Scheme caps and gateways
FACT SHEET 6
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The annual limit on carbon pollution - the cap - is the central element of our cap and trade carbon pollution reduction scheme.
What is the scheme cap?
The cap is a limit on how much carbon pollution industry is allowed to generate in a year. This limit determines the total number of permits to be issued each year.
How is the scheme cap set?
The Australian Government has committed to a long-term emissions reduction target of 60 per cent below 2000 levels by 2050. At the end of 2008 the Government will announce a medium-term national target range for 2020. While the scheme has less than 100 per cent coverage of national emissions, there will be a difference between targets for national emissions - the 'national emissions trajectory' - and the scheme cap. Although scheme caps need to be consistent with national emissions targets, they are not the same thing. The Government will need to estimate the emissions in the uncovered sectors and deduct this estimate from the national emissions target to determine the scheme cap.
How will the cap take into account international developments?
The Government will take account of the evolving state of international negotiations in determining the path we set to meet our target of reducing Australia's carbon pollution by 60 per cent below 2000 levels by 2050.
In 2008, the Government proposes to announce a methodology for setting scheme caps for the period 2010-11 to 2014-15, consistent with the national emissions trajectory. In early 2010, the Government will announce finalised scheme caps for the first five years of the scheme.
This means we will be setting the final path to 2015, and the indicative paths to 2025, in 2010 - when we can take into account developments in international negotiations, as well as any commitments major developed and developing countries have made.
What duration of scheme caps will the Government announce?
To provide guidance in the market and to maintain policy flexibility, scheme caps will be specified for some period into the future. The Government proposes that scheme caps would be set for five years in advance, or longer in the event that international obligations extend beyond this. Scheme caps would be extended by one year, every year, to maintain a constant five-year cap horizon.
How will the Government provide certainty beyond the five years of scheme caps?
The Government proposes that beyond the five-year period of scheme caps it will identify a range within which future scheme caps will be set-a 'gateway'. As the Government extends caps, it must choose figures that lie within the gateway.
Gateways would extend for 10 years beyond the scheme caps, and would be extended by another five years, every five years. The combination of cap and gateway arrangements mean that, at any point in time, market participants will know what the caps will be for the next five years, followed by a range within which future caps will be set extending a further 5 to 10 years.
At scheme commencement in 2010 there will be scheme caps for each year up to 2015, followed by a gateway at 2020 and a gateway at 2025. In 2013, there will be scheme caps for each year up to 2018, with a gateway at 2020 and at 2025 (Figure 1).
Figure 1. 2008-10 guidance over scheme caps and indicative national emissions trajectory
2008 announcements-brown 2010 announcements-yellow
July 2008
