New South Wales Greenhouse Gas Reduction Scheme

Summary

The GGAS is a baseline and credit system for emissions trading. Under a baseline and credit trading system, the government sets an emissions-intensity benchmark. Facilities that reduce their emissions below the benchmark levels are issued tradable credits that they can sell to facilities that are above the benchmark or bank for future use in meeting their target. In baseline systems, offsets -- or purchased reductions outside the regulated sector -- can also be used to meet benchmark levels.¹

GGAS imposes mandatory benchmarks on electricity retail suppliers; generators listed in the regulations; and electricity customers taking supply directly from the national electricity market and that have a electricity load that is classified as a market load within the National Electricity Market Management Company (NEMMCO). ²

The initial benchmark for participants in GGAS was set at 8.65 tCO2e per capita in 2003, and progressively dropped to 7.26 tCO2 in 2007, where it will remain until 2012, or until a new national cap and trade system is in place.³    To reduce the average emissions intensity of the electricity they use or supply, benchmark participants must purchase abatement certificates and surrender these to compliance regulators. A benchmark participant must surrender enough abatement certificates to meet their benchmark; if they do not, they receive a penalty of $12 per ton of shortfall. ⁴

Abatement certificate providers may create abatement certificates by carrying out one or more of the following activities:

• Low-emission generation of electricity (including cogeneration) or improvements in emission intensity of existing generation activities.
• Activities that result in reduced consumption of electricity
• Activities carried out by elective participants that reduce on-site emissions not directly relation to electricity consumption
• The capture of carbon from the atmosphere in forests.⁵

Differences from cap and trade

A baseline and credit system differs from the more common cap and trade systems in several ways.  In a cap and trade system, a governmental entity sets an overall emission target, or “cap,” for each political jurisdiction. The cap is based on actual green house gas emissions as opposed to the energy intensity targets of a baseline system. Industries covered by the system are either given or must purchase emission allowances. The total number of emission allowances distributed must not exceed the overall cap.  Facilities who have not met their emission targets or cap can purchase emissions rights, called allowances, from facilities that have gone below their cap, or they may, in some circumstances, purchase offsets.⁶

Benefits and criticisms of a baseline system

In a report on a proposed Canadian baseline and credit emissions trading system, the Australian parliament raised a number of general benefits and criticisms about emission intensity schemes.  These benefits and criticisms are apply equally to the GGAS system.

Among the benefits they cited were:

• An emissions intensity based regime, based on emissions intensity per unit of Gross Domestic Product (GDP), may reduce the overall economic costs of an emissions trading scheme.
• An intensity based target is more flexible, thus can accommodate a wider range of participants in any global agreement.
• A well-designed general intensity approach may reduce the uncertainty in the outcome of emissions reductions efforts, but only where future GDP is relatively certain.

Among the criticisms they cited were that such an approach:

• May be difficult to integrate with other emissions trading schemes that cap annual GHG emissions, such as the EU Emissions Trading Schemes and the regional North American emissions trading schemes.
• Are more complex to design and administer than conventional cap and trade schemes.
• May not actually lead to a reduction in overall emissions if economic growth and output is strong.
• Create economic incentives to generate additional credits, rather than reduce emissions. If the emissions credits or offsets are ineffective, such schemes end up increasing emissions rather than reducing them.
• Have a greater potential for higher volatility in he price of emissions credits/offsets than those generated under a conventional cap and trade scheme.⁷

Future of the GGAS

The GGAS is expected to cease operations when the Australian government introduces the Carbon Pollution Reduction Scheme, a cap trade program which is currently scheduled to commence on July 1, 2011. However, certain energy saving elements of GGAS are expected to continue in the province.⁸

Footnotes

1. Michael R. King, An Overview of Carbon Markets and Emissions Trading: Lessons for Canada, Bank of Canada, January 2008, p. 9.

2. Greenhouse Gas Reduction Scheme Administrator, Introduction to the Greenhouse Gas Reduction Scheme (GGAS),  (June 2008), p.8.

3. Introduction to the Greenhouse Gas Reduction Scheme (GGAS), p.7.

4. Introduction to the Greenhouse Gas Reduction Scheme (GGAS), p.8.

5. Introduction to the Greenhouse Gas Reduction Scheme (GGAS), p.9.

6. Examples of cap and trade programs include the European Union’s Emissions Trading System (EU-ETS) and the Northeastern United States’ Regional Greenhouse Gas Initiative currently operating in the Northeastern United States.

7. Parliament of Australian, Canadian Emissions Trading Scheme, last reviewed 29 April 2009.

8. GGAS Newsletter, June 2009, p.1