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Australia's new carbon pricing mechanism

 

19 July 2011

On 10 July 2011, the Government released details of the proposed Clean Energy Future Plan for Australia (the Plan).  

A significant part of the Plan is the introduction of a carbon pricing mechanism from 1 July 2012 (Carbon Pricing Mechanism), as a 'warm-up' to a cap and trade scheme which is proposed to be introduced on 1 July 2015.

It is expected that 500 businesses will be directly liable under the Carbon Pricing Mechanism. The Government has indicated that it intends to release an exposure draft of legislation to implement the Carbon Pricing Mechanism on 31 July 2011, following which legislation will be introduced into Parliament by the end of this year.

The key aspects of the Carbon Pricing Mechanism are:

FIXED PRICE PERIOD

  • From 1 July 2012 – 1 July 2015 there will be a fixed price imposed on emissions of CO2, methane, nitrous oxide and perfluorocarbons.

  • The price of permits for the financial year 2012-2013 will be AUD$23 per tonne of CO2 equivalent (CO2-e) emissions rising 2.5% each year.

  • Facilities that emit over 25kt CO2 per year will need to purchase a permit from the Government for every tonne of CO2-e emitted.

EMISSIONS TRADING SCHEME

  • From 1 July 2015, the fixed price arrangement will automatically convert to a cap and trade scheme. This conversion date is subject to Government reassessment which can provide for an advancement or delay of the conversion date.

  • Following this the pricing of a permit will be determined by the market subject to an initial price floor of AUD$15 per tonne and an initial ceiling of AUD$20 per tonne above the expected international emission price for 2015-2016.

  • ETS permits may be banked to or borrowed from future vintage years except liable entities may only borrow permits from the following vintage year to discharge up to 5% of their liability in the current compliance year.

  • Eligible international units may be used however there will be limitations on international linkages and liable parties must meet at least 50% of their annual liability from domestic credits.

COVERAGE

The Carbon Pricing Mechanism will apply to:

  • the stationary energy sector;

  • the rail, domestic aviation and shipping components of the transport sector;

  • the industrial processes sector;

  • fugitive emissions (other than from decommissioned coal mines); and

  • emissions from non-legacy waste.

Although fuel has been excluded from the Carbon Price Mechanism, it is proposed that a "carbon price equivalent" will be imposed on domestic shipping, rail, heavy road transport through cuts to fuel tax credits. Households, agriculture, forestry and fishery industries will not pay a carbon price on fuel.

INDUSTRY COMPENSATION

It is proposed that emissions intensive trade exposed industries, strongly affected coal fired power generators and LNG projects will receive compensation as follows:

  • EITE Industry: the most emissions intensive will receive 94.5% of the industry average baseline permits at no cost and moderately emissions intensive will receive 66% of the industry average baseline permits at no cost.

  • Strongly Affected Power Generators: a number of initiatives (including the negotiation of compensation payments in return for plant closure, certain allocations of free permits and cash payments and the availability of short term loans for permit purchases) have been proposed to assist the transition of strongly affected coal fired power generators into the scheme.

  • LNG Projects: these projects will receive assistance at a rate of 50% of their liability.

IMPACT OF THE CARBON PRICING MECHANISM

Despite only imposing carbon pricing arrangements on approximately 500 businesses, there will be a wide-range of entities that will be greatly affected as a result of the higher costs for energy and resources. Companies should consider how the carbon pricing arrangement will affect their operations and any possible trading opportunities arising from the new carbon pricing arrangements.

ADDITIONAL ASPECTS OF THE PLAN

In addition to the Carbon Pricing Mechanism, the Plan also proposed the following:

  • Initiatives for the support of renewable energy projects including the establishment of a AUD$10 billion Clean Energy Finance Corporation to invest in the development and commercialisation of renewable energy technology and the establishment of the Australian Renewable Energy Agency, a new statutory authority to coordinate grants committed to existing projects;

  • A AUD$1.3 billion Coal Sector Jobs Package to assist the most emissions intensive mines and a AUD$300 million Steel Transformation Plan to assist the steel industry to transition to cleaner technologies; and

  • A AUD$1.2 billion Clean Technology Program designed to improve energy efficiency in manufacturing and support research and development in low polluting technologies in this sector.

Please find attached further detail regarding the Carbon Pricing Mechanism and the Plan.

Australia's new carbon pricing mechanism

 

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