EPA's Internal Cap and Trade Scheme

Written by Beth McLachlan, EPA Victoria

In addition to protecting the environment, the Victorian EPA is committed to achieving real reductions in greenhouse gas (GHG) emissions in its own operations. EPA went carbon neutral in 2005/06 and continues to reduce its energy use and GHG emissions through various activities including fleet management and greening of their buildings.  In addition to these initiatives, for the 2009 calendar year, EPA ran an internal Carbon Cap and Trade Scheme (the Scheme) between its seven sites. This article will discuss the development, implementation and key learnings from this Scheme.

One of the reasons EPA conducted an internal cap and trade scheme was to identify the key impacts an emissions trading scheme would have on business.  Given that the Federal Government CPRS has been shelved until 2013, the Scheme provides an example of how organisations can implement voluntary measures in the meantime in order to drive emissions reductions.

Before implementing the Scheme, EPA anticipated an overall reduction of 3% on GHG emissions included in the program. The program proved to be significantly more successful; EPA achieved a 24.5 % reduction across all sites for the emission sources covered by the scheme.

Whilst alternative options existed for driving GHG emission reductions (e.g. performance management processes), significant additional benefits were gained through the implementation of an internal Carbon Cap and Trade scheme. Some of these benefits include:

• engaging all staff in discovering cost effective ways to reduce our emissions
• assisting clients by learning first hand about emissions trading and managing the impacts a price on carbon creates

EPA implemented the following steps in order to develop its Carbon Cap and Trade Scheme.

Step One: Collect and understand emissions data
It was important that each trading entity (EPA site) had all the information it needed to make an informed decision about whether to purchase permits or reduce emissions. To allow each site to do this they were provided with:

• a profile summary of their annual GHG emissions and
• a list of possible abatement projects (and their associated savings and payback periods)

Throughout the Scheme sites were provided with quarterly GHG emission inventories. Each site could therefore closely track its progress to determine whether it was likely to meet its target. Each site then made informed decisions about whether to purchase permits or reduce emissions.

Step Two: Design Scheme
EPA designed a scheme which was simple enough to ensure traders could understand what was required of them and effectively trade, and robust enough to provide a market mechanism to drive emissions reductions.

The Scheme included EPA's biggest emission sources - transport and stationary energy, which collectively exceed 75% of EPA’s organisational emissions. A key driver was to encourage effective investment decisions and not impose excessive administrative or compliance burdens on any site.

For more information on the design of the scheme please visit EPA Victoria's website.

Step Three: Implement
EPA decided to run this scheme for one year only, from January 2009 to December 2009. This decision was based on:

• identification of a variety of reduction opportunities within the year
• a number of sites relocating and
• significant administrative burden for entities involved in a Cap and Trade Scheme

Quarterly onsite trading sessions allowed sites to buy and sell from each other. A centralised administrative body coordinated the trades and ensured each site had the information they required to participate.

Experts were invited to support and advise on the implementation of the Scheme.

Key Learnings
Some of the key learnings EPA took from the development and implementation of this Scheme include:  

1. the dissemination of responsibility to individual sites
2. developing and communicating an internal price on carbon
3. maintaining a strong focus on the drivers for implementation of the program and
4. ensuring the scheme is simple and easy to communicate 

1) Allowing staff responsibility for their own activities has proven a key driver in reducing EPA's GHG emissions. Staff engagement is essential to any effective corporate emissions reduction program, however giving staff in your organisation more control over their operations can significantly enhance opportunity identification. Developing a program which creates a friendly sense of competition between entities can also be highly effective, as competition can improve motivation and further drive emission reduction.

2) An internal price on carbon drives significant change when it is embedded within your organisational systems. It allows staff to consider the carbon price in addition to the regular price of a carbon intensive purchase. For example, when a staff member chooses to fly, often the cost of the flight is all that is considered. Including the environmental impact into your decision-making and systems prepares you for the future, when there will be a carbon price. A Cap and Trade Scheme assists in setting an internal price on carbon.

3) EPA's key focus for this Scheme was learning and development. Each business is different and should establish its own key drivers upfront to develop a program that appropriately reflects them. Some key business drivers may include:

• Reducing emissions
• Staff engagement and learning
• Reducing business costs
• Preparing for legislation
• Benefiting reputation

4) There needs to be clear and consistent guidelines on the rules for trading and participating in any Cap and Trade Scheme. These types of programs can be complicated and ensuring all parties have access to the information they need and understand their responsibilities is essential for effective implementation.

EPA Victoria implemented this Scheme in order to identify the key impacts an emissions trading scheme would have on businesses. The implementation and key learnings gained through the Scheme have provided significant understanding of the key challenges and opportunities such a program offers to businesses. For more information please visit EPA's website.  

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