Carbon Tax – Australia

Posted on February 25, 2011 by

The Australian Government recently announced a proposal to introduce carbon tax on Australia’s largest emitters of Greenhouse Gases (GHGs) . Australia cannot afford to lag behind other developed nations in reducing its emissions.  This proposal was designed by the Multi-Party Climate Change Committee (MPCCC). Agreed to by the government and the Greens, the proposal sets out a broad framework for establishing a carbon pricing mechanism . Such a mechanism is to be introduced on 1st July 2012.  There are two stages in the plan – begining with a fixed price and transitioning to a flexible emissions trading scheme.

About this announcement, Prime Minister Julia Gillard told the press, “I do not believe that Australia needs to lead the world on climate change, but I also don’t believe that we can afford to be left behind. That is why the time is right and the time is now”.  There is a reason why Australia can not lead the world in action on the GHG front. It is one of the world’s worst greenhouse gas polluters per capita, driven by its heavy energy reliance on coal (its largest export). Realizing the importance and the laggard status of Australia in the climate change negotiations, the government has pledged to cut Australia’s GHG emissions by the year 2020 to at least 5 percent below 2000 levels.  The Multi-Party Climate Change Committee (MPCCC) considers a carbonpricing mechanism to be “the most cost-effective and economically responsible  way of reducing Australia’s carbon pollution, and that its introduction would enable Australia to play its part in global efforts to reduce the risks posed by climate change”.

The Committee has not finalized the operational plan yet and  has left many important details to be decided at a later date. The  including the starting level of the fixed price, any phasing in of sectors of the economy, and assistance for both households and industry. The proposal states that “a carbon price mechanism could commence with a fixed price (through the issuance of fixed price units within an emissions trading scheme) before converting to a cap-and-trade emissions trading scheme” and will be implemented around the following architecture:

  1. an initial fixed price (this is yet to be determined, but is expected to be anywhere between $20 to $30 AUD per tonne of CO2e), for a period of three to five years
  2. a smooth transition to a flexible price (expected starting price of $40 to $45 per tonne of CO2e) cap-and-trade emissions trading scheme after the initial fixed price period expires. There will be an option to defer that transition at least 12 months before the end of the fixed price phase.  The deferral will depend on a range of criteria such as the state of the international carbon markets, other international carbon pricing mechanisms, Australia’s internal carbon targets and the implications on households and industry as well as certainty around clean technology investments
  3. All six greenhouse gases (GHGs) will be included as in the Kyoto Protocol. There will be a broad coverage of sectors of the Australian economy, excluding those sectors covered by the government’s proposed Carbon Farming Initiative (CFI) and including:
  • an effective start date of 1st July 2012
  • the stationary energy sector
  • transport sector
  • industrial processes sector
  • fugitive emissions (other than from decommissioned coal mines);
  • emissions from non-legacy waste
  • linking with international markets, allowing for the use of international units for compliance within the scheme after the expiry of the fixed price phase.

Carbon tax-An Indian perspective

Posted in: Carbon Markets