SMEs and the CPRS Green Paper

Climate Change Minister Senator Penny Wong's release of the Carbon Pollution Reduction Scheme Green Paper (CPRS Green Paper) has provoked much discussion in the media and the political sphere. The CPRS Green Paper runs to over five hundred pages and lays out the framework the Government intends to use for its emissions trading scheme. It allows for submissions to be made to the Government by interested parties with their views on the proposed framework before the release of the White Paper towards the end of this year.

What is the CPRS and does it cover SMEs?

Firstly, the CPRS is the name the Rudd Government has given to its cap-and-trade emissions trading proposal. The Government sets a limit on total greenhouse gas emissions (i.e. the 6 gases covered by the Kyoto Protocol, called carbon dioxide equivalent). The Government then issues one permit for each ton of carbon dioxide (CO2) equivalent emitted by Australian businesses. The CPRS applies to some business sectors, and those sectors will have to purchase permits from the Government. With such importance on the amount of emissions involved, there will be strict monitoring guidelines for businesses affected. However those requirements will only apply for businesses emitting more than 25,000 tonnes of C02 equivalent. Only around a thousand companies meet this threshold in Australia, mainly in the mining and electricity sectors. Hence SMEs will not have to buy permits directly or monitor their emissions under the scheme.

When will it start and what does it cover?

The CPRS is due to commence by 2010. The Liberal-National Opposition is opposed to it starting until 2011 or 2012. The final start date will depend on these political negotiations but ClimateEasy advises SMEs work on the basis of emissions trading commencing in 2010.

The CPRS Green Paper includes transport, electricity, including coal-fired power stations and mining as industries covered under the scheme. Agriculture will be excluded initially but may be included in 2015.

If SMEs are not in the scheme, what difference does it make?

While SMEs are not in the scheme, it is inevitable that in the short to medium term there will be price rises in those areas affected by the scheme.

The main practical effect for SMEs will be a rise in electricity prices. At present, while petrol prices are largely controlled by the global oil price, electricity prices are set by state regulators. The CPRS will see electricity prices from sources other than renewable energy increase by approximately 16% on the introduction of the scheme. This is the result of power companies passing on the permit cost to consumers.

Electricity price rises will also result in higher costs for manufactured goods, so businesses in the retail industry will likely see a rise in costs up the supply chain.

The Government has foreshadowed offering business tax breaks to compensate for these increases but is yet to provide detail. The Government is currently collecting data through the Small Business Climate Initiative and it is anticipated that it will release a program specifically targeting small business in due course.

Although transport is included in the scheme, the CPRS states that a 'cent-for-cent' cut in excise will prevent permit prices increasing fuel prices until 2013. It is anticipated that moves will be made towards reliance on gas-based fuels for transport which produce lower emissions.

If the scheme doesn't start to 2010, what's all the fuss about the Green Paper?

The Green Paper is the first major step in the design of the CPRS. It will be followed by a White Paper and then the draft legislation will be considered by Parliament. In order for the scheme to commence in 2010, the legislation must be passed in mid-2009 to give business notice of the new conditions and to implement the various regulatory bodies required.

The Green Paper is the first main phase of consultation. However while it includes a list of affected industries and proposed timelines for permit auctioning, it does not include economic modelling supporting these measures nor does it include a scientific assessment of the required targets.

The Green Paper is also very vague about energy efficiency policy measures and specific assistance provided to SMEs - the only mention of assistance is to owners of coal-fired power stations. Accordingly, it is imperative that SMEs make their views known to the Government to maximise their chances of getting appropriate assistance, both in terms of rebates for energy prices and energy-saving technology.

Submissions can be forwarded to:

Email: emissionstrading@climatechange.gov.au
Carbon Pollution Reduction Scheme Green Paper Submission
Department of Climate Change
GPO Box 854
Canberra ACT 2601
Australia

Submissions close on 10 September 2008.

If you would like advice on your submissions or assistance drafting, contact ClimateEasy for a quote.

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