© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
2012 Annual Corporate Update
Understanding the Business impacts of theCarbon 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 LegislationCoalition’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
Flexible price trading commencing YR4
Price Collars for 3 years of flexible price
No penalty for ‘Business as Usual (BAU)’ emissions- penalties not defined yet- BAU methodology not defined yet
Permit allocation / funding
-Emissions Intensive, Trade Exposed industries i.e. where competitor countries do not have a similar carbon impost-Funding for Renewables, Clean Energy-Energy Security Fund (coal fired power generators)-Household Assistance Package
Funding through a tender process- government selection
International linking
Only in flexible price period (post 2015)Up to 50% international units
No details
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Carbon politics is finely balancedAs 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
Total 150 76
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
Lower House requires 76 votes to pass legislation.Senate requires 39 votes to pass legislation.
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
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 emissionsDirect 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
2012 2013 2014 2015 2016
FY 11/12 FY 12/13 (yr1) FY 13/14 (yr2) FY 14/15 (yr3) FY 15/16 (yr4)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012-13 75%
acquittal 15 Jun
2012-13 Final
acquittal 1 Feb
2013-14 75%
acquittal
2013-14 Final
acquittal
2014-15 75%
acquittal
2014-15
Final acquitt
alJOA $C cash call
JOA $C cash call
JOA $C cash call
JOA $C cash call
JOA $C cash call
JOA $C cash call
30 Mar NPI
31 Oct NGER
20 Dec EEO
30 Mar NPI
31 Oct NGER
20 Dec EEO
30 Mar NPI
31 Oct NGER
20 Dec EEO
30 Mar NPI
31 Oct NGER
20 Dec EEO
30 Mar NPI
Australian election due
Government permit auctioning scheduled to commence*
FLEXIBLE PRICE(floor/ceiling for 3-years)
FIXED PRICE($23.00; $24.15; $25.40 per tonne of CO2e)
Clean Energy Bill commences(1 July 2012)
Carbon trading* commences(1 July 2015)
*Carbon trading will commence earlier than 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.Compliance reports include: NGER =National Greenhouse and Energy Reporting; EEO = Energy Efficiency Opportunities; NPI = National Pollution Inventory.
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Joint Operating Agreement
Intent of carbon pricing mechanism is to embed carbon pricing into the sale
of goods and services
Operator acquires permits on behalf of
the Joint Venture and surrenders to
government to meet liability
Sales to Customers
Su
rrender P
ermits
$
Gas Sales Agreement
$Operator reports
NGERS and Clean Energy data on
behalf of the Joint Venture
Govern
men
t R
eporting
e.g. Facility
JVP 1
JVP 2
JVP 3
JVP 4
Join
t Ve
ntu
re
Pa
rtne
rs
Operator prepares GHG reports and manages permit liability via JOA
Carbon Pricing Mechanism: worked example
Compliance obligations
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Emissions Measurement & Reporting
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Mapping emissions sources
WellsWells FacilitiesFacilities PlantPlant
OPERATED FACILITIES
Fuel, Flare, Vent
Fugitives
Fuel, Flare, Vent
Fugitives
Emissions are split across multiple products based on their nature:- e.g. Sales gas, ethane, LPG, condensate
Sales by product
Fuel, Flare, Vent
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Robust GHG data and reporting system
Emissions determined in accordance with
legislative requirements and audited annually
Santos’ GHG data systems support three different functions developed to meet regulatory and business requirements.
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
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 bythe carbon pricing scheme
Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011
Covered
Partially Covered
Excluded
Partially CoveredExcludedCovered
Covered
Covered
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Overall impactTreasury 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
Source: Treasury modelling, 2011
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
ElectricityTreasury 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 FuelsHouseholds 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
Source: Clean Energy Plan, Transport Fuels factsheet, DCCEE 2011
© Chartered Secretaries Australia Ltd 2012
Prepared and presented by Santos Limited.
Questions ?