Under the government’s Carbon Pollution Reduction Scheme (Scheme), carbon pollution permits will be an additional expense to direct emitters. It is expected that these businesses will pass the cost onto their customers through increased prices. Businesses and households, as users of these services, should expect the price of electricity and fuel to rise and will need to look at how they can manage these increased costs. 
 
The government has committed to provide assistance to those families with low and middle incomes and to provide incentives to improve household energy efficiency. 
 
What is the Carbon Pollution Reduction Scheme? 
The government has set a target of 60 per cent reduction of 2000 levels by 2050. The government as a result will determine the trajectory for Australia’s emissions to meet this target. Using the trajectory, they will set a cap on Australia’s emissions for each year.  
 
Issue the permits 
The cap determines Australia’s total emissions for each year. The government will then issue emissions permits for the proportion of those emissions covered under the Scheme.  
 
Distribute the permits 
The governments green paper on the Scheme indicates that 20-30 per cent of permits will be provided free to emissions intensive trade exposed companies. These are companies who export their goods internationally and compete with companies who operate outside of a scheme. It proposed that the remaining permits would be auctioned on a quarterly basis during the year. The paper doesn’t indicate how many permits will be available at each auction date, however it suggests some permits will be available after the emissions year. 
 
Price of permits 
As the number of emissions permits is fixed, the price will then vary according to demand. Auctioning will enable companies to determine how much they will pay for emissions permits. Some companies will be able to reduce their emissions cheaper per tonne than the permit costs. Where this is the case, they will take the cheaper option and not purchase permits or sell any surplus permits to companies who can not reduce their emissions as cheaply. Thus, in theory, those that can easily reduce emissions at a cheaper rate will do so, achieving the pollution reduction at the lowest possible cost to society.  
 
The government is proposing to cap the price of emissions permits for the first five years. The cap will be set sufficiently high so that there is a low probability of it being used. If the cap is reached, then effectively the cap and trade scheme becomes a carbon tax. The price becomes fixed and the emissions limits will need to be increased. This can be achieved either through the release of more emissions permits by the government or by setting penalty for non-compliance at the price cap but without including a ‘make good’ provision for the emissions. Therefore, when the price hits the penalty, companies will choose to breach the Scheme and pay the penalty rather than pay for the permit. 
 
Who needs to buy the permits? 
Under the Scheme reporting covers direct emissions and indirect emissions. Indirect emissions are the use of energy, which has contributed to emissions through its supply. Direct emissions are the burning of fuel to create energy and directly release carbon dioxide equivalent (CO2-e) into the atmosphere.  
 
The Scheme will cover direct emitters only and will cover facilities with emissions exceeding 25,000 tonnes of CO2-e per annum.  
 
Emissions are reported in tonnes of CO2-e, which is a tonne of each of the six Kyoto cases multiplied by its global warming potential.  
 
Relevant links:

• Department of Climate Change: website
• Minister for Climate Change and Water Senator the Hon Penny Wong: website
• Institute: website