polarised politicians and the public on the topic of global reduction efforts. The question for water businesses -- and, indeed, for every business -- is what the carbon price and future emissions trading scheme (ETS) means for them. How does a business plan for the impacts and position itself to capitalise on opportunities? Are the opportunities significant and worth planning for now? There are many questions that have subtle variations for every water business around Australia. A sensible approach to answering some of these questions is: 1. To look at what this carbon pricing mechanism (Scheme) actually means for each particular business; 2. To understand and assess the real impacts of the Scheme on their operations, including quantifying the magnitude of the impacts identified; 3. To mitigate the potential impacts through improved energy use and more sustainable business practices. While the impacts of the Scheme on business operations are important, there are also real opportunities presented by the introduction of a carbon price. Perhaps a more significant question the water industry should be asking is: "How can we play our part in restructuring the future economy for efficient use of energy, while meeting customer needs and remaining a viable and sustainable business?". Summary of the Carbon Pricing Scheme On 10 July 2011 the Government announced its intention to introduce a carbon pricing mechanism to Australia. The Scheme is designed to limit Australia's emission of greenhouse gases and ensure Australia reaches its unconditional pollution target of 5% below 2000 levels by 2020. This translates to abatement of 160 million tonnes of carbon dioxide equivalent by 2020. In the Australian Government's Climate Change Plan, Securing a Clean Energy Future, the Government specifies that the imposed carbon price will provide a financial incentive to reduce energy consumption through innovation and efficiency measures. The Scheme will directly apply to the 500 biggest emitters (Liable Entities) and flow through the economy to the end user with increased energy costs. If the Scheme is passed in parliament, initially, a carbon price will be imposed from July 1 2012 for a three-year fixed price period. The Scheme will then transition to a flexible price "cap and trade" ETS on 1 July 2015. Liable Entities will be obliged to surrender permits equivalent to their emissions during the fixed price period and to their "pollution cap" during the flexible price period. During the fixed price period the carbon price will start at $23/tonne and increase by 2.5% in real terms each year. Liable Entities may purchase permits from the Government at the fixed price, up to the number of their emissions each compliance year (being 1 July to 30 June). Liable Entities are limited to meeting 5% of their liability in the form of Kyoto- compliant Australian Carbon Credit Units (ACCUs) created from eligible offset projects under the Carbon Farming Initiative (CFI) during the fixed price period. During the flexible price period, Liable Entities will be able to surrender up to 50% of eligible international units to meet their compliance obligations, in addition to purchasing carbon permits at auction and purchasing Kyoto-compliant ACCUs. A price ceiling and price floor will apply for the first three years of the flexible price period. The ceiling price will be set at $20 above the international carbon price and will rise by 5% in real terms each year. The floor price will start at $15 and rise at 4% in real terms each year. A summary of the tax is presented graphically in Figure 1 (note that the ceiling price is calculated using the current international carbon price, which is approximately $AUD15 /tonne -- July 2011 -- Thomson Reuters, 2011 Climate and Business Conference, Wellington). Figure 1. Graphical representation of the Australian Carbon Pricing Scheme. The Government intends to utilise the funds generated by the proposed Scheme to offset increased costs and support a range of sectors throughout the economy. Major emphasis has been placed on supporting families and low-income earners in order to compensate for any increases in energy bills, or other goods and services, due to the flow-on effect from major emitters. A significant portion of funds generated by the Scheme will be returned to the Liable Entities. There has been some media criticism about the validity of the Scheme and whether it can achieve meaningful emissions reduction in a global context. However, other countries have seen significant emissions reductions and increased renewable energy sector investment due to an ETS. Contrary to some media reports, Australia is not alone in pursuing an ETS, and if the Scheme passes parliament Australia will be the 33rd country to adopt a carbon reduction scheme as of July 2011 (GE, 2011). New Zealand has had an ETS in S Alimanovic, K Simmonds, B Henderson, A Fearnley Carbon pricing will inevitably have impacts on the water industry, but it will also present opportunities to show leadership in the field. The Carbon Pricing Scheme -- Opportunity in Disguise?
Water Journal November 2011
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