The carbon windfall ‘game’: Impact of a mid-year CPM repeal

A mid-year repeal of the Australian CPM may lead to a windfall of A$2bn for the Metals, Energy, Materials and Power sectors, with potential for entities to ‘game’ assistance programs via the CER’s legislated “buy-back” facility. In this update we explore scenarios for the Q1 FY15 repeal of the CPM, and the cost/windfall of cashing in free permits, along with scenarios for government to mitigate any liability via the provision of future credits into a re-worked Direct Action Plan, as seen in the EU ETS.

Key findings:

• Should the CPM be disbanded prior to December 2014, companies are likely to utilise the legislated buy-back facility with the Clean Energy Regulator in order to gain a windfall on freely allocated permits.
• The Metals, Energy, Materials and Power sectors are likely to cash in cash nearly 87 million permits, potentially leading to a government liability in excess of A$2 billion, with the amount of the cash windfall varying according to the timing of the repeal of the carbon scheme.
• Given the potential corporate windfall and government liability, in this Update we review a series of repeal timeline and cost scenarios.
• We also explore the potential for the government to