October 12, 2007 (Business Day) – REGARDLESS of which party forms the next government, Australia will have an emissions trading scheme operating nationally by no later than 2011.
The Commonwealth Government has several processes under way to establish a national scheme and federal Labor has included an emissions trading scheme in its policy platform.
There are some points of difference in the proposed approaches and timelines for the start of trading.
But, for the most part, the substantive features are similar.
We shouldn’t underestimate the importance of Australia achieving a consensus among its politicians, policymakers and business around the broad framework of a national carbon trading scheme.
Australia has come a long way in a short time in developing a national solution to reducing emissions, and in the process is now showing the way for other economies to reduce emissions in a manageable way.
But that was the easy part.
Despite agreement on the big-picture response, there are still crucial details to be agreed to around long-term and short-term caps on emissions.
It is essential that these targets and caps take into account the many economic implications of constraints on carbon emissions.
The process of setting these limits is in train on both sides of the political fence, and business looks forward to what are likely to be well-considered outcomes next year.
But within the overall development of emissions targets, work on the nuts and bolts of a national carbon trading scheme is gathering pace.
And while uncertainty remains about some of the overall aspects of the scheme, for instance targets, there is much that business can do to prepare for the introduction of carbon trading.
Businesses will need to make a big contribution to the design of the emissions trading scheme.
Much of this work will happen over the next 12 months and will require careful consideration by individual businesses as well as organisations such as the Business Council of Australia.
Already there are several critical elements of the scheme being finalised and the Government is seeking the views of business.
Over the next few weeks, the Australian Greenhouse Office will start consultation on the detail of the National Greenhouse and Energy Reporting system.
The system is an essential building block for an emissions trading scheme.
It will be important for all businesses likely to be covered by the emissions trading scheme to consider the detail and prepare to provide the necessary information each year.
Initially, businesses that are required to report will be those companies and facilities that emit substantial levels of greenhouse gases or have significant energy inputs, many of which are already reporting under various state and federal schemes.
But by 2010-11, the threshold for reporting will be lowered so more business will be required to report.
The Department of Prime Minister and Cabinet has also recently released a discussion paper that tackles a range of critical issues associated with incentives for early emissions reduction.
Issues raised include how to ensure that abatement activity is additional to what would have happened under previous arrangements, what activities should be allowed for offsetting carbon emissions and what protocols should be applied.
A further key issue for all businesses is to ensure they keep detailed records for 2007-8 if they want to gain credit for their early actions once the scheme starts.
Perhaps the most important aspect of the design of Australia’s emissions trading scheme will be that of permit allocation.
Under the Government’s plans, there will be detailed consultation on this next year, but already one critical aspect under consideration is what assets of a business will be considered when permit allocations are determined.
The Government has indicated it will only consider assets in existence at June 3 this year and it is proposing to use several tests, such as the acquisition of land, existence of contracts, planning and construction approvals, finalisation of financing and start of construction, for the existence of an asset.
While these tests have been used extensively in the electricity sector, businesses in other sectors will need to assess whether they are right for them.
So regardless of who wins the election later this year, businesses cannot afford to sit back and wait for trading to formally start before planning to tackle the implications for their strategies and operations of what is a fundamental long-term transition from a high-emissions to a low-emissions world economy.
Conversely, taking early action may bring significant rewards.
Katie Lahey is Business Council of Australia chief executive.