The economic impact of the CPRS and modifications to the CPRS

This report commissioned by the coalition and Senator Xenophon examines the opportunities to improve the CPRS in terms of lowering the economic costs and, consequently, potentially tightening the emissions target. Lowering the economic costs of the CPRS will not only aid Australia’s economy, but will assist in securing greater political support for a scheme. If some of the cost savings from improving the CPRS can be used to tighten the emissions target, this will increase the chances of securing greater global support for reduction commitments, which is ultimately in Australia’s economic interest. The work presented in this report has been jointly commissioned by the Federal Coalition and Senator Xenophon. This analysis has been requested to assist these parties in their consideration of possible amendments to the CPRS legislation currently before the Parliament. The following three key CPRS policy alternatives were modelled and compared in this report: 1. CPRS: as proposed by the Government 2. CPRS Adjusted: This adjusts the standard CPRS by increasing and extending the Energy Intensive Trade Exposed Industry (EITEI) shielding proposed by the Government and removing the arbitrary EITEI compensation thresholds. This is modelled with the same unconditional CPRS target (ie 5% reduction on 2000 levels by 2020) 3. CPRS–Intensity: This scenario combines the extended EITEI assistance described in Scenario 2 above with the introduction of an intensity target for permit allocations to the electricity sector. This would operate in the same manner as the EITEI shielding (ie contingent on output), but since this would dampen the harsh rises of electricity prices it would reduce or remove the need for (a) revenue churning to households and (b) EITEI assistance for indirect electricity price effects. This would mean that fewer permit funds are required to compensate for the losses incurred due to created by the CPRS. This is broadly consistent with the Waxman-Markey Bill in the United States, which proposes to distribute permits to electricity companies to offset increases in electricity prices. The modelling presented in this report takes into account the effects of the global financial crisis and the most recent, of many, changes to the CPRS. The analysis presented and discussed in this report has found that the CPRS can be greatly improved with relatively simple changes. Amendments to the Government’s proposed CPRS would lead to the scheme becoming cheaper, greener, fairer and more secure. Related links Carbon Pollution Reduction Scheme Green Paper Submission Make the world pay: Turnbull\u27s carbon plan in Crikey &nbsp