Australia's Carbon Pricing Mechanism

Australia's Carbon Pricing Mechanism

December 2011

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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.



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.
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