The Australian Government has finally settled upon a carbon
price mechanism, after an agreement was struck with the Greens in
the Multi-Party Climate Change Committee and announced this
morning. The Independent MPs who are members of the Committee are
yet to endorse the agreement but have agreed to its release to
demonstrate the progress the Committee has made and encourage
As widely expected, the mechanism will start with a fixed price
(via fixed price units within an emissions trading scheme) before
converting to cap-and-trade, but we still don't know what that
set price will be.
How long will we have a fixed carbon price?
At this stage, the intention is to have a fixed price for at
least three years, and possibly up to five. It would be increased
International emissions units couldn't be used for
compliance during this period.
Conversion to cap-and-trade and flexible price
At least 12 months before the end of the fixed price phase, the
Government would review whether to switch to flexible carbon
pricing, or to defer the switch. A particular 2020 target could be
set no later than this date, unless there is a deferral.
The factors that would guide the decision to defer include:
the state of the international carbon market including the
availability, integrity and price of international units;
developments in carbon pricing in key competitor economies,
including carbon price forms and levels;
Australia's internationally agreed targets and progress
towards meeting them, including whether they have been incorporated
into a binding legal agreement;
the fiscal implications of any on-budget purchases of
internationally accepted emissions units that may be required for
Australia to comply with any internationally agreed emissions
potential impacts on the Australian economy including impacts
on households, workers, regions and communities, and the
competitiveness of Australian industry; and
the implications for investment certainty in clean
technologies, energy efficiency and carbon markets.
The types of emission sources covered – and
All six Kyoto greenhouse gases would be covered, as would the
following sources and sectors:
industrial processes ;
fugitive emissions (other than from decommissioned coal mines);
emissions from non-legacy waste.
Agriculture would be excluded as well as emission sources
covered under the Carbon Farming Initiative. The mechanism also
permits phased coverage of sectors over time, and coverage of the
electricity sector via an intensity-based allocation scheme.
In advance of the move to emissions trading, decisions will also
be made regarding the quantity and characteristics of any
international credits that can be used for compliance purposes
under the scheme.
What's still to be decided – and what's
The proposed start date is 1 July 2012, but that depends upon
getting a bill drafted, introduced and passed this year. Based on
the dramas we saw with the last ETS bill, and the Independents'
statements this morning that there is a lot of further discussion
still needed, it remains to be seen if this can be achieved.
Crucially, the actual fixed price and its escalation rate is
still undecided, and there's no indication when it will be.
How existing Commonwealth, State and Territory policies will
work with the carbon price mechanism also is yet to be
The environmental effectiveness of the scheme and other policy
details, such as industry or household assistance, are yet to be
thrashed out. A noteworthy aspect of the agreement is the emphasis
on maintaining energy security as a key consideration in addressing
issues of industry competitiveness.
Industry transitional assistance is likely to be a significant
sticking point given the currently entrenched positions of the
Government and Greens, and the 2020 emissions target is also still
to be settled.
Together with the issue of the carbon price, these were the
three key objections of the Greens to the previous CPRS bills, so
in this respect today's announcement does not move much on from
where we were in February 2010, other than to make clear that the
Government now wants to implement a carbon price during this term
and it does not plan to move far from the previous CPRS bills.
This legal update is an overview of existing eligible project activities and new project types proposed to be developed.
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