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FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0696
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RUEHDN/AMCONSUL SYDNEY 4054
RUEHBS/USEU BRUSSELS
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/WHITE HOUSE WASHDC

UNCLAS SECTION 01 OF 04 CANBERRA 001279 
 
SENSITIVE 
SIPDIS 
 
WHITE HOUSE FOR CEQ VAN DYKE, SCHULTZ 
NSC FOR SHRIER AND LOI 
STATE FOR OES/EGC TALLY, EEB KOPP, G ROCHBERG 
 
E.O. 12958: N/A 
TAGS: SENV KGHG ECON AS
SUBJECT: CLIMATE CHANGE: PM TARGETS 5% EMISSIONS CUT BY 2020 
 
REF: A. CANBERRA 1077 
     ¶B. CANBERRA 1043 
     ¶C. CANBERRA 902 
     ¶D. CANBERRA 819 
     ¶E. CANBERRA 775 
     ¶F. CANBERRA 719 
 
SUMMARY 
------- 
 
¶1. (SBU)  Prime Minister Rudd released the Government's White 
Paper on the Carbon Pollution Reduction Scheme (CPRS) on 
December 15, which commits Australia to reducing emissions by 
5% from 2000 levels (4% from 1990 levels) by 2020.  The plan 
holds out the option of increasing the target to 15% of 2000 
emissions in the event of a substantial international 
agreement.  The White Paper lays out the details of the CPRS, 
including government support for coal-fired electricity 
generators, compensation to households for increased energy 
costs, and varying levels of compensation for emissions 
intensive and trade exposed industries.  Though panned by 
climate activists as a "sell out to polluters," the GOA 
argues that the 5% cut is equal to a 27% reduction on a per 
capita basis, more or less equal to the per capita emissions 
reductions envisioned by the EU.  The plan addresses many of 
the concerns raised by business groups about the 
Government,s discussion paper (i.e. "green paper") in July 
(Refs a-f).  It reflects a carefully crafted attempt to carry 
out the PM,s election commitment to reduce emissions while 
limiting the impact on voters and business by adopting the 
lowest credible target. End Summary. 
 
Carbon Pollution Reduction Scheme 
--------------------------------- 
 
¶2. (U) Prime Minister Kevin Rudd announced Australia's Carbon 
Pollution Reduction Scheme (CPRS) in a televised address 
December 15.  Australia will seek to cut emissions by 5% from 
2000 levels by the year 2020, equivalent to a 27% per capita 
reduction.  Further, the GOA agreed it would increase this 
target to 15% if international agreement is reached that 
establishes strong international carbon price signals in 
¶2012. Rudd said the GOA remains committed to meeting its 
long-term target of a 60% reduction in greenhouse emissions 
from 2000 levels by 2050.  All revenue from auctioning 
permits is supposed to be spent to compensate consumers, 
selected industries and on research and development.  The 
plan commits to provide around A$6 billion a year in 
compensation to consumers, with low income households 
receiving compensation equal or greater than the average 
increase in living costs.  Compensation for middle income 
families will be slightly below the additional living costs 
caused by the plan.  The CPRS is slated to begin on 1 July 
¶2010.  It will cover around 75% of Australia's emissions and 
involve mandatory obligations for around 1000 entities (out 
of 7.6 million registered businesses). CPRS will broadly 
cover emissions from stationary energy, transport, fugitive, 
industrial processes, waste and forestry sectors but will not 
cover emissions from agriculture. 
 
Cap and Trade 
------------- 
 
¶3. (U) The CPRS implements a cap and trade emission trading 
Q3. (U) The CPRS implements a cap and trade emission trading 
scheme, with an initial price for the first five years capped 
at A$40 per ton (Australian Treasury Department modeling 
suggests that the initial price in 2010-2011 will be A$23 per 
ton). The price cap will rise by 5% per year after the 
initial five-year freeze.  The price of carbon will be 
determined by the balance of supply and demand for permits, 
 
CANBERRA 00001279  002 OF 004 
 
 
within the price cap.  The plan envisions monthly auctions of 
permits, with a secondary market for trading. 
 
