Pass the carbon - an overview of carbon reporting and trading

The world of carbon reporting and trading is on our doorstep.  This bulletin is the first in a series of 3 Bartier Bulletins in which we look at carbon reporting and trading and endeavour to demystify these concepts.  In this bulletin we will briefly examine the legislation which covers the schemes.  Subsequent bulletins will look at reporting obligations and what it currently means to the majority of Australian business.

The legislation

On March 10 the Federal Government released a draft bill for carbon emission reduction ? the Carbon Pollution Reduction Scheme Bill 2009 (CPRS).  The Government hopes that by the end of this year it will become law.

This, together with the National Greenhouse and Energy Reporting Act 2007 (NGER) which came into effect in July 2008, comprise the two main pieces of Australian climate change legislation. 

NGER: The basics

Under NGER liable corporations must report certain emissions to the Greenhouse and Energy Reporting Office.  This data will underpin the CPRS, which is basically a 'cap (of emissions) and trade (of carbon credits, otherwise known as Australian Emission Units)' scheme. 

The NGER creates a single national reporting framework for information on Australian businesses greenhouse gas (GHG) emissions, energy production and energy consumption. 

The data retrieved from reports during the first reporting year of 2008/09 will be used during the starting phase of the emissions trading scheme (CPRS) for a number of purposes, including deciding how free Australian Emissions Units will be handed out.

The NGER introduced some new concepts which the CPRS has adopted.  The main concepts are:

Facility - This is where the (reportable) emissions are produced or where the energy is used/produced.  A facility is defined in the NGER as an activity, or a series of activities (including ancillary activities), that involve the production of greenhouse gas emissions, the production of energy or the consumption of energy. 

A corporation may have one or more facilities.  If a particular corporation has more than one facility that corporation must report all its emissions for all facilities under its operational control (discussed below).  The NGER Regulations specify different limits of emissions for each facility and for each corporate group.  This will be covered in more detail in our next bulletin.

Controlling Corporation - The concept of controlling corporation covers corporations which are made up of many members and subsidiaries.  The controlling corporation is the one at the top of the corporate hierarchy. 

Operational Control - The corporation responsible for reporting under the NGER (and the corporation responsible for reporting under the CPRS and for relinquishing carbon credits to the National Greenhouse and Energy Office) will be the controlling corporation with "operational control" of an emitting facility (unless this liability is transferred which can be done in some cases).

For example, a coal mine may have many separate companies working within it - the mine may be owned by company A, the workers may be supplied by company B and supplies for the mine may be provided by company C.  Not all companies A, B and C have to report emissions from the mine, it is the company with 'operational control' of the mine that must report. 

Deciding which company has operational control for the purposes of reporting is not a straight forward process.  Operational control is defined by the NGER as the corporation that has the power to "introduce and implement any or all of the operating, health and safety and environment policies for the facility".  Obviously this will have to be determined by companies on a case by case basis. 

CPRS: The basics

• In essence CPRS is a cap and trade scheme that obliges large emitters of GHG's (and companies who conduct certain other activities, for example importation of synthetic gases) to report on and "pay" for these emissions. 

• GHG emissions will be calculated on the basis of carbon dioxide equivalence - i.e. all emissions will be measured in respect of one tonne of emitted carbon dioxide (CO2-e). 

• Each year the Australian Climate Change Regulatory Authority (which is yet to be established) will set a cap for emissions and release for public auction a certain number of 'Australian Emissions Units' (AEUs).  These units are personal property and can be bought and sold (subject to certain conditions). 

• For the first five years some AEU's will given away to heavily affected industries and some AEU's will be available for a capped price, starting at $40 and increasing to $53.42 in 2014-15.  Auctioned AEU's are able to be banked and traded, AEU's with capped prices cannot be.

• Corporations/facilities who exceed a certain threshold level of emissions will be required to report to the National Greenhouse and Energy Office and relinquish an amount of AEUs (or internationally accepted units) equivalent to the amount of emissions for which they are liable.  More about reporting in our next Bulletin.

The future (according to CPRS scheme) will look like this: