03.How the permits work
Under the CPRS, the federal government will issue and sell a limited number of pollution permits to the 1000 greatest polluters in Australia, covering 75% of national greenhouse emissions. The permits will restrict the companies’ pollution to a set level that enables Australia to meet its emissions reductions targets. The CPRS places a price on every unit of carbon emission for big polluters, making cleaner options more attractive.
The CPRS is an important first step in putting a price on greenhouse pollution. However, there are serious flaws in the design of the system. By setting a cap on how much industry can pollute, it also creates limits on emissions reductions, making it unlikely that Australia will go beyond its targets. A simplified example illustrates this point: say 1000 government permits were given away and sold to industry, each allowing one tonne of greenhouse pollution. The resulting emission levels would be exactly 1000 tonnes. If a company reduced its pollution, it could sell permits it doesn’t need to another company, allowing that company to pollute more. Emission levels are the same; all that changes is the polluter and the price.
An example from The Australia Institute’s report Fixing the Floor on the Emissions Trading Scheme illustrates the detriment to consumers of this scenario. “After emissions trading is introduced, a number of concerned households decide to install solar hot water systems to reduce their climate impact. Demand for electricity falls as a result and electricity companies end up purchasing fewer permits to cover their emissions. Reduced demand causes the price of permits to fall, enabling other large polluters to purchase additional permits at a lower than expected price.” A lower permit price would also reduce industry’s incentive to find alternative solutions.
The only way consumers could reduce industry’s emission levels would be to buy permits and “rip them up”, taking them out of circulation. The Department of Climate Change has indicated that households will be able to buy and voluntarily surrender CPRS permits to reduce Australia's emissions beyond the government's current 5% commitment.
GreenPower is the national accreditation scheme for renewable energy, managed by the NSW Department of Water and Energy. As previous CHOICE reports explained, it increases the amount of renewable energy generated in Australia. But as it no longer helps to create additional greenhouse gas abatement, the scheme may have to change in order to retain and grow its 878,000 household customers and find new ones.
Three options are being considered for the future of GreenPower:
No change Buying GreenPower won’t achieve additional greenhouse reductions but remains a way for consumers and businesses to support the renewable energy industry.
Change the scheme so GreenPower sales result in a CPRS permit being retired. Australia’s greenhouse emissions would be reduced and “additionality” would be achieved. The domestic renewable energy industry would also be supported. The likely price for such a package is unknown – it could be much higher than the current price for GreenPower alone.
Package GreenPower with a carbon offset or renewable energy credit from a developing country that doesn’t have emissions limits under the Kyoto Protocol. This would also achieve additionality, although money would flow out of Australia to other economies, businesses and overseas renewable energy industries.