September 2012

MUSA September 2012Australia’s carbon pricing mechanism

Carbon pricing and reporting

1 July 2008Due 31 Oct

annually1 July 2015

National Greenhouse &

Energy Reporting Act (NGER)

‘Cap and Trade’ emission trading

scheme

Annual NGER reporting

The journey so far

1 July 2012

Start date:Fixed Carbon Price

$23 per tonne

8 November 2011

Legislation passed Senate

Carbon pricing: overview

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Start date

Fixed price period

Transition to Emissions Trading

Scheme (ETS)

Coverage

Coverage issues

• Fixed price of $23/tonne CO2-e from 1 July 2012 (akin to a tax)

• 3 years to 1 July 2015 (indexed 2.5% annually)

• From 1 July 2015 price is ‘flexible’ with a cap

• Energy, industrial processes, fugitive emissions & non legacy waste (post 1 July 2012) and some transport

• Fuels/Transport: • Domestic aviation, shipping, rail and non-transport use of fuels will be

covered via fuel tax credits/excise adjustments or an Opt-In for permits• Household transport fuels, light vehicle business transport and off-road

fuel use by the agriculture industries excluded• Heavy transport likely included from 1 July 2014

Offsets and international linkages

• No international trading during the fixed price period• Carbon Farming Initiatives credits can be used in the fixed price period

to meet up to 5% of an entity’s carbon liability

Carbon pricing: overview

Who is liable?

Emissions thresholds:1.Facility: 25,000 tonnes CO2-e (most Scope 1 emissions, but excluding fuels and other non-priced Scope 1 emissions).2.Approximately 500 companies will be directly liable for the carbon price.

The entity with ‘Operational Control’ is generally liable (similar to NGER)•Entity with ability to introduce and implement operating, health and safety and environmental policies for the facility

Joint ventures and corporate groups•Unincorporated Joint Ventures - if no one organisation has operational control emissions liability allocated between JV participants in proportion to their interest in the facility.

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Carbon pricing: overview

Transport fuels – a complex areaOn-road•On-road business use of transport fuels in light vehicles will not be subject to a carbon price•Use of fuel in heavy on-road vehicles will not be subject to a carbon price initially•From 1 July 2014 use of fuels in heavy on-road vehicles will be subject to a carbon price.

Off-road•Use of fuels in off-road applications will be subject to a carbon price through reduced fuel tax credits (equivalent to the carbon price)

Aviation, marine and rail transport•Use of fuels in aviation, marine and rail transport will be subject to the carbon price through either increased excise or reduced fuel tax credits (equivalent to the carbon price)

Opt-in Scheme•From 1 July 2013 companies will be able to opt-in to the carbon pricing mechanism and purchase permits rather than pay via the fuel-tax system

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Carbon pricing: overviewClean energy assistance and opportunities

6

$31.7 billion Clean Energy FutureThe Australian Government’s Climate Change Plan

$9.2 billion Jobs and Competitiveness

Program

$1.2 billion Clean Technology Program

$1.3 billion Coal Sector Jobs Package

$5.5 billion Energy Security Fund

$3.2 billion Australian Renewable Energy

Agency

$240 million Small business support

$1.0 billion Biodiversity Fund and other land-

based measures

$800 million Clean Technology Investment

Program

$200 million Clean Technology – Food and Foundries Investment

Program

$200 million Clean Technology Innovation

Program

$946 million Biodiversity Fund

$46 million invested in research and development

$8 million The Climate Change Research

Program

$5 million Clean Technology Focus for

Supply Chain Programs

$10.0 billion Clean Energy Finance

Corporation

$5.0 billion Renewable Energy Stream

$5.0 billion general Clean Energy Stream

$40 million Energy Efficiency Information

Fund

$32 million Clean Energy Skills Program

$13.2 billion Support for innovation

$7.02 million Industry and business assistance

$1.0 billion Land sector measures

$10.5 billion Support for jobs

Government funding to industry for innovation and energy efficiency

Assistance to emission intensive trade exposed heavy industry via free

permits

Carbon pricing: overview

Compensation to industry

•Emission-Intensive Trade-Exposed (EITE) industries - receive assistance of $9.2 billion over the three years 2015. This assistance will be in the form of free permits set at two assistance levels – 94.5% or 66%, and grants to increase energy efficiency

•Steel industry - $300 million over five years will be given to the steel industry to encourage innovation and efficiency in the sector. On top of EITE assistance.

