January 2009
The Australian government released its Carbon Pollution Reduction Scheme (CPRS) White Paper in December, providing further detail on the national greenhouse gas emissions trading scheme to be introduced in 2010. The scheme has significant inter- and intra-industry implications for firms operating in Australia. Innovest’s Research Note investigates the implications of the scheme. Our Research Note focuses on the implications of CPRS design features on a number of highly affected industries, and particularly the impact of industry assistance measures.
Key findings include:
Emissions-intensive trade-exposed industries will receive significant assistance in meeting permit obligations. The financial impact of this assistance is uneven between and within industries. Aluminium smelters, cement and steel makers will receive assistance covering 90% of industry average emissions, while alumina refiners, petroleum refiners and LNG producers will receive 60% of permits for free. Depending on actions already taken to minimize emissions, impacts differ between companies. For example, amongst aluminium smelters, Alcoa will still have to purchase permits costing it an estimated 3.9% of EBITDA, whereas Rio Tinto’s assistance is expected to cover practically all its obligations due to its existing use of lower- and zero-emissions power.
Coal-fired electricity generators will receive $3.9 billion in free permits over five years. The handouts are concentrated among the largest and highest emitting brown coal-fired generators in Victoria. Owners International Power, CLP Holdings, AGL Energy and Tokyo Electric Power will each have 25 40% of required permits for their coal-fired generation assets covered by this assistance.
If unable to fully past on carbon costs, sectors that are not eligible for assistance may still see significant earnings impacts. In some cases this impact could be larger than for assisted industries after compensation is taken into account. Airlines, retailers, and coal miners not eligible for separate assistance for mines with the highest methane emissions, are but a few examples of affected industries.
Read the Research Note here: Implications of the Australian Carbon Pollution Reduction Scheme