What is the carbon price?
Carbon pricing started on 1 July 2012 as a result of the federal government’s post-election deal with the Greens and key independents Rob Oakeshott and Tony Windsor. The aim is to reduce Australia’s greenhouse gases to meet a bipartisan target of a minimum 5%, and up to 25%, reduction in emissions by 2020.
The carbon price works by charging Australia’s major carbon emitters, such as power stations, mines and heavy industry, for their emissions.
Businesses that generate more than 25,000 tonnes of CO2 a year fall into this category. Agriculture and light vehicles are exempt and “trade exposed” industries, such as aluminium and steel, have been handed free permits. The coal industry has been given compensation, while new clean energy technology has been funded from the carbon price revenue.
The carbon price was initially fixed for three years at gradually escalating levels – starting at $23 per tonne of CO2, rising to $25.40 next year.
The price would then move to a market-based, or floating, arrangement by which Australian emitters could trade carbon permits internationally. This emissions trading scheme will be linked to Europe’s own ETS, essentially allowing the marketplace to decide the appropriate price for offsetting emissions.
Placing a price on carbon has knock-on impacts. Energy companies seek to recoup the amount they are charged by raising prices on consumers. Household bills rose by 0.4% in the first year of the carbon price.
To counter this, the government has used some of the money raised from the carbon price to increase payments to pensioners, boost family tax benefits and cut taxes for low-income workers. This assistance has averaged $10.10 per week.
So what’s changed?
Kevin Rudd has brought forward the date by one year whereby the carbon price moves from a fixed to a market-based arrangement.
This means that from 1 July 2014, Australia will move to a “cap-and-trade” emissions trading scheme. The government will put a cap on the amount of carbon pollution that can be emitted each year, in order to meet its 2020 target. The market will be left to determine the price of emissions within that limit.
Rudd said that he decided to “terminate” the fixed carbon price to reduce cost of living pressures on people and lower overheads for businesses, as well as bring Australia into line with international carbon trading schemes.
What will be the result of these changes?
The immediate impact of moving to a market-based ETS will be a drastic fall in the price of carbon. Instead of paying $25.40 per tonne of emissions next year, large emitters are likely to pay about $6, due to the low cost of carbon permits in Europe.
As a result, the government estimates the average family will be $380 better off a year due to reduced bills on things such as electricity and food. Household compensation will remain in place despite the reduced price.
However, the fall in price will cost the government about $3.8 billion in revenue. The treasurer, Chris Bowen, has outlined $3.9 billion in budget savings, such as overhauling the car fringe benefits tax, eliminating public sector jobs, reducing compensation payments to the coal industry and cutting environmental programs such as the Biodiversity Fund and Carbon Farming Futures.
What’s the reaction been like?
Business groups have broadly welcomed the shift to an ETS, citing lower energy costs and the opportunity to trade on the international carbon market.
Environmentalists have mixed feelings. While there has been praise from Greenpeace over the removal of $186 million in compensation for the coal industry, there is concern over cuts to associated projects such as the Biodiversity Fund, which aims to rejuvenate Australia’s landscapes to better protect species and fight pests and weeds. Christine Milne, the leader of the Greens, has called Rudd a “climate fake”.
The Coalition is sceptical of the change and has vowed to dismantle the carbon price entirely. The opposition leader, Tony Abbott, said Rudd was “not the terminator, he’s the exaggerator. He’s not the terminator, he’s the fabricator.”
Why is there such rancour in the political debate over carbon pricing?
The former prime minister, Julia Gillard, said there would be “no carbon tax under a government I lead” in the lead-up to the 2010 election.
Her subsequent deal, in order to form minority government, to introduce a carbon price has been mercilessly targeted by the Coalition, who accused her of dishonesty and endangering Australian jobs and living standards.
This line of attack proved successful in helping the Coalition to a hefty lead in the opinion polls, even though data shows over the past year there has been a very mild inflationary increase, continued economic growth, reduced emissions and increased use of renewable energy.