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10 Jul 2009

Pulling the greenhouse trigger or pushing the CPRS button?

by Brendan Bateman

A greenhouse trigger would mean projects which generated levels of greenhouse gas emissions over a threshold would be referred to the Commonwealth Environment Minister for determination as to whether it is a "controlled action" which would then require the approval of the Minister for the project to be obtained.

On 29 June 2009, the interim report into the review of the Environment Protection and Biodiversity Conservation Act 1999 was released. Commissioned by the Federal Minster for the Environment, Peter Garrett, the review headed by Dr Allan Hawke advocates against the inclusion of a greenhouse trigger in the EPBC Act if the Carbon Pollution Reduction Scheme is introduced in the near future.

The concept of a "greenhouse" trigger is not new - indeed, it was first advocated federally in a discussion paper released by the then Department of Environment and Heritage in December 1999, even before the EPBC Act commenced operation. By including a greenhouse trigger in the EPBC Act, projects which generated levels of greenhouse gas emissions over a threshold would be referred to the Commonwealth Environment Minister for determination as to whether it is a "controlled action" which would then require the approval of the Minister for the project to be obtained. Unsurprisingly, the proposal did not go very far as the then Howard Government began to distance itself from ratification of the Kyoto Protocol.

Despite relative inaction over the past decade, the justification for a greenhouse trigger has waned with the Federal Labor Government's commitment to the introduction of a emissions trading scheme, the Carbon Pollution Reduction Scheme, as part of its three pillar policy to respond to climate change. The trigger would be inconsistent with the Government's preference to use a market mechanism (ie. the CPRS) to create a price for carbon, which in turn will drive changes in investment and purchasing behaviour away from emissions intensive processes, and goods and services.

The view expressed in the interim report is also consistent with the review undertaken last year by Roger Wilkins AO in relation to current climate change policies and whether these are complementary to an ETS. Although completed at the end of July 2008, the report was only released in May 2009. It, however, makes clear that restrictions which might exist on emissions-intensive developments as part of the environmental impact assessment processes, such as might be included in the EPBC Act, would be inconsistent with the adoption of an ETS. Essentially, such restrictions would create distortions in the operation of the market for carbon permits by imposing non-market related restrictions on certain market participants, namely developers of new projects.

There is real uncertainty about when - if ever- the CPRS Bill will become law. Debate in the Senate on the CPRS Bill has been deferred until at least August, and there is a prospect that the Bill will be rejected in the Senate, potentially leading to a double dissolution election sometime next year. In the face of that uncertainty, there is concern to ensure that steps are taken now to begin the transition to lower emissions economy through regulatory means, such as the project approval processes. The interim report agreed that the case for a greenhouse trigger becomes stronger the longer the CPRS is delayed.

What the nature of any greenhouse trigger might be is also unclear - if a project exceeds the nominated threshold of greenhouse gas emissions so as to be a controlled action requiring Federal approval under the EPBC Act, is this likely to result in conditions being imposed requiring the proponent to procure offsets or engage in studies on lower emissions technologies, or might it result in approval only being granted if minimum emissions standards are achieved? The interim report suggests bans on certain greenhouse intensive activities might be warranted in certain circumstances, and gives as an example new coal fired power stations which do not have carbon capture and storage technology.

While it is possible to introduce a greenhouse trigger with an automatic sunset provision on commencement of the CPRS, a decision by the current Government to go down that path would be an implicit acknowledgement that the CPRS will not commence any time soon. With neither the Government nor Opposition prepared to blink in the CPRS debate, it is unlikely that the Government will rush to introduce a greenhouse trigger to the EPBC Act.

The final report of the Hawke review is not due until October - by that time, we are likely to have a clearer picture of the fate of the CPRS, and whether an early election is going to be called. Even with that advantage, it is difficult to see circumstances eventuating which would influence the Environment Minister to propose amendments to the EPBC Act to introduce a greenhouse trigger either later this year or early 2010.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.