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Australia’s carbon pricing mechanism

Key issues for the water sector

Australia’s carbon pricing mechanismA key source of Scope 1 CO2-e emissions in the water sector result is fugitive gas emissions at sewage treatment plants. 2009-10 Government data suggests that under the proposed carbon pricing mechanism, a number of water utilities will be liable to pay the carbon price because they exceed the 25,000 tonne CO2-e threshold. These include ACTEW Corporation, Sydney Water, Hunter Water, SunWater, Power and Water (NT), Water Corporation (WA), SA Water and Melbourne Water.

These water utilities will need to explicitly deal with the carbon price mechanism and purchase credits accordingly. They will also need to:

  • Ensure they are able to recover carbon price payments from customers, both in the current and future regulatory periods
  • Ensure that carbon emissions are accurately recorded and reported
  • Consider the costs and benefits of altering facilities to reduce emissions
  • Ensure processes and procedures are in place for managing emission payments
  • Ensure risk management and other internal processes reflect the carbon price, including in capital evaluations
  • Have an understanding of the likely carbon price beyond 2015.

No specific compensation arrangements or Government assistance apply to the water sector, however water businesses may be able to access general Government funding and assistance schemes.

All water utilities will need to deal with the indirect impacts of the carbon pricing mechanism on their operations. Some specific issues that will need to be considered include:

  • How will input costs (and particularly energy) change, both in the fixed and flexible periods?
  • How do I convince the regulator that my forecasts of costs impacts in future regulatory periods are reasonable?
  • How will the costs of capital inputs such as pipes and other capital equipment change, particularly once Government assistance to various industries (e.g. steel) is removed or phased out?
  • Is the customer base expanding such the 25,000 tonne CO2-e threshold is likely to be exceeded in future?
  • How will increasing energy costs (and hence water costs) affect demand for water?
  • How will augmentations or changes at my sewage treatment plants affect carbon emissions?
  • Am I able to approach the regulator to get a pass-through for increased input costs during the current regulatory period?
  • What are the economics of using surplus land at sewage treatment plants to grow trees under the Carbon Farming Initiative?
  • How does the carbon price affect my mini-hydro and cogeneration operations?
  • Can I access Government funding to reduce emissions?
  • What are the implications for storage yields if the carbon price results in increased tree planting?

All water utilities need to understand the potential impacts, risks and opportunities presented by the carbon pricing mechanism.

For further information please contact our team.

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