•Coal - $1.3 billion Coal Sector Jobs package over six years to assist the most emission-intensive coal mines (gassy coal mines)

•Energy Security Fund - payment for the closure of approximately 2,000 megawatts; and transitional allocation of free permits and cash estimated at $5.5 billion over six years

•Manufacturing - A $1.2 billion Clean Technology Program - assist manufacturing industries improve energy efficiency and reduce emissions through grants and research and development incentives

Carbon reporting: National Greenhouse and Energy Reporting Act 2007 (NGER)

Register1st year

30 Jun 20092nd year

30 Jun 20103rd year

30 Jun 2011

Facility thresholds

• Carbon emissions (direct and indirect)

• Energy consumption

25kt CO2-e

100 TJ

25 kt CO2-e

100 TJ

25 kt CO2-e

100 TJ

Corporate Group thresholds

• Carbon emissions (direct and indirect)

• Energy consumption

125kt CO2-e

500TJ

87.5kt CO2-e

350TJ

50kt CO2-e

200TJ

Register 31 Aug 2009 31 Aug 2010 31 Aug 2011

Reporting due 31 Oct 2009 31 Oct 2010 31 Oct 2011

Government publishes data

28 Feb 2010 28 Feb 2011 28 Feb 2012

• Regulatory reporting requirement since 2009• Data underpins the carbon pricing mechanism• Reporting based on the concept of ‘Operational control’• CEO required to sign-off on NGER Report

Reporting obligations are independent of

carbon pricing mechanism

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Carbon price - Key impacts

Issue

Direct liability• Direct emitters of covered emissions

Indirect impacts:• Supply chain inputs are all likely to increase

• electricity• transport (rail/ship transport) (or direct if control them)• other fuels• on-road transport fuels excluded (heavy vehicle likely included from

2014)

Revenue & earnings impacts

• Can cost increases be passed through?

• Carbon clauses in contracts• What does it mean for margin

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Actions to consider

Issues Actions

Assess energy and emissions profile

• Examine your systems and processes for capturing and reporting emissions and energy use

• Assess your current NGER reporting decisions (operational control)• Can you identify any energy efficiency opportunities?

Model sensitivity to increases in the price of key inputs

• The impact of price increases along the business value chain should be modelled to determine the sensitivity of your operations to price increases:

• impact of carbon price on aviation fuel• model impact of likely heavy-vehicle inclusion from 2014• Other material impacts

Review existing agreements

• Carbon pass through - review existing supplier and customer contracts to determine the extent to which carbon prices can be ‘passed-through’ right now

• Consider relationships with contractors (both from a pricing and reporting perspective)

Consider opportunities and alternatives

• Are energy efficiency opportunities more attractive?• Can alternate fuels be used (eg. No carbon price on biodiesel)• Is Sustainability strategy aligned with business strategy?

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How Deloitte can help?

Emissions and energy measurement

• Assess the systems and processes used to collect emissions and energy data to improve robustness and increase efficiency

• Provide assurance over emissions and energy data in NGER reports→ Gives comfort over the baseline emissions and energy data

Modelling of key price impacts

• Model the impact of price increases along the business value chain – including direct and indirect supply chain impacts

• Considering the timing implications and issues from the staggered transport provisions

→ Provides guidance over likely price impacts and assists decision making and strategic response

Access to available government funding

• Advice on accessing any available Government funding through programs – such as Clean Energy Package, Clean Technology Package or existing R&D mechanisms

→ Assist to maximise any available government funding

New opportunities • Identify energy efficiency opportunities. Are they more attractive?• Assess opportunities for investment (eg. CleanTech)• Review sustainability strategy to align with business strategy?

→ Assist in taking advantage of opportunities while covering off on the risks

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Contacts

Cheryl CraseDirectorAssurance and AdvisoryTel+ 0402 968 881ccrase@deloitte.com.au

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