The Australian Carbon Pollution Reduction Scheme (CPRS)

What is the CPRS?

Australia's Carbon Pollution Reduction Scheme Summary
in PDF Format

CPRS stands for Carbon Pollution Reduction Scheme. The CPRS is the Australian governments proposed carbon emissions trading scheme.

The objective of the Carbon Pollution Reduction Scheme is to meet Australia's emissions reduction targets in the most flexible and cost-effective way; to support an effective global response to climate change; and to provide for transitional assistance for the most affected households and firms (Department of Climate Change, 2008).

The Commonwealth Government has released its White Paper setting out the design of the CPRS and the medium-term target range for GHG emissions reductions.

Drafting for legislation to implement the CPRS is under way. An exposure draft is expected to be released for public comment in late February 2009.

Following public comment, the Government intends to introduce bills into the Parliament in the winter session of 2009 with a view to the CPRS commencing on 1 July 2010.

Targets

The national emissions trajectory is communicated in three ways:

The Government's long-term goal of reducing emissions by 60 percent below 2000 levels by 2050
A medium-term target range for 2020
A near-term indicative emissions trajectory, which will initially cover 2011, 2012 and 2013.

The Government is still committed to its long-term goal of reducing emissions by 60 percent below 2000 levels by 2050.

The Government has set a medium-term target range for emissions reductions of between 5 percent and 15 percent below 2000 levels by 2020.

The Government has also set a near-term indicative trajectory to provide additional guidance as to the likely reductions in Australia's national emissions in the first three years of the Carbon Pollution Reduction Scheme.

The near-term indicative trajectory for Australia's national greenhouse gas emissions is:

For the 2010-11 financial year: 109 percent of 2000 levels
For the 2011-12 financial year: 108 percent of 2000 levels
For the 2012-13 financial year: 107 percent of 2000 levels.

A Company perspective

The limit on emissions applies to all covered emissions sources--there is no limit on emissions from individual sectors, firms or facilities.
Companies are free to emit at whatever level they choose, as long as they surrender an eligible compliance permit for every tonne of those emissions at the end of the compliance period. Companies may or may not have received some compliance permits free of charge, but that does not change this basic compliance rule in any way.
Carbon pollution permits will be tradable and the price of permits determined by the market.
Companies are likely to be willing to pay for permits if their internal costs of abatement are higher than the price of permits and to directly reduce their emissions if their internal costs of abatement are lower than the price of permits. A company that owns permits would be willing to sell them if the revenue received from selling permits exceeds the profits from using them.

Coverage

The Scheme will cover around 75 per cent of Australia's emissions and involve mandatory obligations for around 1000 entities.
The Scheme will cover all six greenhouse gases that are covered under the Kyoto Protocol.
The Scheme will have broad sectoral coverage and will cover emission from stationary energy, transport, fugitive, industrial processes, waste and forestry sectors.
The Government does not propose to include deforestation in the Scheme. Australian deforestation emissions have reduced markedly since 1990, largely due to increased protections against land clearing.
Offset credits could potentially be created by those sectors not covered by the Scheme.
Offsets cannot be created in sectors already covered by the Scheme--the very broad coverage of the Scheme implies that there is little scope to pursue offset activities, particularly if agriculture is to be included in the Scheme.

The Carbon Price

The Government has decided to set a price cap for five years, of $40 per tonne at Scheme commencement, rising at five per cent real per annum.
The actual carbon price will be determined by the market.
The assumed initial carbon price is $25 per tonne of CO2-e, broadly consistent with the Treasury modelling.

Setting Scheme caps

The Scheme cap determines the number of permits that will be issued by the Government. Allowable emissions across the sectors covered by the Scheme will only be able to exceed the cap if this is matched by the surrender of eligible international units, additional domestic permits issued as a result of forestry activities, additional permits issued under the price cap mechanism or, if eventually allowed, Scheme offsets.

International Linkages

The Government will allow entities to use eligible Kyoto units for compliance with Scheme obligations, in particular the two project based mechanisms.
The Government has decided that no quantitative restrictions will apply to the use of eligible Kyoto units for compliance in the Scheme.

Key Findings

Biofuels

Biofuels will be covered but will zero-rated - no emission liability.

Reforestation

Crediting - the average crediting method will be used and will be conservative.
Scheme participation - The Government proposes a flexible approach to scheme participation that includes landowners, leaseholders and carbon property right owners.
Participation will be voluntary ('opt-in').
Registration on title may be flexible. It may not be necessary to always register the carbon right on title.
Estimation methodology will be using a prescribed method such as NCAT.
Reporting may not be annual, e.g. initial assessment plus 5-yearly.
Liability risk (e.g. fire etc) to be managed through risk-reversal buffering. The percentage has not yet been determined.
Forest entities will not have to surrender more permits than issued.
Scheme obligations will be enforced for a defined period "for example 70 years".
For established forests permits would only be issued for net removals from 2010 once carbon stocks are greater than in 2008. This will ensure that there are no perverse incentives to clear established forests in 2009 to maximise potential permits.
Crediting will be ex-post (after growth).

Deforestation

Emissions from Deforestation are not included.

Forest Management

Forest Management (i.e. native forest and pre-1990 plantations) are not included.

Offsets & Voluntary Market

The Government will consider the scope for domestic offsets in 2013.
The Scheme will not include domestic offsets from agriculture emissions in the period prior to coverage of these emissions.
The Government will facilitate the participation of Indigenous land managers in carbon markets and will further investigate the potential for offsets from reductions in emissions from savanna burning and will consult with Indigenous Australians on forestry opportunities under the Scheme.
Non-Kyoto credits including voluntary market credits will be considered post 2013.
The DCC Paper on the Voluntary scheme is still slated for release in December.

Harvested Wood Products

Nothing specific was included on HWP.

International Linkages

RMUs from LULUCF in other Annex I countries will be eligible.
CDM A/R projects (tCERs and ltCERs) are not eligible.
Other CDM are possibly eligible.
No sale of Australian Credits internationally at least initially.
JI - to be treated like other offsets i.e. considered in 2013.

Transitional Measures

Transition from GGAS to CPRS is still being negotiated.
Consideration will be given to providing assistance to GGAS participants if no agreement is reached.
GGAS forestry participants will be allowed to opt-in to the CPRS if they are eligible.

Early Action

There will be no credit for early action