Who will be directly affected?
The Carbon Pollution Reduction Scheme (CPRS) will cover around 75 per cent of all of Australia’s emissions.
Early estimates suggest that the CPRS will directly cover around 1,000 businesses and other organisations in Australia. As such, the great majority of Australia’s 7.6 million registered businesses will not have CPRS regulatory obligations. Households will not have any direct obligations.
Emissions from agriculture, deforestation and reforestation activities will not be covered by CPRS liabilities. Entities will be able to participate voluntarily in crediting arrangements for emission reductions in these areas through the reforestation and offsets provisions of the CPRS.
The range of legal entities that the CPRS will directly affect is broad, including corporations, trusts, individuals, and governments.
The obligations for these directly affected businesses will include reporting emissions-related information and a liability to surrender emissions units.
Why does the CPRS cover the businesses that it does?
Most emissions are covered by imposing liabilities on the emissions of large industrial facilities. Increasing the cost of carbon pollution where it originates provides the clearest incentive to reduce emissions.
However, it would be difficult to directly impose the cost of carbon pollution on every emitter. For example, in the transport sector there are many millions of car drivers that contribute to carbon pollution. Instead of including all drivers under the CPRS, it is more practical to cover emissions by applying obligations higher up the supply chain. That is why CPRS obligations will apply ‘upstream’ on fuel suppliers. Similarly, for synthetic greenhouse gases CPRS obligations will apply upstream on importers and producers.
Large facilities
CPRS obligations will arise if a facility’s emissions from sources covered by the CPRS are at least 25 000 tonnes of CO2-e a year. Businesses can estimate the emissions from a facility using the National Greenhouse and Energy Reporting emissions calculators.
The person who will be liable for facility emissions is the controlling corporation of the group that includes the operator of the facility. The operator is the person with the greatest ability to introduce and implement operational and environmental policies for a facility.
CPRS obligations will apply to some landfill facilities where the facility’s emissions are at least 10 000 tonnes of CO2-e a year. This is intended to avoid waste being diverted away from sites covered by the CPRS to smaller uncovered sites.
The lower threshold will apply to landfill facilities that are near a large landfill that accepts similar waste. The distance between landfills that triggers the threshold will be set in regulations. Businesses will be able to work out whether the lower threshold applies to them from a list of large landfills and their locations that the Australian Climate Change Regulatory Authority will publish.
Liability
If the direct emissions from a facility reach a threshold amount, its operator will be liable for all emissions sources covered by the CPRS – with the exception of any emissions from fuel for which another business has incurred a liability.
The CPRS will not apply obligations for indirect emissions, such as emissions from purchased electricity, heat and steam that occur outside the boundaries of an operation. This is because the facility that directly produces these emissions will be liable for them.
A business that has taken on liability for the emissions from a facility through a liability transfer certificate will have CPRS obligations for the facility.
Transferring liability
Liability for a facility can be transferred from
- A controlling corporation – to one of its subsidiaries
- The business with operational control – to the business with financial control
The Australian Climate Change Regulatory Authority will issue a ‘liability transfer certificate’ when it approves a transfer.
These arrangements are intended to address some concerns about the ability of some businesses to pass on to their customers costs associated with the CPRS.
Upstream fuel suppliers
Businesses that supply fuels that they import or produce will have CPRS obligations – this includes businesses that produce a fuel by transforming it from another fuel (for example, coke is produced by transforming coal).
Businesses that use fuels that they import or produce themselves will also have CPRS obligations.
The fuels that are covered upstream include:
- liquid petroleum fuel
- liquid petroleum gas
- coal, coke and coal by-products
- natural gas and coal seam gas
- liquefied natural gas
- compressed natural gas
Hydrocarbon solvents are not included.
More information on obligation transfer numbers and the full list of fuels…
Liability
Liability will arise for fuel either when it is supplied, or when it is used.
If a business supplies fuel that it imports or produces, it will be liable for the emissions from that fuel – except for any fuel that a customer has quoted an obligation transfer number for, or that the supplier or a customer exports. More information on quoting an obligation transfer number is below.
When a customer quotes an obligation transfer number for a supply, CPRS liability will transfer from the supplier to the customer.
An importer or producer will also be liable if it uses the fuel itself.
Synthetic greenhouse gas importers and producers
Businesses that import or produce synthetic greenhouse gases equivalent to at least 25 000 tonnes of CO2-e a year will have CPRS obligations. The synthetic greenhouse gases that are covered are listed below.
Gases that are part of a manufactured product (such as gas retained in foam), or are imported for use in a ship or aircraft on an international voyage, will not count toward the threshold.
Liability
If the synthetic greenhouse gases that a business imports or manufactures reach this threshold, the business will be liable for those gases – except for any that a customer has quoted an obligation transfer number for, or that the supplier exports.
Holders of obligation transfer numbers
Some businesses will quote an obligation transfer number (OTN) when they are supplied fuel or synthetic greenhouse gas. Businesses will be able to obtain an OTN if they are either required or permitted to quote it. OTN holders will assume CPRS obligations when they quote their OTN.
Who can use an OTN?
Some businesses will be required to quote an obligation transfer number when they obtain a supply of fuel. Other businesses will be permitted, but not required, to quote an obligation transfer number for a supply of fuel or synthetic greenhouse gas.
The businesses that may use obligation transfer numbers are:
- Large fuel users
- Fuel re-suppliers, transformers and exporters
- Synthetic greenhouse gas exporters and re-suppliers
- Feedstock users of fuel or synthetic greenhouse gas
Liability
A business that quotes an obligation transfer number for fuel will be liable for the emissions from any fuel that it uses itself, and any it resupplies – except for fuel that a customer quotes an obligation transfer number for, or that the supplier or a customer exports.
A business that quotes an obligation transfer number for synthetic greenhouse gas will be liable for that gas – except for any that it resupplies to a customer that quotes an obligation transfer number, or that it exports.
More information on obligation transfer numbers…
Greenhouse gases and emissions sources covered by the CPRS
The CPRS will include all greenhouse gases included under the Kyoto Protocol. These are
- carbon dioxide (CO2)
- methane (CH4)
- nitrous oxide (N2O), and
- synthetic greenhouse gases: sulphur hexafluoride (SF6), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs)
Emissions from the following sources will be covered by the CPRS:
- stationary energy (which includes electricity production)
- transport
- fugitive sources (oil and gas production)
- industrial processes (such as cement and aluminium production)
- waste
At this stage the CPRS will not cover emissions from agricultural sources (such as fertiliser use or emissions from livestock).
Synthetic greenhouse gas emissions will not count towards a facility’s emissions. Liability for synthetic greenhouse gases will be limited to importers and producers of these gases, and some businesses that resupply them.