The Emissions Trading Scheme and your business
Following from the much-publicised Garnaut report, the Federal Government is now looking at an Emissions Trading Scheme (ETS) for business as early as next year in an effort to tackle climate change.
As part of its controversial commitment to reduce Australia’s greenhouse gas emissions to between 5% and 15% below 2000 levels by 2020, the Federal Government last month released its draft ETS legislation.
What is an ETS?
The environmental costs associated with greenhouse gas emissions are largely not reflected in the price of the goods and services that produce the gases.
An ETS attempts to address this, at least in part, by internalising the environmental cost of emissions. It does this by requiring greenhouse gas emitters to buy permits to emit gas. The cost of those permits becomes a cost of production that is ultimately passed onto the consumer through increased prices, thereby decreasing demand. Under the scheme, producers and suppliers that can keep emissions (and therefore prices) down, have a competitive advantage.
An ETS places a cap on the total number of permits available in the market place. Each year emitters covered by the scheme have to buy permits for the gases they will emit that year. At the end of the year, they surrender those permits and have to buy new permits for the following year. The scheme creates an economic incentive to reduce emissions as the more they emit, the more permits they have to buy.
Under Australia’s proposed ETS (also known as the Carbon Pollution Reduction Scheme), 1000 entities including power producers, gas producers, aluminium smelters, iron and steel makers, coal mines and large landfills, among others, will initially hold permits.
This represents less than one per cent of the total number of Australian businesses. Emissions from agriculture and deforestation are proposed to be included by 2013-15. If this occurs, Australia’s ETS will be one of the broadest-based schemes in the world.
Reporting obligations for businesses
Whilst only a small number of businesses are covered by the proposed ETS, many more will be covered or affected by new greenhouse gas reporting requirements.
The National Greenhouse and Energy Reporting Scheme (NGERS) created by the National Greenhouse and Energy Reporting Act 2007 will compliment the ETS by establishing a national framework for measuring and reporting greenhouse gas emissions and abatement actions.
The Act requires certain facilities and ‘corporate groups’ to measure and report on their greenhouse gas emissions. The first reports are due this year. The reporting thresholds are currently high, with only the largest emitters covered by the Act. However, as reporting thresholds are lowered over time more entities will be required to report.
If your business supplies goods and services to an entity covered by the scheme, you may be asked by that entity to measure the greenhouse house gas emissions generated by your business in supplying those goods and services. That is, you may be asked to contribute supply chain emissions data to assist them in fulfilling their reporting requirements.
Informed businesses that are geared to capture and supply this data to clients are likely to have a competitive advantage when tendering for large contracts.
NGERS guidelines and an on-line anonymous calculator to help companies assess if they are likely to meet or exceed thresholds are available at www.climatechange.gov.au/reporting/index.html.
All data (or under proposed amendments, summarised statistics generated from data) obtained from mandatory reporting will be published online. The Act also imposes external auditing requirements. Such transparency is likely to have significant corporate reputation implications.
Kells will continue to provide updates that may be relevant for your business as amendments to the NGERS are made and as the draft ETS legislation progresses.
For more information or advice on any environmental law matters, please contact Kells lawyer Erina Murphy.
