2012 Annual Corporate Update
Understanding the Business impacts of the
Carbon Pricing Mechanism
Susie Smith, Santos Limited
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Disclaimer
All reasonable effort has been made to provide
accurate information in this presentation.
As the Carbon Pricing Mechanism is constantly
evolving, with updates to legislation, regulation and
determinations, this presentation should not be relied
upon for any decision making.
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Agenda
• Introduction
• Overview of the Australian Carbon Pricing
Mechanism
• Emissions Measurement and Reporting
• Standard Carbon Clauses
• Flow-on Impacts of Carbon Pricing
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Australia’s carbon emissions
Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Bipartisan support for 5% emissions reduction
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Different policies proposed to deliver same target
Government’s Clean
Energy Legislation
Coalition’s Direct Action
Plan
Target
5% reduction by 2020
5% reduction by 2020
Start date
1 July 2012
t.b.c.
Scheme
Cap and trade ETS
~ 2/3 of Australia’s emissions covered
Proposed Direct Action policy
- government selection
Carbon Price
YR1 $23; YR2 $24.15; YR3 $25.40
No penalty for ‘Business as Usual (BAU)’
emissions
- penalties not defined yet
- BAU methodology not defined yet
Flexible price trading commencing YR4
Price Collars for 3 years of flexible price
Permit allocation -Emissions Intensive, Trade Exposed
Funding through a tender process
/ funding
industries i.e. where competitor countries - government selection
do not have a similar carbon impost
-Funding for Renewables, Clean Energy
-Energy Security Fund (coal fired power
generators)
-Household Assistance Package
International
Only in flexible price period (post 2015)
Prepared
and presented by Santos
Limited.
linking
Up to
50% international units
© Chartered Secretaries Australia Ltd 2012
No details
Carbon politics is finely balanced
Minority ALP government was
formed on 21 Aug 2010 with
support from Independents and
Greens
Opposition has pledged to
repeal the carbon tax
Repealing the carbon tax in
itself would not increase policy
certainty, as there will be an
economic cost to lower carbon
emissions in the future
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
As at
1/7/2011
House of
Reps
Senate
Australian Labor
Party
72
31
Liberal Party of
Australia
60
28
The Nationals
12
6
Australian Greens
1
9
Independent /
Other
5
2
150
76
Total
Lower House requires 76
votes to pass legislation.
Senate requires 39 votes
to pass legislation.
Overview of the Australian Carbon
Pricing Mechanism
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Greenhouse gas emissions include
Intent of the
Carbon Pricing
Mechanism is
that the end user
pays …
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Santos’ carbon emissions
Direct liability (Scope 1 emissions):
• Direct operated reported emissions of ~3.6 mtCO2e for 2010-11
Electricity purchases (Scope 2):
• Indirect emissions from operated sites ~0.04 mtCO2e
• These costs associated with scope 2 emissions will be passed through to
Santos via higher electricity prices
Customer use of natural gas (Scope 3):
• Embodied emissions of ~16.6 mtCO2e
(assumes that all products are combusted)
• Embodied emissions from natural gas are transferred to the buyer through an
OTN (obligation transfer number)
• Supplier is not liable for embodied emissions in liquid fuels. Depending on its
use, an equivalent carbon price may be applied for the user of the liquid fuels
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Implementation of Carbon Policy
FIXED PRICE
($23.00; $24.15; $25.40 per tonne of CO2e)
FLEXIBLE PRICE
(floor/ceiling for 3-years)
Clean Energy Bill
commences
(1 July 2012)
Carbon trading*
commences
(1 July 2015)
2012
FY 11/12
Q1
30 Mar
NPI
Q2
2013
FY 12/13 (yr1)
Q3
Q4
Q1
31 Oct
NGER 30 Mar
20 Dec NPI
EEO
Q2
2014
FY 13/14 (yr2)
Q3
Q4
Q1
2015
FY 14/15 (yr3)
Q2
Q3
Q4
Q1
Q2
2016
FY 15/16 (yr4)
Q3
Q4
Q1
2012-13
75%
acquittal
15 Jun
2012-13
2013-14
Final
75%
acquittal
acquittal
1 Feb
2013-14 2014-15
Final
75%
acquittal acquittal
2014-15
Final
acquittal
JOA $C
cash call
JOA $C JOA $C
cash call cash call
JOA $C JOA $C
cash call cash call
JOA $C
cash call
31 Oct
NGER 30 Mar
20 Dec NPI
EEO
Australian
election due
31 Oct
NGER 30 Mar
20 Dec NPI
EEO
Q2
31 Oct
NGER 30 Mar
20 Dec NPI
EEO
Government permit auctioning
scheduled to commence*
© Chartered
Secretaries
Australia
*Carbon
trading will
commence
earlier Ltd
than2012
2015, with the govt likely to release vintages of permits from 2014, however these ‘flexible’ permits will only be eligible for surrender from the 2015/16
compliance
period.
