The Australian Government started imposing a carbon tax of AUD 23 (Australian dollar) per tonne of emitted CO2 on select fossil fuels consumed by the country’s biggest 500 polluters from July 2012. The carbon tax amount applies incremental to AUD 24.15 per tonne in 2013–14 and AUD 25.40 in 2014–15 in order to prepare the economy to eventually transition to the international price level. Fixed price permits cannot be banked. The Carbon tax was designed to take effect until a flexible emissions trading scheme comes into force on July 1, 2015. More information on Australia’s emissions trading scheme is available in the Emissions Trading Scheme section below.
Prime Minister Tony Abbott and his Coalition government introduced the carbon tax repeal bills as the first item of legislative business for the 44th Parliament on November 13, 2013. However, the carbon tax repeal bills were rejected on March 20, 2014 and can be reintroduced in the Parliament after three months have passed.
The Government proposed the legislation to abolish the Clean Energy Finance Corporation (CEFC) in an attempt to reform climate change policy of the previous Government but it was rejected by the Senate on December 10, 2013. The CEFC abolition bill was reintroduced on March 17, 2014 and is now before the Senate.
The Government sees many of the functions performed by the Climate Change Authority will not be necessary once the carbon tax is repealed. The legislation to abolish the Climate Change Authority was rejected by the Senate on March 3, 2014.
The legislation to abolish the carbon tax was rejected by the Senate on March 20, 2014. The Government will reintroduce the carbon tax repeal bills and related bills.
Rationale behind the move to repeal the carbon tax is to:
Reduce the cost of living - modelling by the Australian Treasury suggests that removing the carbon tax in 2014-15 will leave average costs of living across all households around AUD 550 lower than they would otherwise be in 2014-15;
Lower retail electricity by around 9 per cent and retail gas prices by around 7 per cent than they would otherwise be in 2014-15 with an AUD 25.40 carbon tax;
Boost Australia’s economic growth, increase jobs and enhance Australia’s international competitiveness by removing an unnecessary tax, which hurts businesses and families;
Reduce annual ongoing compliance costs for around 370 liable entities by almost AUD 90 million per annum; and
Remove over 1,000 pages of primary and subordinate legislation.
A flexible price emissions trading scheme will come into force on July 1, 2015 with price ceiling and price floor as Australia’s carbon pricing mechanism; Price ceiling will be set at AUD 20 above expected international price in 2015-2016 and will rise by 5% in real terms per annum. Price floor will be set at AUD 15 in 2015-2016 and will rise by 4% in real terms per annum. A fully flexible emissions trading scheme will take effect on July 1, 2018.
Caps and Coverage
Caps under the emissions trading scheme (ETS) will be set five years in advance and permits will be auctioned or freely allocated. The Australian ETS will cover the electricity, other stationary energy (e.g. refining), transport (limited to domestic aviation, domestic shipping, rail transport, and non-transport use of fuels), fugitive emissions (e.g. coal and gas mines), industrial processes (e.g. cement, metal processing and chemicals), non-legacy waste, and landfill wastes. Emissions from LULUCF and agriculture are covered through the Carbon Farming Initiative. More information on the Carbon Farming Initiative is available in the Offsets section below.
Figure 3. Sectors covered by the Australian carbon price and their share of national emissions
Source: CDC Climat Climate Brief May 2012; UNFCCC 2009 Data
One thing to note is the international linking. Under a flexible price emissions trading scheme, Australia will link its carbon pricing mechanism (CPM) with the EU ETS. In 2015-2018, Australian liable parties can use international units to meet obligations while at least 50 percent of annual liabilities must be met with domestic permits as an interim step. From July 1, 2018, exports of Australian permits will be allowed, enabling two-way link with the EU ETS. The Australian Government and European Commission will work together to enable the two-way link from 2018 through a treaty agreement. The linking will increase market liquidity leading to a more stable carbon pricing, decrease mitigation/ transaction costs, and promote global cooperation on climate change.
Discussions on the Structure of the ETS
The structure of the emissions trading scheme including cap setting and use of offsets has been actively being discussed. The PMR Secretariat had a separate session “Australia’s Clean Energy Future Package and Emissions Trading Schemes in Operation” to discuss Australia’s climate change policy and ETS architecture on October 25, 2012. (Agenda; Documents)
Offset and/or Other Emission Reduction Crediting Programs
National Carbon Offset Standard
The Australian Government introduced the National Carbon Offset Standard (NCOS) on July 1, 2010. It guides domestic institutions to reduce carbon emissions beyond Australia’s national targets.
The Carbon Farming Initiative (CFI) is a voluntary carbon offsets scheme that Australia has implemented since 2011 mainly in forestry and agriculture which are not covered by its carbon pricing mechanism. Through the CFI, interested farmers and land managers can earn 1 Kyoto-compliant unit of Australian Carbon Credit Units (ACCUs) per 1 tonne of abatement by storing carbon or reducing emissions.
Other Climate Financing Instruments
The World Bank issued its first Australian dollar denominated green bond (dubbed Kangaroo green bond) with a five-years of maturity on April 16, 2014. The bonds were placed with 15 investors who have a specific interest in supporting climate-smart projects. The proceeds will be used to finance climate-related projects. The issuance of the green bond in the Australian market will help build the green bond market that mobilizes private sector financing for climate-smart activities and drive to a low-carbon economy.