ETS should consider rightful ownership of emissions

By Jeames McKibben & Michelle Clarke*

Here in Australia, we are not immune from the climate change movement and the government is positioning the country to be a global leader in this area. Already, we have implemented legislation requiring Australian corporations to record their Greenhouse Gas Emissions through the National Greenhouse and Energy Reporting Act 2007 (the Act).
More recently, debate has raged about the introduction of an emissions trading scheme (ETS), which, whilst still highly controversial, is likely to occur sooner rather than later.
Under the Act, the items to be monitored by Australian mining operations include:
1. Greenhouse gas emissions
  a. Energy (the input energies required)
      i. Transport Fuels: Automotive gasoline, diesel and industrial fuels
      ii. Indirect emissions: Electricity end use
   b. Fugitive Emissions (Emissions/methane released from the mining of coal, oil and gas)
   c. Industrial process emissions (emissions from industrial processes other than from  the combustion of fuels): Cement, explosives, iron and steel
   d. Waste to landfill and waste water treatment
2. Energy consumption (input’s conversion to energy, measured in Joules)
   a. Transport Fuels: Automotive gasoline, diesel and industrial fuels
   b. Electricity
One area that the mining industry, and particularly the coal sector, has campaigned against, in the currently proposed Australian ETS, is the measurement and payment for fugitive emissions. Currently, no other country is proposing to include fugitive emissions in their ETS. Australian industry is questioning why it should be penalised when others are not subject to the same controls.
As highlighted in a recent article in The Australian newspaper, the problem with fugitive emissions is how to measure them, how to capture them and the ownership of these emissions. Technically the coal mining companies under certain State legislation do not always own the methane (or other gases) present in the coal. This presents an interesting debate as to who should then pay for the future emissions.
The inclusion of fugitive emissions in any Australian ETS will jeopardise the domestic coal industry. The additional cost attributable to fugitive emissions will drive up the price of Australian coals only to see them replaced by cheaper overseas coals which are not required to meet the same emission hurdles.
Further hurdles may now come into play for coal mining developments following the requirement for the Anvil Hill project in New South Wales to assess the Greenhouse Gas Emissions from the downstream use of its product.
Originally, the project had accounted only for the emissions on the mining process without consideration of the downstream use. With the precedent now set, new project proponents (and possibly expansion projects) need to not only assess the likely downstream emissions, but also to work with domestic customers to reduce their emissions.
When the majority of Australian coal is sold overseas, why is it that our coal industry will pay more through an ETS? Isn’t the whole idea of an ETS to reduce domestic greenhouse gas emissions? Surely if the global requirement is to reduce carbon emissions then downstream users worldwide should bear the additional cost, as this is the most likely to drive efficiency gains in fossil fuel use.
The implementation of an ETS is likely to have a profound impact on Australian industry and it needs to be structured with due consideration of rightful ownership of emissions and its impact on domestic producers.

Glossary

* Jeames McKibben & Michelle Clarke are mining consultants with Xstract - tel: +61 7 3221 2366 or email: jmckibben@xstractgroup.com or visit: www.xstractgroup.com