The carbon pricing mechanism will cover four of the six greenhouse gases counted under the Kyoto Protocol: carbon dioxide, methane, nitrous oxide and perfluorocarbon emissions from the aluminium sector. The remaining greenhouse gases counted under the Kyoto Protocol (hydrofluorocarbons and sulphur hexafluoride) will face an equivalent carbon price, which will be applied through existing synthetic greenhouse gas legislation.

During the flexible price period, an overall cap will be placed on Australia’s annual greenhouse gas emissions from all sources of pollution covered by the carbon price. There will be no limits on individual sectors, firms or facilities. A price ceiling and floor will apply for the first three years of the flexible price period—i.e., the trading scheme. The price ceiling will be set at A$20 above the expected international price and will rise by 5% in real terms each year. The price floor will be A$15, rising annually by 4% in real terms.

More than half of Australia’s emissions will be directly covered by the carbon pricing mechanism and around two-thirds will be covered by a carbon price applied through various means.

We have had a long debate about climate change in this country. Most Australians now agree our climate is changing, this is caused by carbon pollution, this has harmful effects on our environment and on the economy—and the Government should act. Economists and experts agree that the best way is to make polluters pay by putting a price on carbon.

The first Australian Government to announce a plan for a carbon price was John Howard’s back in 2007. A lot has happened since then; the debate has been difficult and divisive. And no government—no political party or leader—can claim to have got everything right during this time. But we have now had the debate, 2011 is the year we decide that as a nation we want a clean energy future. Now is the time to move from words to deeds.

—Prime Minister Gillard

Transport fuels will be excluded from the carbon pricing mechanism. However, where applicable, an equivalent carbon price will be applied through changes in fuel tax credits or excise. A carbon price will be applied to domestic aviation, domestic shipping, rail transport, and non-transport use of fuels.

A carbon price will not apply to household transport fuels, light vehicle business transport and off-road fuel use by the agriculture, forestry and fishing industries. In addition, at a later date, the Government will seek to establish an effective carbon price for heavy on-road liquid fuel use from 1 July 2014.

More than 50% of the funds raised from the carbon price will be used to fund tax cuts, pension increases and higher family payments. These will be permanent, Gillard said, matching the carbon price over time. Some of the collected tax money will fund investments in clean technologies such as solar, wind and geothermal—an estimated A$100-billion worth of investment in renewable over the next 40 years, Gillard said.

For governance, the Government will rely on three entities:

• An independent statutory body, the Climate Change Authority, to provide independent advice to the Government on the performance of the carbon price and other initiatives.

  One of the Authority’s roles will be to make recommendations to the Government on the year-by-year steps, and on the longer-term path, that Australia should take towards its 2050 target. The Government will make the final decisions. The Authority will report regularly on progress, giving the public an independent assessment of progress. The Authority will complete its first review—which will provide recommendations on the carbon pricing mechanism’s first five years of pollution caps—by February 2014.

• The Clean Energy Regulator to administer the carbon pricing mechanism.

• The Productivity Commission will undertake reviews relating to industry assistance, fuel tax arrangements and carbon pollution reduction activities internationally.

Other elements of the clean energy plan include:

• To assist households with price impacts, there will be two rounds of tax cuts and increases in pensions, allowances and benefits. Significant tax reform will mean that more than 1 million people will no longer need to file a tax return. Increasing the tax-free threshold and cutting taxes also boosts incentives to work. Household transport fuel consumption will not be subject to a carbon price.

• The Government will provide assistance to industry to support jobs and competitiveness for emissions-intensive, trade-exposed industries, manufacturing, food processing, metal forgers and foundries, electricity generators and small business, as agreed by the Multi-Party Climate Change Committee. The Government is also separately investing in protecting jobs in the steel and coal industries.

• A A$10-billion new commercially-oriented Clean Energy Finance Corporation will invest in renewable energy, low pollution and energy efficiency technologies.

• The Government will seek to negotiate the closure of around 2000 megawatts of highly polluting electricity generation capacity by 2020 to reduce pollution and facilitate a smooth energy market transition.

• Farmers and land managers will receive significant support to pursue climate change action on the land and enhance biodiversity through a suite of measures including the Carbon Farming Initiative, the Carbon Farming Futures program and a new Biodiversity Fund. Emissions from agriculture will not be subject to a carbon price.

• Low Carbon Communities will help local councils and communities improve energy efficiency in community facilities, including a new Low Income Energy Efficiency Program.

A further suite of energy efficiency measures will be developed in response to the report of the Prime Minister’s Task Group on Energy Efficiency. These include implementing mandatory CO₂ standards for light vehicles.

Resources

• Australia Clean Energy Future website