Australia: Carbon price, carbon copy? What's the difference between the Carbon Price Mechanism and the CPRS?

Carbon Insights

Key Points:

The Carbon Price Mechanism reflects many key design elements of the Carbon Pollution Reduction Scheme, but there are some key changes.

While the nomenclature may have changed, the Carbon Price Mechanism (CPM) announced on Sunday 10 July by Prime Minister Gillard, as part of the Clean Energy Future package, reflects many key design elements of the Carbon Pollution Reduction Scheme dumped in February 2010.

What's been carried over from the CPRS

The "Clean Energy Future" package (aka the Carbon Price Mechanism or CPRS 2.0), contains the following same elements of the original CPRS:

  • an unconditional 5% target for emissions reduction by 2020 based on 2000 levels, with the option to increase to 10-25% depending on international developments;
  • broad sectoral coverage – stationary energy, transport, industrial processes, non-legacy waste and fugitive emissions will be covered. Agriculture and land use will be excluded. There will be no phasing in of sectors over time unlike the NZ ETS and EU ETS;
  • a carbon price will be set based on an emissions trading scheme;
  • there will be an initial transitional period, during which time permit prices are fixed;
  • liability threshold generally remains 25ktCO2-e of direct (scope 1) emissions, except for certain waste facilities where the threshold will be 10ktC02-e;
  • compensation in the form of a free allocation of permits to emissions intensive and trade exposed (EITE) activities;
  • auctioning of permits during the flexible price phase;
  • assistance to households; and
  • industry adjustment assistance, particularly for the stationary energy sector.

And what's new about the Clean Energy Future package

While some of us may ask "why didn't the Greens just support the CPRS in the first place?", there are sufficient changes to keep us interested and give the Greens excuses. Some of the more significant changes include:

  • an increase in the 2050 emissions reduction target from 60 to 80% in line with recent commitments by the UK and Germany;
  • a fixed date for transition to an emissions trading scheme. The scheme will transition from fixed price to a market on 1 July 2015;
  • a price floor and ceiling when the scheme moves to the trading phase, at least for the first three years;
  • the liable entity for direct emissions from a facility will generally be the person with operational control over that facility, not the ultimate Australian holding company, thus avoiding the "parent trap" scenario that existed under the CPRS;
  • additional assistance for "gassy" coal mines, LNG projects and steel manufacturers;
  • transport fuels excluded from the carbon price mechanism, but with an equivalent price achieved through changes in fuel tax credits and excise, but only for heavy transport including aviation;
  • the number of greenhouse gases covered by the CPM reduced from six to four – carbon dioxide, methane, nitrous oxide and perfluorocarbons remain covered, with synthetic greenhouse gases to be regulated under separate legislation;
  • more assistance to the stationary energy sector, particularly brown coal-fired generation, including payments for closure;
  • establishment of an independent Climate Change Authority, chaired by former Reserve Bank Governor Bernie Fraser, to advise on pollution caps, levels of assistance/compensation and linkages;
  • reduction in international linkages, at least in the initial phases, with no international trading during the fixed price period, and requirement to meet at least 50% of scheme obligations with domestic permits or credits during the first five years of the trading scheme.

The Government estimates that whereas the CPRS achieved 80% coverage of national emissions, the CPM will capture 50%, and other measures such as adjustments to fuel excise will increase coverage to 60%. Parts of the package however, have not been approved by the MPCCC, including the proposed cuts to fuel tax credits for heavy road transport, and additional assistance to coal mines and steel making.

In addition, the CPM comes gift-wrapped with a number of complementary measures to assist the renewable energy and energy efficiency sectors, and to justify the change in name (heaven forbid that it be described as a "carbon tax").

What's the price?

Permits during the three year transitional period will have a fixed price of $23, increasingly annually by 2.5% in real terms. Assuming a CPI rate of 2.5%, permits will cost $24.15 in 2013-14, and $25.40 in 2014-15. Treasury Modelling indicates that this will have a 0.7% impact on CPI, less than the 2.5% increase at the time of the introduction of the GST.

