Essay on Considering New South Wale's Greenhouse Gas Reduction Scheme (GGAS), its Format, Operation, Criticisms and Review in Relation to the National CPRS

This essay will Consider New South Wale's Greenhouse Gas Reduction Scheme (GGAS), its Format, Operation, Criticisms and Review in Relation to the National CPRS

Paper Topic - To Outline and Critically Analyse a Set of State Level Policies that Would Complement the Introduction of a National Emissions Trading Scheme

The Australian Commonwealth Government's national effort to deal with carbon dioxide CO2 emissions, saw a setback in April 2010 with regard to an introduction date, when Prime Minister Kevin Rude, announced that its introduction would coincide with the Kyoto commitment ending in late 2012, wherein world governments are required to provide their agenda with regard to pollution emissions (Financial Review, 2010) In retrospect the New South Wales Government has had in place an emissions abatement scheme since January 2003, Queensland has its own Gas Scheme, where it is providing incentives to use natural gas as a substitute for coal since 2005 and the European Union is dealing with lessons brought about from their system introduced in 2005, the EU ETS. (EU ETS, 2011), (Betz & Sato, 2006 cited by Passey et al., 2008). Given the delay with the national Carbon Pollution Reduction Scheme, (CPRS ), it may be a benefit in that the Australian Government can further review their policy and interactions with the States.

This essay will consider New South Wale's Greenhouse Gas Reduction Scheme (GGAS), its format, operation, criticisms and review in relation to the national CPRS.

Emissions Abatement, Concepts
Pollution encompasses not just the local region nor the present time period, as it crosses state and country borders and continues to reside in the environment as it is in excess of what the elements may naturally absorb, therein affecting unborn generations to come. Quantities of emissions over and above the natural absorption rate provide signals with which the various countries are reacting. To address the problem, the complexities of human rational behaviour necessitates governments to design policies that will encompass the environmental problem yet provide social motivation as a means to bring about change with minimum public objection and provide a technique for beneficial behavioural change to achieve the result desired..
Voβ, theorises on policy development with specific emphasis on emission trading. It warrants a brief understanding so as to acknowledge the mechanisms that have taken place with the subsequent review of the NSW abatement policy. Voβ prescribes a sequence beginning with a period of “gestation“. Here the issues are thrown around for discussion, the environmental and social pressures are gauged and concepts presented. Next, provision for an environment to prove the notions and ideas, devoid of political or other detrimental persuasion to detract from the theme. Subsequently, the model is taken out to a localised arena allowing usage and the opportunity to observe and comprehend from the response. It is then presented to the broader community for review and experimentation, so to gauge the broad social and political support that will lead to diffusion with acceptance. Finally, bench marking of emissions or issues, aligned with standards and legislated schemes requiring licensing and approval of participants. He cites an early example where the US Environmental Protection Agency used these techniques to reduce the emissions of NOx and SO2 from coal fired power stations across the continent and the overall structure and strategy of the so called Acid Rain Program (Voβ,2007) (Acid Rain Program, 2011). Within the Australian context, two policy instruments using market based opportunities for social motivational purposes that effectively follow Voβ's rational are prominent.

Base-line and credit
Reviews, the pollutant in question at its source and quantifies an emission value as an operating baseline; subsequent operations by a firm require emission levels to be equal too or lower then this baseline. Then rather then command and control, the firm is given a financial incentive by credit certificates for quantities below the datum. These certificates are a tradeable commodity, if the original firm has a surplus it may profit from there sale, else it may purchase any short fall from other firms that have a surplus. In addition, activities may be undertaken by other parties that sequest the pollutant, such afforestation activities or provision of plant that aids in emission reduction for which they gain certificates that may be sold. (Baseline & Credit, 2011),( Johnson, et al, 2010).

Cap and trade
This policy format requires a regulatory authority to set a nominal cap or quantity of emissions for a jurisdiction or country as a whole. Certificates pertain to a capped quantity of pollutant for a time period. These are made available to industry, during the policy introduction transionary period and provided free, once established they are then sold at a price that will set bargaining for the subsequent trade of the certificates on the open market. Firms that are able curb emissions may sell their surplus certificates to other firms that have a shortfall for their quantity of pollution. Forming a market whilst at the same time, ensuring compliance to a cap. The Kyoto Protocol embellishes such a system, where at the top end employs the trade of certificates between countries as well as trade between firms within a country( Milunovich et al., 2007).

Emissions abatement, NSW history
Effects of CO2 emissions where being felt and considered by the NSW Government leading up to the early 1990's where the electricity market in NSW was liberalised and restructured. At the time it was envisaged that such restructure would provide incentives to industry where the new competition would bring on non-fossil renewable sources as well as promote more efficient power production such as co-generation and natural gas usage. It however, did not lead to any substantive reduction, with various reasons:
low cost of domestic coal that provided no reason to invest in efficiency;
excess capacity in the early years leading to low priced electricity allowing consumer
greater use; (Commonwealth of Australia, 2002 cited by MacGill et al., 2004)
reduced efficiency based on low price; (Pears, 2002 cited by MacGill,2004)
market policy that excluded the externality of emissions;
policy designs geared from precedence, so not accounting for emissions or allowing non-fossil generation (Outhred, 2003, cited by MacGill, 2004)

As the Government was observing these market trends in the early part of the 1990s, it formulated new policy for the latter part of the 1990s. This required that Electricity Retailer Licensing under the NSW Electricity Supply Act (1995) provide a physical emissions reduction to take place during the period 1996 to 2001. Yet, once again, as these rules were not policed emissions escalated. The NSW Government set about to correct these misgivings and re-evaluate its policy operating conditions (Passey et al., 2008).

