Australia's Carbon Pricing Mechanism

[1]	Australia's Carbon Pricing Mechanism December 2011 Download the full brief (PDF) [1]

Summary:

Australia’s Clean Energy Future plan is a comprehensive set of national policies aimed at reducing greenhouse gas emissions and driving investments in clean energy. At its core is a carbon pricing mechanism starting in July 2012 and covering approximately 60 percent of Australia’s emissions. The pricing mechanism begins with a fixed carbon price for the first three years, then transitions to a cap-and-trade program. Revenue generated by the carbon price will be used to ease costs for households and industry and for investment in renewable power, energy efficiency, and other low-carbon alternatives. This brief summarizes the carbon price mechanism and other key features of the Clean Energy Future plan.

Introduction:

On November 8, 2011, the Australian Senate gave final approval to the government’s Clean Energy Future climate change plan outlining a series of measures to reduce greenhouse gas (GHG) emissions and drive investment in clean energy. A central element of the plan is a carbon pricing mechanism directly covering 50 percent of Australia’s emissions and providing direct financial support for renewable energy, energy efficiency, reducing emissions from land-use and forestry, and other elements. The mechanism starts with a fixed price for the first three years from 2012 to 2015 (AUD 23, rising with inflation to about AUD 25 at the end of the fixed-price period). It then transitions from 2015 to 2018 to a cap-and-trade program, with a price cap and price floor. Regulations to implement the plan are being developed. Other principal elements of the plan include:

• A long-term target of reducing GHG emissions 80 percent below 2000 levels by 2050;
• Over 50 percent of revenue generated from the carbon price is returned to households, particularly low-income ones, through tax relief and greater family benefit payments;
• Revenue generated by the program, along with additional government resources, will be used to ease the impact on trade-exposed industries and workers, and boost investments in renewable power, energy efficiency and other low-carbon alternatives;
• Implementation of the plan is expected to cost the government AUD 4.3 billion over the first four years, over and above revenue generated;
• Emissions from sectors not directly covered by the carbon price, such as certain fuels and synthetic gases, are indirectly addressed through changes to existing levies and taxes;
• Politically sensitive sectors are carved out of the mechanism: agriculture is addressed separately through an incentive-based scheme, and road transport fuels are largely exempt from the carbon price;
• Three new governance institutions are established to administer, oversee, and advise on all areas of the plan.