Carbon Pricing Mechanism - Industry assistance

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In order to ease the transition to carbon pricing, the Government has committed to provide assistance to:

  • businesses that undertake emissions-intensive trade-exposed activities (under the Jobs and Competitiveness Program);
  • certain emissions-intensive power generators (under the Energy Security Fund);
  • certain coal mining companies (under the Coal Sector Assistance Package); and
  • certain steel manufacturers (under the Steel Transformation Plan).

Our comments on each of these assistance packages are set out below.

JOBS AND COMPETITIVENESS PROGRAM

The emissions-intensive trade-exposed support package that was negotiated under the CPRS has been essentially retained and repackaged as the Jobs and Competitiveness Program (the Program).

Under the Program, free carbon units will be provided to businesses that undertake emissions-intensive activities that are exposed to international competition (an estimated $8.6 billion of assistance over the first three years of the CPM). 

Rates of assistance

There are two rates of assistance under the Program:

  • Highly emissions intensive activities will receive free units which are estimated to account for 94.5% of the industry’s average increase in direct and indirect costs due to the CPM.
  • Moderately emissions intensive activities will receive free units which are estimated to account for 66% of the industry’s average increase in direct and indirect costs due to the CPM.

In addition, LNG projects will receive a supplementary allocation to ensure that they receive free units to cover 50% of all the emissions associated with the LNG production process each year.

It is interesting to note that as the number of free units that an eligible business is entitled to is calculated by reference to the industry average level of emissions per unit of production, a business that emits less greenhouse gases per unit of production than the industry average may be allocated more units than it requires.  During the fixed price period, the Government will offer a buy-back facility for surplus free units (at a price that reflects the present market value of the unit) and during the flexible price period the business will be able to sell surplus units on the secondary market.

What activities are eligible for assistance?

The two key tests for establishing the eligibility for assistance, and the level of assistance, are:

  • the weighted average emissions per million dollars of revenue/value added (the emissions intensity test); and
  • the trade share of the activity (the trade exposure test).

The Government has been assessing potentially eligible activities since 2009 and a total of 45 activities have been set out in the Clean Energy Regulations 2011 (Cth) to date. A list of these activities is set out below.[1]

This is not a closed list and the Government will continue to assess activities that may be eligible for assistance.

New entities conducting emissions-intensive trade-exposed activities will be entitled to the same level of assistance as existing entities conducting the same activities.  In all cases, the rate of assistance will be reduced by 1.3% each year.

Application process

Applications for assistance must be lodged with the Clean Energy Regulator by 31 October of the year to which the application relates (unless the Regulator has granted an extension to 31 December).  Applications must include an audit report and a statutory declaration. The applicant must also have an account with the Australian National Registry of Emissions Units.

If multiple entities are eligible for assistance in relation to a single facility (e.g. an unincorporated joint venture), they must lodge a combined application for that facility.

Applications for assistance opened on 1 July 2012.

Review of the Program

The Productivity Commission will review the Program in 2014-15.  The Productivity Commission is developing its approach to this review and will consult stakeholders at key stages.

The Government has flagged that it would implement the approach proposed by Professor Garnaut in the Garnaut Climate Change Review – Update 2011 if the Productivity Commission recommends it.  Professor Garnaut proposed a principled approach to the calculation of assistance, which would aim to keep sales prices for emissions-intensive goods lower than if all countries imposed similar carbon constraints to Australia.  It is anticipated that the adoption of this approach would significantly reduce the assistance provided to these industries.

The Program will not be scaled back or abolished before 1 July 2017 and industry must be given at least three years’ notice of any changes to the Program that will adversely affect it.

Further details

Further details on the Program are set out in the Clean Energy Regulations 2011 (Cth), including eligibility, how assistance is calculated and record-keeping requirements.

The Clean Energy Regulator has issued application forms and guidelines for the 2012-13 financial year, which can be accessed via its website.

ENERGY SECURITY FUND

The creation of the Energy Security Fund is the Government's key initiative to move Australia away from emissions intensive electricity generation to cleaner generation.

The Energy Security Fund will comprise two elements:

  • payments for the closure of one or more very highly emissions-intensive coal-fired generation facilities (Contracts for Closure); and
  • limited transitional allocations of units and cash to assist highly emissions intensive coal-fired generators adjust to the introduction of a carbon price and compensate for asset value losses (Administrative Allocations).

Contracts for Closure

The Contracts for Closure Program seeks to facilitate the closure of around 2,000 megawatts of highly emissions intensive generation capacity in Australia by 2020. 

The aim is that the Program will deliver concrete closure outcomes and provide clear signals to potential investors in low emissions generation.

Under the Program, the Government proposes to contract with one or more generators for the closure of part or all of the generator’s capacity.  Closure will be conditional on power system reliability requirements, payment of workers’ entitlements and arrangements for the appropriate remediation of the site (and a related coal mine where appropriate).

On 30 September 2011, the Government invited Expressions of Interest from highly emissions intensive power generators to participate in the Program.  Five generators have been invited to proceed to the negotiation stage:

  • Playford Power Station (Alinta Energy);
  • Energy Brix (HRL);
  • Hazelwood Power Station (Hazelwood Power Partnership);
  • Collinsville Power Station (RATCH-Australia); and
  • Yallourn Power Station (TRUenergy).

Each participating generator was required to provide a detailed closure proposal, which will be evaluated according to five evaluation criteria: emissions intensity; timing; energy security; value for money; and contractual terms.

