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 mitigate any liability via structural solutions, notably via the tying in of free permits into the re-worked Direct Action Plan, as seen in the EU ETS.
  • As more detail is added to the government’s Direct Action Plan, these sorts of mechanisms may provide the Coalition with an opportunity to repeal the tax sooner, while avoiding exposure to the industry assistance buy-back scheme.
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