Carbon pricing comes to Australia

Australia will set a price on carbon from July next year, Aussie PM Julia Gillard announced yesterday. Cost per tonne will be set at A$23, rising 2.5% per annum, and the initial tax will morph into an emissions trading scheme from 2015. A full list of the key points and links to comment and reaction below the fold (as they used to say at the News Of The World)…

Key points of the Aussie carbon plan, from AAP via SMH:

  • Carbon price to start on July 1, 2012 starting at $23 a tonne rising at 2.5 per cent a year.
  • It will be paid by around 500 biggest polluters.
  • It will be replaced by an emissions trading from July 1, 2015.
  • Price ceiling and floor to apply when trading starts.
  • There will be two rounds of tax cuts and increases in allowances, payments and benefits.
  • The tax free threshold will almost triple to $18,200 from July 1, 2012, and then increase to $19,400 from July 1, 2015.
  • Every taxpayer with income below $80,000 to get tax cut from July 1, 2012.
  • Costs for the average household will rise by $9.90 a week.
  • Average household assistance, under the “clean energy supplement”, will be $10.10 a week.
  • $9.2 billion will be allocated over the first three years for industry assistance.
  • Most exposed industries such as steel, aluminium, zinc, pulp and paper makers will get free permits representing 94.5 per cent of industry average carbon costs.
  • $300 million has set aside help the steel industry move to a clean energy future.
  • $1.3 billion has been set aside for a Coal Sector Jobs Package, targeted at mines that are most affected by the carbon price.
  • A $10 billion Clean Energy Finance Corporation will be established to invest in new technology.
  • $3.2 billion has been allocated to the Australian Renewable Energy Agency.
  • Closure of 2000megawatts of dirtiest power generators by 2020
  • Agriculture is not subject to carbon price, farmers to benefit from carbon farming.
  • Small grants will be made for community-based energy efficiency programs.
  • Transport fuel excluded, but heavy transport to start paying carbon tax in 2014.
  • Climate Change Authority to advise on pollution caps and meeting emissions targets.

There’s a lot of good analysis and expert reaction at The Conversation. The Guardian puts the Aussie scheme into its international context (includes interesting stuff about India that I hadn’t picked up on), and the Herald reflects on the politics around the announcement.

There are obvious questions to be asked about how the Aussie scheme will impact NZ’s current Emissions Trading Scheme. Green Party co-leader Russell Norman argues that the higher price and support for renewables will put NZ businesses at a disadvantage by encouraging trans-Tasman competitors to move more aggressively on cutting carbon. Others might say that NZ’s price cap (at $12.50/tonne for the time being) puts NZ business at an advantage. NZ farmers will point to agriculture’s exclusion in Australia and the provisions for “carbon farming” as another reason for delaying their entry to the ETS. Plenty to discuss, in other words…

11 thoughts on “Carbon pricing comes to Australia”

  1. A key difference is that the Aussie Carbon Price will replace income taxes (in many cases). Australia is using the introduction of a carbon price as a mechanism to reform the tax system. By taxing carbon dioxide they are able to reduce the amount of tax on income. By reducing the amount of tax on positive activities such as labour and increasing the tax on pollution the tax system becomes more efficient.

    Key question is the competitiveness impacts that are placed on trade exposed firms. Measures are of course included to address this.

  2. @R2D2 – Yes, this is an important point. The Gillard government is using the launch of the scheme as an opportunity to kill two birds with one stone by introducing some recommendations of the Henry Tax Review in order to reform income tax. According to government modelling, only the wealthiest (and most carbon-intensive) households will be worse off financially as a result.

  3. First they beat us at rugby, then netball and now an absolute drubbing at climate change policy, a 3-0 whitewash! Our team selection at the beehive maybe needs an overhaul given the number of ball handling errors, maybe a new coach might be in order.