After the transitional period, the price will be determined by the market, however, to provide price stability, certainty and to appease some interests groups, the Government has agreed to both a "price floor", and a "price ceiling" for at least the first three years of the scheme.

The floor price will be set at $15 and increase each year by 4% in real terms. The price ceiling will be set at $20 above the expected international permit price, rising 5% pa in real terms.

Who is liable?

This is where there appears to have been a significant departure from a key design element on the CPRS. Under the CPRS, as with reporting obligations under NGERS, Australian parent companies of operators of facilities that emit more than the threshold were liable to surrender permits. Buried on page 105 of the Clean Energy Future package, the liable entity is stated to generally be the person with operational control of the facility, that is the operator. This is the same position adopted in the EU ETS.

If this is ultimately translated into the proposed legislation for the scheme, this will overcome what we described as the "parent trap" where liability sat with the Australian parent company, with the carbon price potentially unable to be passed through under existing supply contracts.

For unincorporated joint ventures, where the majority interest potentially assumed 100% liability under the CPRS with similar impediments to carbon price pass through or recovery, there is also a proposed sensible change. Where no one person has operational control of a facility under an unincorporated joint venture, the liability for emissions is spread between the joint venture participants in proportion to their interest in the facility.

With the omission of transport fuels from the CPM, the Government estimates that it has cut the number of liable entities from 1000 to about 500, with the largest 50 entities making up 75% of the CPM liability.

The scheme will also allow the operator of the facility to transfer its liability to another member of its corporate group, a person outside the group with financial control of the facility, or to participants in an unincorporated joint venture.

What's the cap?

Although during the transitional period there will be no limit on the number of permits the Government can issue, in order for the scheme to move to a free(-ish) market in 2015, the annual emissions cap will need to be set, thus quantifying the number of permits likely to be available.

The Government intends to announce the first five years' worth of caps in 2014. Each year thereafter, the cap for the fifth year will be announced to maintain five years of known caps at any given time.

When setting the caps, the Government must consider, among other things, the recommendations of the Climate Change Authority (CCA). The CCA will also make recommendations on indicative national trajectories and long-term emissions budgets, and provide advice on whether national targets are being met. Voluntary action by individuals, such as voluntary cancellation of permits or Greenpower purchases, will be considered in setting scheme caps.


In addition to the compensatory measures to assist emissions intensive and trade exposed activities exposed to a carbon price, the Government also proposes additional assistance for the coal, steel-making and stationary energy sectors. There is also a raft of measures to compensate middle-low income households from the effects of the carbon price, mainly through changes to tax and benefits systems.

However, one of the more significant changes is the exclusion of fuel from the CPM, and any reductions to the fuel tax credit regime limited to the heavy transport sector. Agriculture, fisheries and forest sectors will not be subject to any reduction in fuel credits.

Where to from here?

The Government proposes to release draft legislation for comment before 31 July 2011, and introduce legislation into Parliament to give effect to the scheme before the end of 2011. The commencement date of the scheme remains 1 July 2012, as announced in February this year.

Whether the Government can get the legislation through Parliament within this time-frame, or at all, is dependent on a number of variables. Unlike the experience with the CPRS, the risk for the Government lies in the House of Representatives, not the Senate, now that the Greens hold the balance of power in that chamber.

Clearly the MPCCC's objective has been to ensure that agreement will equate to support from the independents and Greens in both houses for the legislation. Independent MPs Tony Windsor and Rob Oakeshott, who were on the MPCCC, have stated that they will vote for the legislation if it is consistent with the agreement announced on Sunday. Independent MP Andrew Wilkie has also recently expressed his support. That said, there are some elements of the package that do not have MPCCC support, including cuts to fuel credits for heavy road transport, and additional assistance to the coal and steel sectors. These, however, are unlikely to be fatal to the package.

While the Opposition will do its best to turn independents in the House of Representatives, the chances of legislation passing must be considered very likely, absent any sudden by-elections.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.