Prepared
and presented by Santos Limited.
Compliance reports include: NGER =National Greenhouse and Energy Reporting; EEO = Energy Efficiency Opportunities; NPI = National Pollution Inventory.
$
Joint
Operating
Agreement
Operator prepares
GHG reports and
manages permit
liability via JOA
e.g. Facility
Compliance
obligations
JVP 1
JVP 2
JVP 3
JVP 4
Operator reports
NGERS and Clean
Energy data on
behalf of the Joint
Venture
Intent of carbon
pricing mechanism
is to embed carbon
pricing into the sale
of goods and
services
Sales to Customers
Prepared and presented by Santos Limited.
Operator acquires
permits on behalf of
the Joint Venture
and surrenders to
government to meet
liability
$
Surrender Permits
Gas Sales
Agreement
© Chartered Secretaries Australia Ltd 2012
Government
Reporting
Joint Venture
Partners
Carbon Pricing Mechanism: worked example
Emissions Measurement & Reporting
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Mapping emissions sources
OPERATED FACILITIES
Fugitives
Fugitives
Fuel, Flare, Vent
Fuel, Flare, Vent
Wells
Fuel, Flare, Vent
Facilities
Emissions are split across multiple products based on their
nature:
- e.g. Sales gas, ethane, LPG, condensate
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Plant
Sales by
product
Robust GHG data and reporting system
Santos’ GHG data systems
support three different
functions developed to
meet regulatory and
business requirements.
NGER
Compliance
Reporting
GHG
System
Joint
Venture
GHG
Reporting
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Product
GHG
Reporting
Emissions determined in
accordance with
legislative requirements
and audited annually
Flow-on impacts of Carbon Pricing
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
About two thirds of Australia’s emissions are covered by
the carbon pricing scheme
Partially Covered
Excluded
Covered
Covered
Covered
Partially Covered
Excluded
Covered
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011
Overall impact
Treasury modelling suggest that carbon pricing will increase aggregate
consumer prices in 2012-13 by 0.7 per cent
A further 0.2% increase is expected in 2015-16, once emissions trading
starts, bringing the total CPI impact to 0.9 per cent over 4 years
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Source: Treasury modelling, 2011
Electricity
Treasury modelling estimates that household electricity prices will increase
~10%. The majority of this increase is attributed to electricity generation.
The average carbon intensity of the National Electricity Market (NEM) is
~0.9tCO2e/MWh equating to the increase of ~$20/MWh
In theory, impact on electricity costs will vary based on the carbon intensity
of the source, though many other factors at play
Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Liquid Fuels
Households and on-road business use of light vehicles will not face a carbon price
on fuel
Rail, shipping, domestic aviation, off-road transport (eg on mine sites) and non
transport liquid fuels will face an effective carbon price, through changes to the
current fuel tax regime
Heavy on-road vehicles will not face a carbon price, but the Government intends to
apply an effective carbon price on heavy on-road vehicles from 1 July 2014
There is a mechanism to ‘opt-in’ under the carbon pricing scheme rather than the
fuel tax system, but Santos does not see any benefits in this
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Source: Clean Energy Plan, Transport Fuels factsheet, DCCEE 2011
Questions ?
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.