    The Nats have developed a talent for pretending they are doing something about climate change whilst actually doing very little. Their bold step of the ETS where tax-payers are penalised but our biggest polluters are exempt is about as laughable as their (I mean their children’s) commitment to a 50% reduction by 2050. Didn’t ACT suggest that we should scrap the ETS and introduce a carbon tax instead?

  4. Yes, Julia and co are going to leapfrog NZ’s pitiful NZ ETS. Good on her for gutsing it out in the face of vociferous opposition and for including an element of “Carbon fee and dividend” in the tax changes.

    Back our side of the Tasman, John Key and Nick Smith, in response, are just fobbing us off with platitudes. John Key says he is waiting for the result of the 2011 NZ ETS Review.
    Nick Smith says that the review is still underway.

    This is just spin. The 2011 NZ ETS Review has been completed since 30 June 2011.

    I wonder why Smith is delaying the release. Is he just too busy with his ACC portfolio, or is he going to get his officials to rewrite it? That would seem pointless as it is advice only.

    Not that I am artificially lowering my respiration rate for the Review to restore some carbon price to the NZ ETS, given it’s chaired by Government insider David Caygill. I would be happy to be proven wrong. I just doubt it.

    I have emailed Nick Smith’s office and requested a copy of the 2011 NZ ETS Review report under the Official Information Act. I guess they will take the statutory time frame to reply; exactly 20 days.

  5. Can we explain how this is a leap frog?

    NZ has NZ$12.50 max price in July 2010 – AU has zero
    NZ has NZ$12.50 max price in July 2012 – AU has fixed NZ$30 price (not on transport fuel)
    NZ has market price in January 2013 – AU has fixed NZ$30 price
    Both have market price in July 2015
    NZ has obligations on ag gases in 2015 – AU will have offset scheme
    NZ has 70% renewable – AU has big incentive package to get, what 20% by when.. Im not sure and too late at night to find out.

    Not trying to be disruptive, I think the policy is better in Aussie, but don’t see how it’s quite a giant leap. You are acting like it’s already in place, it has to go to committee yet.

  6. Nothing like a leapfrog. That is simplistic rhetoric.

    The Australian Carbon Price will apply to certain sectors with firms that emit more than 25,000tCO2e per year. That is a very high threshold. NZ has some threshold but are much smaller. Hard to see how the Australian thresholds can be justified on the grounds of compliance costs when NZ has evidence that ETS participation by smaller emitters is not onerous.

    ‘Assistance’ in the Asutralian scheme is also considerably more generous – 95% of cost to be avoided by the most emissions intensive. It is hard to see how any emissions reductions will occur in the short term (until the carbon price affects investment decisions) as it is so watered down by concessions and tax subsidies as to have no impact at all. Plenty of economic distrortions created by the financial support for renewables and other investments have me thinking just how much of the policy is based on concessions and not economics?

    1. When the Australian government stops subsidising the fossil fuel industry to the tune of billions of dollars a year, then we can start talking about removing distorting incentives. The 95% assistance is regrettably high, though falls much faster than under the scheme proposed by Rudd a few years ago. This watering down (also seen in various other features) is highly regrettable, but all that was considered politically palatable by a leader lacking courage and squeezed into a tight spot. If dropping the scheme wouldn’t mean the immediate downfall of her minority government (she relies on Greens and independent support), it would happen in a second as it has currently made her the most unpopular PM in recent history thanks to incessant (and deceitful) fear-mongering by the opposition. Even as it stands, she is very unlikely to be returned for a second term (though voters do have short memories and there are still a few years before we need to have another election). The question is whether the system is deeply enough embedded to be difficult to roll back by then, and raising the tax threshold was actually a very savvy political move because not only will it be very popular in the short term, it will be very difficult to unwind in the long term, leaving a big hole in the budget if the carbon price income stream is removed.

      The great irony is that a market-based system for controlling pollution is a textbook neo-liberal idea embraced by many previous Coalition leaders. And in its place, the current opposition leader proposes (ironically) a system of direct action (a.k.a. government intervention).

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