GGAS Operation
The Greenhouse Gas Abatement Scheme ( GGAS ) was established by legislation set by NSW Parliament during 2002 and come into force on 1st January 2003, the Australian Capital Territory enacted legislation that provided for a complement scheme to operate in the ACT from January 2005 (Crossley, 2008). The structure of the scheme has followed the sequence roughed out by Voβ, gestation of norms and existing policies, wherein the liberalisation process did little to promote reduction. This lead to the un-policed “command and control” licensing requirements that may be considered as the localised arena allowing for usage and opportunity. Subsequently feeding the current socially accepted baseline & credit system. The NSW Independent Pricing and Regulatory Tribunal ( IPART), undertakes the role of administrator and compliance regulator. IPART utilises specialists auditors as independent advisors to provide accreditation of participants and providers. The independent auditors are also called upon in circumstances where problems present themselves. The baseline is a calculation using a Relative Intensity Approach, set out as Rule 2, Generation under the Act. and entails the average emissions of all large coal fired power stations and hydro plants in NSW over a 5 year period referred to as Category B generators (Passey et al., 2008). In this regard the last Category B unit was Mt Piper coal power station commissioned in the early 1990s.

The intensity or NSW Pool Coefficient (NCP) is then multiplied by the estimated electrical demand for the year to provide the baseline or Benchmark. It is dependent on the ability of the major coal stations to reduce emissions, and so reduce the baseline. Then as the population increases so does the baseline. Initially this started as 8.65 tonnes CO2 / NSW resident and came down to 7.27 tonnes / NSW resident in 2007 where it has remained. To reduce emissions, Benchmark Participants or liable parties are then obliged to demonstrate an emission level equal too or lower then this intensity coefficient. In doing so they gain NSW Greenhouse Abatement Certificates or NGAC's at the rate of one NGAC equates to 1 tonne of CO2 emission. These include generators, electricity suppliers and large market customers that consume over 100GWh of electricity each year. (GGAS, 2011). On the other hand, to offset emissions, Rule 5 of the Act, provides Carbon Sequestration. This allows an Accredited Certificate Providers, (ACU) to undertake removal of CO2 from the atmosphere by planting forests and managing their maintenance for the following 100 year period. Such afforestation ( grown where there was no pre existing forest ) or re-forestation ( replant ) is to be undertaken within NSW, and has a “restriction on use” registered on the title deeds as well as audits conducted to evaluate the amount of CO2 absorbed and subsequently issue NGACs (Kelley, 2005).

In all the GGAS has 5 rules under which all liable party participants and certificate providers are required to work within. There is a NGAC transaction registry that is publicly available over the internet, along with adequate information to inform participants, providers as well s the general public of the administrative operation undertaken by IPART.. (GGAS, 2011).

Scheme Design Observations and Criticisms
Passey, MacGill and Outhred as well as other parties had during the policy public review period in 2002, raised various issues with the scheme including:
1 - The format being complicated and pulled away from the aim of physical reduction of greenhouse gases
2 - It was questioned if the policy provided additional abatement
3 - An issue of transparency of operation
4 - Operational needs requiring large administration cost

As a consequence of implementation it was further noted that although some aspects of the scheme did receive attention and modification, they were mostly geared to streamline accreditation and provide ease with which to gain NGACs. Little was done to address the problems raised regarding physical emissions reduction or reducing complexity (Passey et al, 2008). Passey et al. comment that based on the Category B Relative Intensity calculation, any new power plant investments will not have their emissions included in the NSW Pool Coefficient. Yet will obtain NGACs even though they are adding emissions that have not been allowed for, accordingly doing nothing for the abatement process. (Passey et al, 2008). NSW also acquires 1100MW from Queensland and 1500 MW from Victoria (Electricity Generation, 2011) and although the source lies outside NSW these plants are able to obtain NGACs from GGASS. Furthermore the method of attaining the quantity of emissions is a calculation, and not based on physical reduction. Passey et al. suggest that this technique does not truly represent what is happening within the context of emissions reduction. It is of concern that these flaws of practice take away from the Kyoto Protocol and other global concepts to reduce climate change. With this in mind it is anticipated that the national CPRS will upon replacing GGAS rectify these issues so as to ensure Australia is obiding by international practice.. (Passey et al, 2008)

