Australian Government, 2012‑13 Budget
Budget

Chapter 1: The Clean Energy Future Plan

The Australian Government has a comprehensive plan to move Australia to a clean energy future. The Government's plan includes:

  • introducing a carbon price;
  • promoting innovation and investment in renewable energy;
  • encouraging energy efficiency; and
  • creating opportunities in the land sector to cut pollution.

The Government's plan to move to a clean energy future will cut pollution by at least 5 per cent compared with 2000 levels by 2020. The Government's long-term target reflected in the objects of the Clean Energy Act 2011 is to cut pollution by 80 per cent below 2000 levels by 2050. This is expected to save over 17 billion tonnes of carbon pollution being released into the atmosphere between now and 2050.

In November 2011, the Australian Parliament passed laws to put a price on carbon pollution. This is the central component of the Government's plan for a clean energy future and is a significant environmental and economic reform for Australia.

This reform will ensure that Australia plays its responsible part in global efforts to tackle climate change. It also positions Australia to take advantage of the economic and job opportunities that will come as the world takes action on climate change and shifts to a clean energy future.

All revenue from the carbon price will be used by the Government to:

  • assist households;
  • support jobs and competitiveness; and
  • invest in clean energy and climate change programs.

This will ensure the Australian economy continues to grow at the same time as we cut pollution to reduce the risks of dangerous climate change.

Achievements

  • The clean energy legislative package was passed by the Australian Parliament on 8 November 2011. The package includes the Clean Energy Act 2011, which implements the carbon pricing mechanism for Australia, as well as the Clean Energy Regulator Act 2011 and the Climate Change Authority Act 2011, which implement key elements of the governance arrangements for the carbon pricing mechanism.
  • The Clean Energy Regulator commenced operations on 2 April 2012 with Ms Chloe Munro appointed as the Chair and Chief Executive Officer. The Regulator is a statutory authority responsible for implementing and administering the carbon pricing mechanism.
  • In July 2011, Mr Bernie Fraser was announced as Chair of the Climate Change Authority. The Authority is an independent body that will provide expert advice on key aspects of climate change policy. It will be based in Melbourne, and commence operations on 1 July 2012.

Establishing the carbon pricing mechanism

Until now there has been little incentive for businesses to reduce carbon pollution. A carbon price makes pollution more expensive to release into the atmosphere, creating an incentive across the economy to find ways to emit less carbon pollution and save money — either by becoming more efficient, or by investing in clean energy. Economic experts around the world recognise that putting a price on carbon is the most environmentally effective and cheapest way to cut pollution.

Treasury modelling indicates that, without a price on carbon, existing climate change policies would not curb the growth of our carbon pollution from 578 million tonnes per year in 2009‑10 to over 1,000 million tonnes in 2050. The Government's carbon price policy is expected to result in significant emissions reductions in the sectors which it covers. For instance the Treasury modelling predicts reductions by 2050 of 90 per cent of expected waste emissions, 76 per cent of expected electricity emissions, 62 per cent of expected fugitive emissions and 53 per cent of expected industrial process emissions.

The Treasury modelling confirms that our economy can make this transition, with the Update making clear that:

Average incomes measured by gross national income (GNI) per person increase by around $9,000 from today's level to 2020 and by more than $30,000 to 2050. GNI per person grows by 1.1 per cent per year to 2050 with carbon pricing, compared to 1.2 per cent per year without carbon pricing. Employment continues to grow strongly, with national employment increasing by 1.6 million jobs by 2020, with or without carbon pricing. All state economies continue to grow strongly.

Carbon price design

The carbon price is the central element of the Government's plan for a clean energy future: it will trigger a broad transformation of the economy and ready Australian business and industry to compete in a low pollution world.

The carbon pricing mechanism requires around 500 of the biggest polluters (those that have facilities that directly emit more than 25,000 tonnes of carbon pollution into the atmosphere in a year or are natural gas suppliers) in Australia to pay for their pollution. These businesses will need to buy a permit (called a 'carbon unit') for every tonne of pollution they produce and surrender it to the Government.

Many businesses and other entities already report their carbon pollution through the National Greenhouse and Energy Reporting Scheme. This will be the basis on which they will work out their liabilities under the carbon pricing mechanism.

The carbon pricing mechanism will start on 1 July 2012. In the first three years, the cost of each tonne of carbon pollution emitted by liable businesses will be fixed. In 2012‑13 the carbon price will be $23 per tonne, increasing by 2.5 per cent a year in real terms during the fixed price period. At the end of each year, the liable entity will surrender the number of carbon units that represents its total emissions to the Clean Energy Regulator or pay a charge. Liable entities will either buy units or acquire them through the Government's industry assistance measures, like the Jobs and Competitiveness Program, or the Energy Security Fund.

