Australian government releases environment Green Paper

The Green Paper sets out a proposed approach for a Carbon Pollution Reduction Scheme. This uses a “Cap and Trade” strategy, capping emissions by sector and establishing an Emissions Trading System from 2010.

However, the Green Paper does not address the level of scheme caps (the limit on emissions) that will be applied through the Carbon Pollution Reduction Scheme.  The medium-term emissions trajectories are to be established in the White Paper, to be issued later this year, after all comments have been received.

The transport sector is to be comprehensively included in the Carbon Pollution Reduction Scheme “to ensure ongoing incentives for carbon reduction over time”. The Government “does not believe that excluding transport from the Carbon Pollution Reduction Scheme is, over the long term, economically responsible. The more sectors excluded from the scheme, the higher the cost faced by the included sectors and, ultimately, by consumers.”

It will achieve this by “a combination of direct obligations on facilities with large emissions, and obligations on upstream fuel suppliers for the emissions resulting from the combustion of fuel.”

However, the system does not favour offset credits, which it describes as “ rewards for reductions in emissions measured against an assumed baseline”. The Green Paper considers such schemes as “administratively complex”, as they “require considerable judgment to determine baselines.”

The scheme will be designed to link with other schemes overseas to contribute to a global solution and “to ensure that Australian businesses can access low cost pollution reduction”.

There is unlikely to be any specific relief for aviation under the proposed scheme. The Green Paper considers whether aviation should be considered an industry that may be ”strongly
affected” and therefore requiring protection. It concludes that it is not:

“Industries that produce a significant amount of emissions may well prove not to be strongly affected by the scheme. The Government considers that the domestic aviation industry is an example of such an industry.

“…the Government considers that there are five key characteristics of a strongly affected industry, and that an industry must demonstrate all five of them to warrant assistance.  Although Australia’s aviation industry produces a significant amount of greenhouse gas emissions through the combustion of aviation fuel, the industry is not highly emissions-intensive.

“Personal air travel and airfreight are high-value services, so the emissions intensity of the industry, per dollar of revenue, is relatively low.

“Preliminary analysis indicates the emissions intensity of the ‘air and space transport industry’ in 2001–02 was 384 tCO 2-e/$m revenue. This is well below the Government’s proposed assistance eligibility threshold of 1500 tCO 2-e/$m revenue, and over 25 times lower than the emissions intensity of the electricity supply sector (9945 tCO 2-e/$m revenue).

“Emissions intensity is fairly homogenous across the aviation industry. Some aircraft will operate more fuel-efficiently than others, while others will produce a higher value product from the same amount of fuel (for example, by carrying more passengers), but those variations are not likely to be large enough to have significant impacts on individual entities or assets. As a result, individual entities or assets in the industry will generally be able to pass on carbon costs because their competitors will face similar cost increases. Further, the elasticity of demand of domestic aviation may be such that the industry as a whole can pass on a high proportion of its carbon costs.

Finally, the capital costs of aircraft are not ‘sunk’. Aircraft value is not related to the particular routes flown or other geographical characteristics of the asset owner.

“Given the analysis above, the Government presently considers that the aviation industry does not demonstrate the characteristics of a strongly affected industry.”

The full report can be found here.