Upcoming Mallesons seminarsThe ETS will affect all parts of the Australian economy, either as a direct compliance requirement or as potential cost increases.
What do you need to do?The design process of the ETS is reaching its final stages. Comments in respect of the Draft Report can be made in writing or by attending one of the public forums.
Louis Chiam
Partner
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Professor Garnaut today launched his much-anticipated Draft Report, reaffirming his view that an Australian emissions trading scheme (ETS) should have broad coverage and that there should be no compensation for industries such as the power sector.
While favouring a “big bang” start, Garnaut recognises that a transitional start is a legitimate second-best approach. Garnaut recommends full competitive auctioning of permits with revenue going towards research, development and the commercialisation of low-emissions technologies, the traded sector, households and international permits and offsets.
Big bang vs transitional start to ETS
Garnaut favours a direct movement to a full ETS. However, he flags an alternative two-year start-up period, from 2010 to 2012, which would see permits being sold at a fixed low price with the Kyoto Protocol defining Australia’s emissions reduction trajectory.
Compensation
As expected, Garnaut reiterates his earlier view that there is no basis to compensate the power sector for loss of profits or reduction in asset values arising from an ETS. He does recommend accelerating structural adjustment in the industry to support new investment in reducing emissions in coal based generation, for example through carbon capture and storage (CCS).
Traded sector
Building on his recommendations in the ETS Discussion Paper, Garnaut recommends that up to 30% of the revenue raised from the auctioning of permits be applied in a disciplined way to compensate traded sectors such as chemicals and metals.
Low emissions technology
Garnaut recommends that 20% of the revenue from permit auctions be invested in research and development and the commercialisation of new low emission technology such as CCS, geothermal and solar technology. In addition, Garnaut endorses an international commitment to low emissions technologies in which Australia’s share would be in the order of $3 billion per annum.
Garnaut has recommended that Australia lead the way in making CCS technologies commercially viable and to transfer those technologies to developing countries. He also recommends phasing out of the Government’s Mandatory Renewable Energy Target upon a fully operational ETS.
Coverage
Garnaut reaffirms support for an ETS with a broad coverage and that exclusions be based on practical necessity and not short term political considerations. Significantly, the sensitive areas of transport and petroleum products would be included in the scheme from the outset.
Consistent with the ETS Discussion Paper, the Draft Report recommends that the agriculture and forestry sectors not be included in the scheme from the outset.
No price cap
Garnaut reiterates the position proposed in the ETS Discussion Paper, that the scheme should have no price cap for carbon. In particular, that parties with a permit shortfall would have to pay a penalty as well as make good the shortfall at a later date.
Towards an Australian trajectory
Further reports from the Garnaut Review, due by September 2008, are expected to present results of the joint assessment by both Garnaut and the Australian Treasury of the costs of various degrees of Australian mitigation and modelling on the avoided costs of climate change. Garnaut will also provide an analysis of adaptation issues and critical advice as to budgets, trajectories and targets for an Australian ETS.
How does this affect me?
The Garnaut Draft Report is expected to inform the Federal Government’s green paper which is due mid July. The Garnaut Review provides a useful yardstick in accessing likely design options and market reactions.
The Garnaut Review welcomes comments on the Draft Report. Professor Garnaut will host public forums around Australia in the week commencing 7 July. The Review Secretariat will also accept comments in writing on the Draft Report.
The Draft Report can be found here.