From 1 July 2015, the carbon price will be set by the market under a cap-and-trade emissions trading scheme (the flexible price period). For the first three years of the flexible price period, a price ceiling and a price floor will apply to carbon units to avoid price spikes or plunges, reducing risk for businesses as they gain experience in having a market set the carbon price.

The Government will put a cap on the number of carbon units it issues in the flexible price period. This cap will take into account Australia's national emissions reduction targets, our international climate change obligations and the recommendations on pollution caps made by the Climate Change Authority.

There is scope in the design of the carbon pricing mechanism for linking to credible international carbon markets from the beginning of the flexible price period. International linking will allow reductions in carbon pollution to be pursued globally at lowest cost. Australian businesses will be able to use credible international permits to meet some of their domestic obligations. However, recognising the importance of taking sufficient action in Australia, at least half of a liable entity's carbon price obligation must be met through the use of domestic carbon units, including Carbon Farming Initiative credits.

Carbon price coverage

Around 60 per cent of Australia's carbon pollution will be directly covered by the carbon pricing mechanism. This will include the stationary energy sector, industrial processes, waste deposited to landfill after 1 July 2012, and fugitive emissions from the oil, gas and coal mining sectors.

The broad coverage of the carbon price will ensure that the economy as a whole starts moving towards a clean energy future. However it is important to ensure the carbon pricing mechanism is practical and minimises costs for business. For this reason, only firms that are responsible for facilities that release 25,000 tonnes or more of carbon pollution into the atmosphere in a year or natural gas suppliers will be liable under the carbon pricing mechanism.

An effective carbon price will be applied to domestic aviation, domestic shipping, rail transport, and non‑transport use of fuels. This effective carbon price will be implemented through changes to fuel tax credits and fuel excise arrangements in the taxation regime. Alternatively, users of these fuels can opt‑in to the carbon pricing mechanism under the Opt‑in Scheme.

A carbon price will not apply to agricultural and land sector emissions, use of household transport fuels, light vehicle business transport and off-road fuel use within agriculture, forestry and fishing activities. Households and small businesses will have no direct obligations under the carbon pricing mechanism.

Figure 1: Carbon Pricing Mechanism Governance

Figure 1: Carbon Pricing Mechanism Governance: Clean Energy Regulator; Climate Change Authority; and Productivity Commission

Administration and review

Sound governance will ensure the carbon pricing mechanism is efficient and effective. Major decisions that need to balance environmental, economic and social factors which have far-reaching implications will continue to be made by the Government and the Parliament. Two new bodies, the Clean Energy Regulator and the Climate Change Authority, will be responsible for administering the carbon price and reviewing its operation and Australia's progress towards meeting its carbon pollution reduction targets.

Clean Energy Regulator

The Clean Energy Regulator is the statutory authority responsible for administering the carbon pricing mechanism, the National Greenhouse and Energy Reporting Scheme, the Renewable Energy Target, the Australian National Registry of Emissions Units and the Carbon Farming Initiative. Ms Chloe Munro was announced as Chair and Chief Executive Officer of the Regulator on 9 February 2012, and operations commenced in Canberra on 2 April 2012.

Some of the Regulator's key responsibilities include: educating businesses on the administrative arrangements of the carbon pricing mechanism; assessing emissions data to determine each party's liability; publishing a database of liable or potentially liable entities; allocating carbon units; and monitoring and enforcing compliance with the carbon pricing mechanism.

Climate Change Authority

The Climate Change Authority is an independent statutory body which will provide Government with expert advice on key aspects of the carbon pricing mechanism and the Government's climate change mitigation initiatives. In July 2011, Mr Bernie Fraser was announced as the inaugural chair of the Authority. The board will also comprise the Chief Scientist for Australia and up to seven expert members.

From its commencement on 1 July 2012, the Authority will review pollution caps, the trajectory of Australia's pollution levels and the steps required to meet the legislated target to reduce emissions by 80 per cent below 2000 levels by 2050. The Authority will hold public consultations as part of its reviews and its reports will be made public. A first review on the operation of the carbon price will be published by the end of 2016.

The Authority will also undertake reviews of other major abatement measures. The Authority's first major review will examine the performance of the Renewable Energy Target, and will be undertaken in the second half of 2012.

Productivity Commission reviews

The Government has also asked the Productivity Commission to conduct reviews which will ensure that:

  • the carbon pricing mechanism in Australia remains in step with actions to reduce climate change in other major economies;
  • assistance offered under the Jobs and Competitiveness Program and the Coal Sector Jobs Package continues to support local jobs and production, and encourage industry to invest in cleaner technologies; and
  • the merits of a fuel excise and taxation regime based on carbon and energy content of fuels is considered.

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