National Carbon Pollution Reduction Scheme (CPRS)
The Commonwealth has proposed a national scheme that will use a cap and trade arrangement with regard to reviewing and reducing the emissions across Australia. Under the Kyoto Protocol, a national cap on emissions is provided by a government authority and subsequent certificates are provided to industry. These may then be traded or else surrendered as proof of obliging the scheme. The permits are either provided free to large emission intensive industries else sold or auctioned off at market value. The users may then undertake four options
Change their production to reduce the emissions and so allow sale of unused permits
Use the permits as evidence that they have reached their quota
Buy extra permits from other organisations that have less emissions and have surplus certificates
Pay a carbon tax to offset the difference
(Milunovich et al., 2007)

As with the GGAS economic market forces are being used to control the CO2 emission externality as well as providing a financial incentives for its implementation, so enhancing the allocative efficiency of firms and how they choose to invest in reducing their emissions. The main benefit seen by a national cap and trade system is that under circumstances of uncertainty the Government is able to set the upper emissions limit, so allowing economic forces to control how firms reach this cap; as the restraint on certificates increases, firms will be forced to find other emission efficient techniques to overcome their obligations ( Wood 2008, 3 ) Wood emphasises two reports that omni-present to the CPRS, the first is the Gaunaut Review and then the Commonwealth Governments Green Paper. Aspects of both works coincide with joint recommendations, of interest though is where the two differ. Gaunaut rejects any form of financial support for the incumbent coal fraternity, arguing that it merely profits the firms at the expense of adding the burden to the remaining community that has to compensate for the shortfall. Whereas the Green Paper perpetuates free allocation of certificates as well as financial support to these industries (Gaunaut, 2008 cited by Wood, 2008).

In relation to the NSW GGAS policy, in 2007 the Australian States agreed that a national system to cub emissions would best serve the nation and enable an easier adaptation to a global requirement when World Governments place their commitment with respect to the Kyoto Protocol at the end of 2012. The original legislated GGAS was structured to finish on December 2012, an amendment Bill in 2006 proposed to extend this till 2021 (GGAS extended, 2006), there exists a provision that the scheme may be cut short if a national strategy is implemented ( IWW, 2011 ). Due to the delay with delivering the national CPRS, the NSW Government has been considering how best to assist participants of the scheme as well as encourage continual investment in projects. Many issues are at a loose end with regard to providing a smooth transition, one circumstance necesitates the NSW Government compensate costly projects that have been initiated under the GGAS. Other options considered entail re-opening the scheme to new applications as well as revising the compliance rules and benchmarks (baseline ) for 2012 onwards (Passey et al., 2008)(GGAS review, March 2010).

It has briefly been shown how the NSW emission abatement policy format evolved. From underlying assumptions that liberalisation would bring on reduction to non-complinant licensing requirements, to the the current baseline and credit system. It has been demonstrated that some authors note that it does not coincide with actual physical abatement policy but persists as a certificate generating machine. To draw upon the two systems, similarities in ex ante lobbying to ensure windfalls for fossil fuel enterprise are present in both policy frame works. Opposition to which is also prevalent from outside interest groups, that include various observers and authors with regard to the NSW GGAS and then the prominent Gaunaut Review at the national level. Serving as a precedence to the CPRS, the GGAS has much to contribute from the early initiatives of liberalisation through to the final product that has been manipulated for the benefit of a distinct few. How the Commonwealth Government will resolve the political question of rational behaviour at the national level will unfold over the first few years of implementation.

Acid Rain Program. sourced 24 Sept 2011.

Baseline & Credit Scheme. sourced 20 September 2011. Department of Climate Change.

Crossley, David J. July 2008. Trade-able energy certificates in Australia. Energy Efficiency 2008

Emissions Trading System (EU ETS). sourced 24 Sept 2011.

Electricity Generation, sourced 27 September 2011. NSW Government Trade & Industry

Financial Review. 27 April 2010. CPRS delay due to slow global action - Rudd GGAS. July 2011. Introduction to the Greenhouse Gas Reduction Scheme. July 2011. NSW Government.

GGAS extended. 25 October 2006. Mallesons Stephen Jaques Law Firm.

GGAS review. March 2010. NSW Governemnt

IWW. 9th August 2011, Head scratching continues over GGAS. Inside Waste Weekly.

Johnson, Ian. Coburn, Rebecca. 2010. Trees for carbon sequestration. Climat in Primary Industries, Forest Science Centre, Industry and Investment, NSW Government

Kelley, Simon. 2005. Carbon Sequestration in the NSW Greenhouse Gas Abatement Scheme (GGAS), IPART

MacGill, Iain. Outhred, Hugh. Nolles, Karel. 2006. Some design lessons from market based greenhouse gas regulation in the restructured Australian electricity industry. Energy Policy Vol 4 issue 1 January 2006

Milunovich, George. Stegman, Alison. Cotton, Deborah. 2007. Carbon Trading: Theory and practice. The Finsia Journal of Applied Finance, issue 3, 2007

Passey, Robert. MacGill, Iain. Outhred, Hugh. 2008. The governance challenge for implementing effective market-based climate policies: A case study of the New south Wales Greenhouse Gas Reduction Scheme. Energy Policy # 36, June 2008

Wood, Justin. 2008. Policy Interactions of an Australian ETS and an expanded MRET. Energy Studies, School of engineering and Energy, Murdoch University.