On 15 December 2008, Kevin Rudd’s Australian Government announced the creation of a Carbon Pollution Reduction Scheme. The Scheme will utilise a cap-and-trade system to limit greenhouse gas emissions. Entities covered by the scheme will be required to obtain a permit for every tonne of greenhouse gas that they emit and, consequently, every year they will need to surrender a permit for every tonne of produced emissions. The number of permits that can be issued in any given year will be limited by the Australian Government. Entities will have the ability to purchase these permits at auction or on the secondary trading market. Entities covered by the Scheme will be required to monitor and report their emissions to the Australian Government, and sanctions will be imposed for non-compliance.
In addition to driving the level of emissions down, the Australian Government hopes that the Scheme will act as an incentive for the development of emissions technology. The Australian Government envisages that the Scheme will cover all six greenhouse gases under the Kyoto Protocol (carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons). The Scheme will impose obligations on only around 1000 entities out of approximately 7.6 million Australian-registered businesses. However, it will cover around 75 per cent of the country’s emissions. Initially, the Scheme will not cover agricultural emissions, although there are proposals to include them at a later date. Emissions from deforestation will not be included within the remit of the Scheme.
The Australian carbon market will be regulated by the Australian Securities and Investments Commission. In order to achieve this, Australian emissions permits and Kyoto units will be classified as financial products under the relevant Australian corporate and financial services legislation.
Although its official launch was announced only recently, the Scheme has been in the development process for some time. The ground rules which substantively make up the Scheme were originally set out by the Howard Government approximately three years ago. These are now being formalized by the Rudd Government, which has produced a white paper, with draft legislation due to be released for public comment in February 2009. The Scheme is expected to be fully operational by 1 July 2010.
The Australian Government has designed the Scheme so that it is able to operate and link up with relevant international carbon markets via the international transmission log. Although the international emissions markets are relatively new, the Kyoto Protocol already provides for several mechanisms, including the clean development mechanism, joint implementation and international emissions trading. The latter permits the trading of emissions allocations from developed countries as well as the units derived from the two former Kyoto Protocol mechanisms.
Although the Scheme legislation is in its preliminary stages, it is clear that the Australian Government is taking its international obligations with respect to climate change seriously. At a time when many other countries are being challenged for not doing enough (see McDermott On the Subject “Climate Change Action – UN and EU Summits” ), the Australian Government is no doubt hoping that the Scheme will be viewed by the international community as a step in the right direction and possibly used as the benchmark by which future schemes will be measured.