London, 13 August 2009 

The Senate today rejected the government’s proposed emissions trading scheme. As expected the Labor government did not manage to muster the support needed to successfully make the carbon pollution reduction scheme (CPRS) law. 

All non-Labor senators voted against the scheme. 

Climate Change Minister Penny Wong said the government would continue to push for a carbon trading scheme in Australia. 


"This bill may be going down today, but this is not the end,” she told ABC. 

"It's not smart to pretend this won't leave us isolated from the rest of the world, and it's not smart to undermine our transition to a low-carbon economy.” 

The bill would have created a mandatory carbon trading scheme in Australia from July 2011.

Unhelpful

“This hasn’t really changed anything, we knew this would happen,” said Ben Keogh, managing director with Australian Carbon Traders. 

He tipped a quiet few months ahead in the domestic market, with little incentive to trade carbon for anyone but speculators. 

“We have got no legislation in place, and in one sense we are worse off now than we were 18 months ago,” he said. 

“This is a big problem for investors and it doesn’t help anybody.” 

He said the delayed legislation adds to concerns for investors looking to establish projects that cut emissions.

The proposed ban on selling Australian credits abroad already restricts investor interest, according to Keogh. 

Most observers now expect the bill to come back to the Senate in November, although Keogh said he did not expect a final decision by parliament until February or March next year. 

“At least both the government and the opposition agree that we need some form of emissions trading scheme, but the longer we wait the harder it will get,” said Keogh. 

Seb Henbest at consultancy New Energy Finance agreed the scheme is likely to resurface. 

“One thing is certain, the government has invested far too much political capital in the CPRS to simply abandon it after one senate defeat,” he said. 

“If the senate votes against the bill again in three months’ time, the government could dissolve both houses of parliament and call an early general election.” 

“If (opposition leader Malcolm) Turnbull fails to unite his party by November then the government will have no option but to dissolve parliament, call an early election and in doing so take the CPRS to the Australian public,” Henbest told Point Carbon News.

Regulatory Risk


“With the legislation stalled for another three months, business impacts revolve around regulatory uncertainty,” said Lorraine Stephenson, partner with consultancy Ernst & Young. “Domestic uncertainty is compounded for Australian companies as we move towards Copenhagen discussions for post-2012 and uncertainty related to the US domestic policy.” 

“Business is likely to be split into those that are reluctant to commit further resources until the legislation passes in Australia and those that take a broader strategic approach to working with uncertainty to ensure that they advance their internal thinking to manage their expected carbon risk,” she said. 

Creating scenarios to cover possible market environments for 2011 forwards, assuming that the CPRS eventually passes is one way firms can address the situation, according to Stephenson.

Investing in projects that can generate carbon credits under the Kyoto protocol is another, she said. “There are strong signals from the US that they will present domestic legislation into the Senate prior to Copenhagen and elements of the US legislation, such as the use of international offsets, will have a direct impact on Australian companies.”

“In the short term, three months might seems like a major hurdle but in the longer scheme of things, it is a relatively short delay as companies build their future carbon strategies,” Stephenson told Point Carbon News.

Plead

Origin Energy, one of Australia’s largest suppliers of renewable energy, urged lawmakers to quickly find a solution to the CPRS as well as the mandatory renewable energy target (MRET). 

The Labor government has made the two pieces of legislation dependant of each other, meaning that as long as the CPRS does not pass parliament, neither can the MRET.

"We remain convinced the CPRS legislation provides the framework for a good, workable scheme. It is sufficiently flexible to adjust over time to ongoing developments in the science of climate change and in the international negotiations around Copenhagen and beyond,” said Carl McCamish, Origin executive general manager of policy and sustainability in a statement. 

Origin also urged the government to de-link the carbon scheme and the MRET, in order to make sure the solar industry has “a proper support mechanism in place.”

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