Australia: The carbon pricing mechanism: a mining industry focus

The carbon pricing mechanism: an industry focus


The carbon pricing mechanism (the Mechanism) will have particular implications for the mining industry. This paper focuses on the implications for mining, including in particular:

  • The specific transitional arrangements pertaining to the coal industry.
  • The interaction between the Mechanism and the MRRT.

The implications for the Mechanism for the mining industry

The Mechanism will result in many consequences for the Mining Industry including: (i) charges per tonne of carbon dioxide equivalent (CO2-e) emissions, (ii) potentially increased indirect costs for goods and services as the broader industry begins to adapt to the carbon pricing regime, and (iii) significant implications for planned project development or expansion. In certain circumstances, and depending on contractual terms, proponents may be able to pass-through certain of these costs to end users, and therefore mining industry proponents should, as a priority, review and consider amending their carbon cost pass-through clauses in supply and procurement contracts, in mining services agreements, and in commodity sales agreements to take into consideration the impact of the Mechanism.

Under the proposed framework the Mechanism will be implemented in two stages. There will be:

  • An initial fixed price period of three years – there is a starting fixed price of AUD$23 per tonne which will increase by 2.5 per cent per year in real terms.
  • A transition to a flexible price cap and trade emissions trading scheme on 1 July 2015 - the price will be determined by market forces.

The Mechanism will directly apply to entities that produce more than 25,000 tonnes of carbon dioxide equivalent (CO2-e) emissions per annum. Liable entities will also have continuing reporting obligations under the National Greenhouse and Energy Reporting System (NGERS). Significantly, liability under the Mechanism:

  • Is incurred by the entity with operational control of the emitting facilities.
  • May be shared among unincorporated joint venture participants according to their proportionate interests.

Fugitive emissions

The Mechanism will include in its coverage the emission of fugitive gasses (principally methane) from mine production. Where adequate abatement technologies are not identified, proposed mine expansions and developments may be significantly impacted financially. Government analysis concludes that whereas the average non-gassy mine is likely to face an additional cost of around AUD$1.40 per tonne of saleable coal, the average gassy mine is likely to face an additional cost of around AUD$7.40, and the gassiest mines may face additional costs of up to AUD$25 per tonne.

For mines that are in operation, the government has sought to mitigate potential job losses through its proposed Coal Sector Jobs Package to support "gassy mines" (those that had a fugitive emissions intensity in 2008-09 of at least 0.1 tonnes of carbon dioxide equivalent per tonne of saleable coal produced).

Assistance will be provided to eligible coal mines for up to 80 per cent of their fugitive emissions exposure above the 0.1 tCO2-e per tonne of saleable coal threshold. Assistance will be based on production up to a cap of base period production levels (the higher of 2007-08 or 2008-09). Such support will not be available for new production or expansion of mines with high fugitive emissions intensity.

Transitional assistance for trade exposed industries

The initial cost of CO2-e emissions may be lower than the set price of AUD$23 per tonne as a result of transitional assistance support. General assistance in the form of free allocation of permits will be provided to industries that are both emissions-intensive and trade-exposed (the Emissions Intenstive Trade Exposed Assistance Scheme). The allocation of free permits will be based on the historical industry average levels of emissions per unit of production. In order to reward innovation and responsibility, if the liable entity is more efficient than the industry average, it will receive more free carbon permits per unit of production than less efficient competitors. The Mechanism will allow such entities to sell these excess permits either back to the Government (in the fixed price phase) or to third parties (in the flexible price phase) for their market value as an additional source of revenue.

In satisfying its obligations under the Mechanism and in addition to the use of carbon permits for compliance, liable mining entities are entitled to:

  • During the initial fixed price period - use Kyoto Protocol compliant emission offsets from the Carbon Farming Initiative (Kyoto ACCUs) to reduce up to 5 per cent of their total liability.
  • During the floating price period - use Kyoto ACCUs for 100 per cent of their liability or opt to buy (potentially cheaper) international offsets for up to 50 per cent of their liability.

Further, it should be noted that carbon permit and offset purchases are tax deductible expense items. Specific legislation for the accounting and taxation treatment of carbon permits will be introduced into the existing taxation regime. For more information on the taxation issues that arise under the Mechanism, please refer to our focus on the carbon tax.

