Australia: The price on carbon: essentials for business

Environment and Climate Change Update (Australia)
Last Updated: 12 July 2011
Article by Charmian Barton and Jock McCormack

The Federal Government announced yesterday that it will introduce a price on carbon from 1 July 2012. Each year, 500 of Australia's highest polluting businesses will be liable to pay $23 per tonne of CO2-e emitted. The $23 per tonne starting price will rise 2.5% each year until the commencement of an emissions trading scheme on 1 July 2015. The Federal Government intends to release draft legislation for public comment by 31 July 2011.

Around 60% of Australia's carbon pollution will be covered by the scheme, including pollution from electricity generation, stationary energy, waste, industrial process and fugitive emissions.

The Federal Government's aim is to achieve an 80% reduction from 2000 levels by 2050; with a short term goal of 5% below 2000 levels by 2020. Details of the Federal Government's climate change plan, Securing a clean energy future, are available at

Below is a summary of the key features of the scheme:

Transport fuels

All fuels used for transport, except domestic aviation, domestic shipping, and rail transport, will be excluded from a carbon price when it commences in 2012. However, diesel fuel will be subject to the tax from 2014. Some businesses will face a nominal carbon tax on their use of transport fuels from 2012 as a result of the Government's decision to reduce fuel excise rebates.

Support for industry

Emissions-intensive trade-exposed industries, such as steel, aluminium and zinc manufacturing will be eligible for assistance under the Jobs and Competitiveness Program. The Government has allocated $9.2 billion of assistance over the first three years of the carbon pricing mechanism. The most heavily affected industries will receive assistance to cover 94.5% of industry average carbon costs in the first year of the carbon price, with assistance reduced by 1.3% each year to encourage energy efficiency initiatives. Less emissions-intensive trade exposed activities, such as plastics and chemical manufacturing, will receive assistance to cover 66% of industry average carbon costs.

Liquefied Natural gas projects will receive a supplementary allocation to achieve an effective rate of assistance of 50%.

A $1.3 billion Coal Sector Jobs Package will provide transitional assistance to the coal industry. Eligible coal mines will be provided with financial assistance for up to 80% of their exposure from fugitive emissions.

A $5.5 billion Energy Security Fund will be established to promote energy security and transformation in the electricity sector.

The Australian steel industry will receive $300 million in additional assistance.

Household assistance

$15.3 billion will be provided in household assistance measures over four years, including tax cuts for those earning less than $80,000, a 1.7% increase in pensions, as well as allowances and family payments. The tax free threshold will also increase from $6,000 to $18,200 in 2012-13.

Investment in clean technology

A Clean Technology Program will deliver $1.2 billion, over and above the Jobs and Competitiveness Program, to support R&D in low emissions technologies and to improve energy efficiency in manufacturing industries.

A Clean Energy Finance Corporation will be established to fund investment in renewable energy, energy efficiency, and low emissions technologies through loans, loan guarantees and equity investments. $10 billion has been allocated to the Corporation to drive clean technology innovation.

Land sector support

A carbon price will not apply to agricultural emissions.

A new Biodiversity Fund will be established to restore native vegetation and soil carbon. Over the period 2014-15, $1 billion will be provided through the Fund. This is intended to complement the Carbon Farming Initiative, an off-set market for land sector abatement. Kyoto-compliant credits created under the CFI can be used for compliance subject to a 5% limit in the fixed price period.


The Federal Government will establish the Climate Change Authority that will provide independent advice to the Government on carbon pricing and the setting of caps for the emissions trading scheme. The trading scheme will be internationally linked and allow for the import of abatement.

The Australian Renewable Energy Agency will be created to coordinate around $3.2 billion in existing programs to support R&D and demonstration of new renewable energy technologies.

Tax treatment

It is proposed that carbon permits when traded in 2015 will be GST-free. Specific legislation will be introduced dealing with the income tax treatment of carbon permits. Generally the proceeds from the sale of permits will be assessable and purchases deductible subject to the rolling balance (deferral) method.

How we can assist

We can assist you in developing a measured and commercially astute response to the proposed carbon price. We can:

  • Review and design contractual arrangements to ensure pass-through of carbon costs when appropriate.
  • Advise on eligibility for government assistance, particularly for manufacturers, the coal industry and mining sector.
  • Negotiate and document carbon transactions, including carbon sequestration agreements in relation to carbon sinks (forestry), and advise on opportunities for carbon off-sets under the Carbon Farming Initiative.
  • Assist with the commercialisation of emerging renewable energy and low-emissions technologies and eligibility for government funding.
  • Prepare submissions to the Federal Government on the draft carbon pricing legislation when it is released for public comment.

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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