What it is
The carbon tax – or more correctly, the Carbon Pricing Mechanism (CPM) – was launched amid much debate by Prime Minister Julia Gillard on 10 July 2011.
The CPM is part of the Clean Energy Legislative Package comprising 18 Clean Energy Bills. The package establishes a carbon price and expands renewable energy, energy efficiency and land-use policies and programs and was released in its final form on 13 September 2011. From 1 July 2012, every tonne of carbon dioxide equivalent (CO²e) emitted will be priced at $23 per tonne.
Fixed price phase
For three years from 2012 to 2015 (the first phase), the carbon price will be fixed (indexed annually by 2.5 per cent) During this period, the “large emitters” (see below for a discussion on who will be considered a “large emitter”) will be required to buy a fixed-price permit from the Government in exchange for every tonne of CO²e produced. There will be no limit to how many permits the government can issue in the first phase of the program (therefore no limit on the country’s greenhouse gas emissions). An entity with compliance obligations under the scheme will need to buy and surrender enough permits to cover its emissions during each compliance year.
Market pricing phase
From 1 July 2015, a floating market-based Emissions Trading Scheme (ETS) will commence whereby the Government sets the emissions level cap for Australia and the market determines the price of permits (the second phase). Once the floating ETS commences the carbon price will be subject to a $15 floor price and a ceiling price of $20 above international carbon prices, with each rising annually at four per cent and five per cent respectively.
In this second phase, there is a cap on the total number of permits issued. Therein lies the linkage of the carbon price to the emissions-reduction target. The greater the reduction target (five per cent by 2020 and 80 per cent by 2050), the lower the annual emissions cap and the higher the carbon price.
The permits will be issued to the market either through free allocation to emissions-intensive, trade-exposed industries (such as steel) or by auction. Auction revenues will be used to finance the support mechanisms and other measures announced as part of the plan.
During this phase, an entity with compliance obligations will continue to have an obligation to surrender permits to cover its emissions.
Who it affects
Only participants in the following industries with particular emissions should be subject to the CPM:
- stationary energy (eg power stations)
- industrial processes
- transport (with some exclusions)
- non-legacy waste1
- fugitive emissions2 (other than from decommissioned coal mines).
Not all participants in these industries will be affected. Only entities responsible for operational control of facilities that produce at least 25,000 tonnes of carbon dioxide equivalent emissions per annum will be subject to the CPM. This is estimated to limit the CPM to approximately 500 entities (called the “large emitters”).
This means that there should be no major adverse impact on most private and middle-market clients directly from the CPM. However, no matter what the industry, and on the assumption most of the costs are passed on, most business will be indirectly affected by the changes. Therefore it is imperative that everyone understands the potential impacts, risks and opportunities presented by the CPM.
