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Energy Developments Proposed Australian Carbon Pollution Reduction Scheme

17 Dec 2008

Energy Developments Proposed Australian Carbon Pollution Reduction Scheme

17 December 2008

The Commonwealth Government released its Carbon Pollution Reduction Scheme (CPRS) White Paper on Monday, 15 December 2008, outlining its strategy to tackle climate change. The White Paper includes information on the proposed design of the CPRS framework and the medium term target range for reducing carbon pollution in Australia.

Energy Developments Limited (ASX: ENE or the “Company”) advises that it is currently undertaking a detailed review of the proposed CPRS, particularly the broad policy positions in relation to its power generation business.

In Australia, ENE’s clean, low emissions power generation, utilising waste coal mine methane and landfill gas currently abates approximately 4.5 million tonnes of carbon dioxide equivalent annually, while generating approximately 1,100 Gigawatt hours of electricity. The CO2 abated through the Company’s clean power generation is equivalent to taking approximately 1.3 million cars off the roads every year.

It is difficult to imagine that any government would produce or enact CPRS legislation which actively penalises and discourages low emission, renewable energy generation such as that developed and operated by early movers in the carbon abatement sector, including ENE. The Company has a hard fought track record of proven carbon dioxide emission reduction activities and expertise built up over the past 20 years and successfully exported around the globe.

While it is too early to accurately assess the potential impact of the proposed CPRS on the Company, there are certain areas of the proposed CPRS which may have potential negative implications for ENE and other clean power companies, including:
• the termination of the NSW Greenhouse Gas Abatement Scheme (GGAS) and associated loss of NGAC (NSW Greenhouse Gas Abatement Certificate) revenue; and

• CPRS liability for non-landfill gas power generation emissions (ie from ENE’s Australian coal mine methane, natural gas and diesel power generation operations), to the extent such costs cannot be passed through to counterparties under existing medium to long term contractual arrangements.

These potential negative implications may in part be offset by:
• the nature, timing and extent of any compensation and/or other financial assistance available to ENE from the Federal Government as part of its CPRS package, and/or the NSW Government as part of the termination of the current GGAS scheme upon commencement of the CPRS; and

• any positive outcomes achieved through subsequent commercial negotiations with the Company’s key counterparties including waste methane gas suppliers, electricity retailers and other offtakers necessary to ameliorate any adverse financial impact from the introduction of the CPRS in its final legislative form.

As outlined in the Company’s ASX announcement of 23 June 2008, the enactment of the final CPRS legislation, currently expected to take place mid-2009, will trigger a “review event” under ENE’s A$300m Australian Syndicated Facility (ASF). The review event involves a re-assessment process to resize and if necessary, reduce the maximum ASF debt facility limits currently in place. The outcome of the CPRS legislation review event on the ASF facility limits, if any, will be based upon an assessment of the net impact on the Company of the matters referred to above.

ENE will continue to work closely with State and Federal Governments, to mitigate any perverse or unintended consequences that may arise through the complex legislative drafting process now underway and the introduction and passage of the final CPRS package.
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