The Government was aiming to enter into closure contracts by 30 June 2012, but this deadline has been extended for an unspecified period.   The Government’s preferred closure timeframe is between 1 July 2016 and 30 June 2020, but it has indicated that proposals for earlier closures may also be considered.

As the Program is subject to negotiation with the short-listed generators and Government 'value for money' requirements, it's not clear whether contracts will be entered into for the closure of any or all of the hoped-for 2,000 megawatt capacity.

Administrative Allocations

Only generators with an emissions intensity greater than 1.0 tCO2-e per MWh of electricity on an ‘as generated’ basis will be entitled to this assistance (precluding most black coal fired generators), and eligibility is conditional on meeting the following two conditions:

  • In order to address energy security concerns, generators must comply with power system reliability requirements. Generators may exit the market and still receive their administrative allocations as long as there is alternative capacity in the market available to meet demand or they have invested in new lower-emissions replacement capacity.
  • The generator must develop and publish a Clean Energy Investment Plan.

Cash payments have been made for the 2011-12 financial year and eligible generators will share in allocations of free carbon units over four years, commencing in 2013-14. The first issue of free carbon units to eligible generators will occur on 1 September 2013 and then annually until 2016-17.

Applications for the provision of free units under this scheme have now closed.

Also, the Government will be a lender of last resort for generators and may provide transitional loans to emissions intensive generators for the purchase at auction of carbon units. However, these loans will be priced on terms that will encourage generators to seek private finance first.

COAL SECTOR ASSISTANCE PACKAGE

The Coal Sector Assistance package comprises of:

  • the Coal Sector Jobs Package; and
  • the Coal Mining Abatement Technology Support Package.

Coal Sector Jobs Package

This package is to assist coal mining companies who operate mines that have high volumes of fugitive emissions.  Up to $1.257 billion has been allocated to this program to provide assistance over six years.

Coal mines will be eligible if they had a fugitive emissions intensity in 2008-9 of at least 0.1 tCO2-e per tonne of saleable coal produced (expected to include around 25 mines). Payments will be up to a maximum of 80% of the extent to which fugitive emission intensity is above the 0.1CO2-e per tonne threshold.

Notably, assistance will not be available for new mines or expansions of production at existing mines.

This program is now closed for applications.

Coal Mining Abatement Technology Support Package

Under this package, the Government will provide $70 million over 5 years to support the development and pilot deployment of innovation technologies to reduce fugitive emissions from coal mines, develop safe abatement practices, and assist smaller operators to develop mine emissions abatement plans.

The Government has issued administrative guidelines and a research plan outlining how this package will operate.

Expressions of interest for funding opened on 2 July 2012 and must be submitted by 28 September 2012.  Application forms, program guidelines and the research plan can be found on the Department of Resources, Energy and Tourism’s website. 

 

 

 

STEEL TRANSFORMATION PLAN

 

The Steel Transformation Plan  provides assistance over five years to encourage investment and innovation in the Australian steel manufacturing industry. It will be complemented by a small increase in free carbon unit allocation for the steel industry from 2016-17.

The Plan contains the following two elements –

  • a $300 million entitlement scheme that will operate over five payment years from 2012-13; and
  • competitiveness assistance advance payments up to the value of $164 million in 2011-12.

The Government has announced that it will provide competitive assistance advance payments under the Plan to BlueScope Steel ($100 million) and OneSteel ($64 million).

This funding will be in addition to the assistance that steel makers are entitled to under the Jobs and Competitiveness Program.


[1] Additional Notes:

 

ACTIVITIES ELIGIBLE FOR ASSISTANCE UNDER THE JOBS AND COMPETITIVENESS PROGRAM

 

Activity

Emissions Intensity

1

Production of glass containers

Moderate

2

Production of bulk flat glass

High

3

Production of methanol

High

4

Production of carbon black

High

5

Production of white titanium dioxide (TiO2) pigment

Moderate

6

Production of silicon

High

7

Smelting zinc

High

8

Integrated production of lead and zinc

Moderate

9

Aluminium smelting

High

10

Alumina refining

High

11

Production of high purity ethanol

Moderate

12

Production of magnesia

High

13

Manufacture of newsprint

High

14

Dry pulp manufacturing

High

15

Cartonboard manufacturing

High

16

Packaging and industrial paper manufacturing

High

17

Printing and writing paper manufacturing

High

18

Tissue paper manufacturing

Moderate

19

Integrated iron and steel manufacturing

High

20

Manufacture of carbon steel from cold ferrous feed

High

21

Petroleum refining

High

22

Production of ethene (ethylene)

High

23

Production of polyethylene

Moderate

24

Production of synthetic rutile

High

25

Production of manganese

High

26

Production of clinker

High

27

Production of lime

High

28

Production of fused alumina

High

29

Production of copper

High

30

Production of carbamide (urea)

Moderate

31

Production of sodium carbonate (soda ash) and sodium bicarbonate

High

32

Production of ammonium nitrate

High

33

Production of ammonia

High

34

Production of iron ore pellets

Moderate

35

Production of liquefied natural gas

Moderate

36

Production of magnetite concentrate

Moderate

37

Production of glass beads

High

38

Production of sodium silicate glass

High

39

Production of polymer grade propene (polymer grade propylene)

High

40

Production of rolled aluminium

High

41

Production of chlorine gas and sodium hydroxide (caustic soda) solution

High

42

Production of fused zirconia

Moderate

43

Manufacture of reconstituted wood-based panels

Moderate

44

Production of coke oven coke

High

45

Production of hydrogen peroxide

Moderate




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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Sue Davidson

Special Counsel. Melbourne
+61 3 9672 3209

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