¶4. (U) The GOA says pricing volatility and upside price risk 
will be reduced by widespread coverage, the ability to save 
and borrow permits, a ban on exports of permits in the 
CPRS,s initial years, unlimited access to international 
abatement through the Kyoto Protocol, and the transitional 
five-year cap on the price of permits.  The Australian 
Securities and Investments Commission (ASIC) will be 
authorized to investigate and prosecute market manipulation 
in the carbon market.  The permit market will be subject to 
the same effective safeguards as the Commonwealth bond 
market.  Rules will be in place to prevent the manipulation 
of auctions.  The GOA plans to create a single regulator to 
administer the CPRS, the National Greenhouse and Energy 
Reporting System, and the Renewable Energy.  The independent 
regulator's mandate will include enforcing compliance, 
maintaining the registry of domestic and international units, 
auctioning permits, and administering the permit allocation 
rules set out in legislation and regulations. 
 
¶5. (U) Australia's emissions have been growing at about 1% a 
year since 1995 but it is likely to meet its Kyoto target for 
2008-2012 of 108% of 1990 levels because of significant 
reductions in emissions due to Kyoto's treatment of land use 
and land clearing.  Emissions would hit 120% of 1990 levels 
by 2020 without additional policy measures. The CPRS is the 
main pillar of four policies designed to cut emissions by 5% 
over 2000 levels in the year 2020. The other measures are an 
expanded Renewable Energy Target for investment in renewable 
energy, carbon capture and storage, and action on energy 
efficiency. 
 
Overall Cut Big on Per Capita Basis 
----------------------------------- 
 
¶6. (U)  The White Paper accepted the Garnaut Review finding 
that stabilizing of greenhouse gases at 450 parts per million 
or lower is in Australia,s interests. The GOA argues that 
Australia's strong population growth, large share of energy 
and emissions-intensive industries, and heavy reliance on 
fossil fuels for energy mean that Australia faces a 
relatively greater task to move towards a low-emission future 
than many other developed countries. Australia's population 
is projected to grow by around 45% over 1990-2020, so that 
Australia's target range translates to a 34-41% reduction in 
the per capita emissions of every Australian over this 
period. Rudd said Australia,s medium term target range is 
therefore comparable to that of the EU. 
 
Country           2020 Target       2020 Per Capita Cut 
-------           -----------       ------------------- 
 
Australia         5% Below 2000           27% from 2000 level 
                  (4% below 1990)         (34% from 1990 
level) 
 
EU                20-30% below 1990 24%-34% from 1990 level 
 
Q 
UK                26%-32% below 1990      33%-39% from 1990 
level 
 
(Source:  Australian Department of Climate Change Powerpoint) 
 
Compensation Mechanisms 
----------------------- 
 
¶7. (U) The GOA estimates inflation will rise a one-time 1.1% 
when the CPRS is introduced, and growth will slow by 0.1% a 
 
CANBERRA 00001279  003 OF 004 
 
 
year to 2050. The GOA will use all revenue it receives from 
the sale of permits to help households and businesses adjust. 
The CPRS will increase prices of electricity, gas, petrol and 
other goods and services. To compensate, 89% of low-income 
households will receive assistance of 120% of their 
CPRS-induced cost of living increase. Almost all 
middle-income households will receive some cash assistance 
and 60% will have their cost of living increase fully 
compensated. Motorists will be protected from higher fuel 
costs from the scheme by "cent for cent" reductions in fuel 
tax for the first three years -- a promise made in July when 
complaints about fuel prices was, like fuel prices 
themselves, at all-time highs. 
 
