While the United States grapples with its design of a regulatory framework for carbon capture and storage (CCS) under its existing Safe Drinking Water Act authority, Australia has forged ahead to develop national legislation to support aggressive CCS development.  Australia, a heavily-coal dependent nation, last week passed the Offshore Petroleum Amendment (Greenhouse Gas Storage) Act 2008 (Act) which establishes a national regime for the capture and burial of carbon emissions under Australian sea beds.  The Act will commence on a day to be proclaimed by the Governor-General, which is a legal pre-requisite in the Australian law-making process.  This presents a unique opportunity for the US to garner important lessons as Australia experiences the inevitable teething problems in implementing its regime.

As the CCS provisions constitute an amendment to Australia’s key oil and gas legislation, the Offshore Petroleum Act 2006, there are three key features of that regime which must be understood.  Firstly, the Crown (i.e. the Federal Government) owns virtually all land containing minerals and petroleum and grants rights to miners to explore for and produce the resource (this contrasts with the ownership regime in the US, where most mineral land is privately held).  Secondly, the oil and gas regulation reflects Australia’s federal system.  The Offshore Petroleum Act at the Commonwealth level applies beyond State coastal waters (which are nominally within 3 nautical miles of the coast).  Although this is Commonwealth legislation, it is administered by joint authority of the Commonwealth and State.  Mirror legislation in each State applies to State coastal waters, with the aim that the same rules apply, regardless of jurisdiction.  Separate State petroleum legislation applies in each state to the onshore area and islands.  Finally, it is worth mentioning that health, safety and environmental issues relating to the oil and gas industry are dealt with under regulations made under the Act, and therefore CCS operators will also inherit that existing system.

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 As part of its commitment to implement its Carbon Pollution Reduction Scheme by 2010, the Australian Government released its long-awaited Australia’s Low Pollution Future Report, which presents Treasury’s key modeling assumptions on the costs and opportunities of climate change action.  The report focuses on mitigation of climate change costs and stresses significant cost savings will occur if carbon capture and storage (CCS) technology is commercially developed in Australia, and international trading of permits is actively encouraged.

The report’s frame of reference is two possible reduction target scenarios, based on whether a global climate change agreement is reached.  The first assumes a global agreement from 2013, with reduction targets of 10% and 25% below 2000 levels by 2020.  The second assumes the more likely scenario, whereby developed countries are subject to reduction obligations from 2010 and developing nations join progressively, with reduction targets of 5% and 15% below 2000 levels by 2020.  The more likely staggered approach assumes an expanded Renewable Energy Target of 45,000 GWh per year by 2020, while the former approach assumes all current renewable schemes terminate at the commencement of the Carbon Pollution Reduction Scheme.

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Like the just-released Dingell-Boucher climate change bill in US and the EU’s proposed directive, the design for an Australian emissions trading scheme reflects a strong concern for protection of trade-exposed industries from countries with less stringent emissions reduction requirements.  The core concern is the possibility that companies may relocate their operations to countries not subject to an emissions trading scheme, which Professor Garnaut, an eminent economist and advisor to the Rudd Government on the likely economic effects of an ETS, describes as a “truly dreadful problem.”

In Australia, this protectionist element has been a platform of both the previous Coalition party and incumbent Labor Government in their scheme designs.  In its July 2008 Green Paper, the Government, as expected, proposed assistance to the newly branded Emission Intensive Trade Exposed (“EITE”) industries of 1,500 tCO2-e/$ million revenue, which was a higher threshold than previous proposals.  It is intended that approximately 30% of the carbon pollution permits will be allocated to EITE industries, using a sliding scale: the largest polluters, with an emissions intensity above 2,000 tCO2-e/$ million revenue, will initially pay only 10% of their total emissions, while companies producing between 1,500-2,000 tCO2-e/$ million revenue would pay for 40% of emissions.

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The Australian Securities Exchange (ASX), Australia’s primary stock exchange which was formed when the Australian Stock Exchange and Sydney Futures Exchange merged in late 2006, has today announced a plan to start trading carbon futures in the third quarter of 2009. The futures contracts for renewable energy credits, natural gas, and coal would complement the ASX’s existing electricity futures market.It is expected that futures contracts for renewables will be offered by the end of the year, while contracts for gas in Victoria, electricity in New Zealand, and power station coal exports from Newcastle in New South Wales will commence in March or April 2009.

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The Government today released its much-discussed green paper on the design features of its newly branded “Carbon Pollution Reduction Scheme” for commencement in 2010.  This follows Professor Garnaut’s release of his draft report on the scheme earlier this month, and the Government’s commitment to unveil the key features of the scheme by the end of this year.  It proposes the introduction of a broad-based cap and trade scheme with the following features:

Broad coverage: petrol in, reforestation opt-in

Broad coverage to include stationary energy, transport, industrial processes, fugitive emissions, waste and forestry, with agriculture likely to be incorporated by 2015.  The points of liability primarily fall on large facilities and upstream fuel suppliers.  The proposed threshold for direct obligations is 25,000 t CO2-e or more a year, which will capture approximately 1,000 Australian companies.  The impact of the inclusion of the transport sector, a highly sensitive issue, has been softened by a transitional measure of fuel tax cuts on a cent for cent basis, to be reviewed three years after the scheme starts.  There was also a question mark around forestry: the Government has dealt with this by proposing that reforestation be included on a voluntary “opt-in” basis while deforestation is not.

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Following Australia’s recent ratification of the Kyoto Protocol, the Federal Government intends to unveil its emissions trading scheme (ETS) by the end of this year, for commencement in 2010.  The key publications released to guide the development of the scheme, include the 2006 National Emissions Trading Taskforce’s report, the 2007 Prime Minister’s Task Group proposals, and the newly released Garnaut Review.

Professor Garnaut, an Australian National University economist asked by the Rudd Government last year to research the likely economic effects of an ETS, released his draft report on July 4, with the final report scheduled for release on September 30.  Garnaut’s report outlines the following key issues:

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This week, I will be posting updates on the United Nations Conference on Climate Change discussions being held in Bali, Indonesia.

The 13^th Conference on Climate Change kicked off with enthusiasm, but little fanfare. The highlight of the day was Australia’s new Prime Minister, Kevin Rudd, formally announcing his country’s ratification of the Kyoto Protocol.  The announcement leaves the U.S. as the only developed country to not agree to adopt the Protocol.

In his opening remarks, UNFCCC Executive Secretary Yvo de Boer outlined the main issues for delegates to act on during the meetings. Mr. de Boer emphasized the need for practical action on the issues of adaptation and reducing emissions from deforestation and called for support for developing countries, including through a framework for an Adaptation Fund that could be worth “$300 million annually from 2008 to 2012,” according to Reuters.

Mr. de Boer encouraged delegates to work towards the goal of adopting “a formal negotiating agenda.” Four important keys to the success of the talks, he said, are: leadership from industrialized countries; technology access and incentives for developing countries; recognition of our collective responsibility to use fossil fuels without destroying our environment; and a “focus on creating opportunities rather than being paralyzed by threats” by prioritizing adaptation.

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