Carbon uncertainty

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Engineering and sciences firm Sinclair Knight Merz (SKM) said reductions ranging from 5% to 15% contained in the Federal Government’s Carbon Pollution Reduction Scheme (CPRS) will create uncertainties in Australian industry for at least the next 12 months.

“Businesses will have only a few months of certainty prior to the commencement of the CPRS in 2010, meaning they must continue to plan and develop strategies to deal with this uncertainty,” SKM said.

According to SKM, the White Paper has seen an increase in the amount of assistance to be received by emissions intensive trade exposed industries (EITE).

“The total amount of assistance to EITE has increased, starting with a free allocation of around 25% of permits and expected to increase to 45% over five years,” SKM said.

There has also been a change in the classification of what industries fall under EITE.

“The definition expanded to all sectors where imports/exports are greater than 10%, or it can be demonstrated there is limited capacity to pass on price increases.”

According to the Government’s White Paper, $3.9 billion of assistance will be given only to coal-fired generators with emissions above 0.86 t CO2e/MWh.

“Not all coal generators will receive assistance, with brown coal or the most inefficient black coal generators being the main beneficiaries,” SKM said.

A one-off five year allocation of permits will be made more difficult with the inclusion in the White Paper of a two year profits clawback and energy security tests before generators can withdraw unprofitable capacity which, according to SKM, will create continuing uncertainty.

Energy prices are set to rise as a result of the CPRS, SKM said.

“All energy users will face cost increases, even those below the CPRS thresholds, as electricity and gas prices increase to reflect emissions.

“SKM’s modelling shows electricity prices in particular are set to rise significantly.”

According to SKM, the CPRS will hasten the convergence of the energy and water industries.

“The CPRS will increase the cost of water supply and treatment, particularly desalination and recycled water supply options,” SKM said.

“This, coupled with climate change and increased climate variability, will put new challenges and costs on water availability, including for power generation.”