Emissions-Intensive Trade Exposed Industries 
-------------------------------------------- 
 
¶8. (U) The GOA will provide assistance to emissions-intensive 
trade-exposed industries (EITE) to reduce the risk that 
industries will relocate offshore due to competition from 
countries without carbon constraints and to provide general 
transitional assistance towards a carbon constrained economy. 
The White Paper extends the lower level of assistance to 
energy-intensive, trade-exposed (EITE) activities that emit 
at least 1000 tons CO2-equivalent per million dollars of 
revenue. 
 
¶9. (U) At the start, EITE industries will get around 25% of 
total carbon pollution permits.  Notably, new entrant or 
brownfield expansions are entitled to the same rate of EITE 
assistance as existing entities. Up to 40 activities in the 
economy may be eligible for EITE assistance.  Aluminum 
smelting, cement clinker production, lime production, silicon 
production, and integrated iron and steel manufacturing are 
likely to be eligible for 90% assistance.  Alumina refining, 
petroleum refining and LNG production are likely to receive 
60% assistance. 
 
Assistance for Coal-Fired Electricity 
------------------------------------- 
 
¶10. (U) To ensure sufficient electricity supply, the GOA will 
give one-time assistance to emissions-intensive coal-fired 
electricity generators, targeted at the most 
emissions-intensive generators which least able to pass on 
the full costs of the permits they must buy. CPRS will 
provide a fixed allocation of permits, giving around A$3.9 
billion to the most emissions-intensive coal-fired generators 
based on an initial carbon price of A$25 per ton over the 
first five years of the CPRS. Assistance will be based on the 
energy output of power stations between July 2004 and July 
2007, and the extent to which generator's emissions intensity 
exceeds the "threshold" level of emissions intensity of 0.86 
tons of CO2 equivalent per megawatt hour generated, which is 
the average emissions intensity of all fossil-fuel based 
electricity. 
 
¶11. (U) The GOA will also establish a A$2.15 billion Climate 
Change Action Fund over five years to smooth the transition 
QChange Action Fund over five years to smooth the transition 
for businesses, community sector organizations, workers, 
regions and communities to an operating environment that 
includes a price on carbon. An additional A$300 million will 
be provided as part of the coal adjustment scheme. 
 
Initial Response 
---------------- 
 
¶12. (U) The Rudd government's goal of cutting emissions by 
only 5% from 2000 levels has angered the Greens and 
environmental groups, who called for a much stronger cut, but 
 
CANBERRA 00001279  004 OF 004 
 
 
is closer to the level sought by business and industry 
groups. Green Senator Christine Milne said the emissions 
reduction targets are extremely weak: "Five percent is a 
global embarrassment." The World Wildlife Fund said the 5% 
target is deeply disappointing.  However, the Chamber of 
Commerce and Industry suggested that reducing emissions by 5% 
will be difficult for the business community when it is also 
dealing with a financial crisis. The Opposition has not yet 
responded directly about the CPRS but has commissioned an 
independent inquiry due in February which will influence the 
Coalition's response. 
 
Comment 
------- 
 
¶13. (SBU) The White Paper is a carefully crafted attempt to 
carry out the PM,s election commitment to reduce emissions 
while limiting the impact on voters and business by adopting 
the lowest credible target.   The plan addresses many of the 
concerns raised by business groups following the discussion 
paper ("green paper") released in July.  Legislation to enact 
the CPRS will be introduced in mid-2009 and will begin on 
July 1, 2010.  Senate passage will require support from 
either the Coalition or the Greens and independents -- with 
the former looking much more likely because of the 
comparatively conservative target adopted by the White Paper. 
 Business groups have already pressured the Opposition to 
support the CPRS because of concern that the Greens will 
otherwise force a much higher target on the Rudd government 
as the price for Senate passage. Greens Senator Milne 
confirmed this interpretation to Econoff. Another reason for 
support is that Opposition leader Turnbull previously 
supported ratification of the Kyoto agreement when 
Environment Minister in the Howard government and is likely 
to eventually support the CPRS -- possibly after a Senate 
inquiry. 
 
MCCALLUM