Transitional arrangements for the coal industry

The coal industry does not meet the thresholds set out in the relevant tests for the EITE assistance scheme but the Mechanism does set out specific measures for assisting the coal sector, in particular gassy mines. The proposed assistance packages include:

  • The AUD$1.3 billion Coal Sector Jobs Package which will offer transitional assistance over six years, described above in relation to "fugitive emissions".
  • The Coal Mining Abatement Technology Support Package which will provide AUD$70 million over six years to assist coal mines in developing and deploying new technologies. Funding will be provided by grants on a co-contribution basis for the research and demonstration of new technologies, and grants on a two to one basis to assist smaller coal mines in developing abatement technology.

Interface between the Mechanism and the Mineral Resources Rent Tax

Proponents should consider the combined effect of the Mechanism with the Mineral Resources Rent Tax (MRRT) when assessing project and financing structures in the resources industry. On 24 March 2011, the Commonwealth Government announced it would accept all the recommendations made by the Policy Transition Group (PTG) that was established to review the MRRT as proposed on the 2 July 2010. If adopted, these recommendations will also take effect on 1 July 2012, simultaneously with the proposed CPM.

Whether a project will be subject to both the Mechanism and the MRRT will depend on a number of factors - for example, the emissions profile and profitability of the project. The MRRT is a project-based tax which applies to iron ore and coal extraction projects which exceed a profit threshold. It can also extend to encompass (1) coal mine methane extracted as a necessary and integral part of a coal mining operation; (2) coal mining operations where gas is extracted from the underground conversion of coal; (3) incidental production of coal or iron ore as part of a broader mining operation.

Pass-through of costs

Mining firms may be able to pass-through certain costs associated with the Mechanism. Mining related contacts may include "change in law", "change in tax", "carbon cost pass-through" or other like clauses that could permit the pass-through of additional costs which are imposed through the Mechanism. Proponents should carefully consider the language used, in particular, the nature of the thresholds and events that can trigger the pass-through of carbon costs. In this context it is worth noting that the Mechanism may not be strictly interpreted as a tax, but rather an emissions trading scheme that, during the initial fixed price period, in practice operates in the manner of a tax. A generic contractual pass-through of "taxes" may not capture costs imposed under the Mechanism.

Mining firms may also seek to negotiate carbon cost pass-through arrangements for the sale of commodities to end users; although any such arrangement will of course have significant commercial implications which will need to be considered in light of arrangements other producers are subject to in other jurisdictions.

Liable entities

Under the Mechanism, the liable entity for direct emissions is generally the person exercising control over operations of the emitting facility. Where the facility is operated by an unincorporated joint venture, then all of the venture parties will be liable entities in proportion to their respective interests in the facility (provided no one entity has "operational control").

Entities that are directly liable under the Mechanism will need to develop policies and procedures setting out how they intend to manage that liability, including determining:

  • Which entity within the corporate group has operational control of the project or facility.
  • Whether it is entitled to and appropriate to transfer that liability. Currently, the Mechanism allows for the operator to apply for a liability transfer certificate to transfer liability to another member of its corporate group, a person outside of its corporate group that has financial control over the facility or in respect of an operator of an unincorporated joint venture, to the joint venture participants in proportion to their interest in the facility.
  • How to manage and mitigate that liability (for example, through the purchase of carbon permits or domestic or international offsets in the most cost effective way including, after the Fixed Priced Period, by forward purchasing permits in order to provide price certainty, by accessing international carbon markets, and by trading permits).
  • Whether the costs associated with that liability can be passed-through under the various contractual arrangements entered into with third parties.
  • Whether any of the financial assistance measures detailed by the Government are available.

Continuous disclosure under the ASX Listing Rules

Finally, listed entities should consider the extent to which, amongst other things, the Mechanism will affect its existing or planned operations, and whether that information should be disclosed to the market in compliance with ASX Listing Rule 3.1

Related updates

Carbon pricing mechanism snap shot: key features, certainty and flexibility

A framework for pricing carbon in Australia

Carbon Farming Initiative legislation tabled

Mineral Resources Rent Tax update

Further information

If you would like further information or advice about any aspect of the policies underlying, or the proposed legislation implementing, the Government's Clean Energy Future package, or the MRRT, please contact a member of our Energy and Resources team.

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”

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions