Dancing with Carbon Price: A Hybrid Scheme for Australia

Yesterday, the Australian PM, Julia Gillard, announced the architecture of carbon price policy to commence next year.

The blue print set out a hybrid scheme, with a carbon tax starting from 1 July 2012, converting to a cap-and-trade emissions trading scheme (ETS) in three or five years. Media reported that many complaints has been directed to Gillard as to her election campaign commitment last year: "There will be no carbon tax under the government I lead". There have been interesting debate afterwards regarding how Gillard will make them dancing to her tune. Broken promise or not, the government revealed that attaching price tag on pollution is back on the national primary agenda.

The proposed carbon policy will impose a fixed price that will gradually increase at a pre-set rate for a period of three or up to five years from 2012. At the end of fixed price period, two options will be considered: either to shift to a flexible carbon price that can be linked to international carbon market, OR to defer the transition to carbon price by continue applying  a fixed price with adjusted price level and rate. The decision to execute the deferral option of floating carbon price depends upon the impact of carbon price on Australian economy and on carbon emissions reduction, as well as the state of international emissions target and international carbon market.

The carbon price will charge emissions from electricity generators, transport, industry, fugitive emissions from mining as well as waste. It will not hit the agriculture sector due to the complexity of counting agricultural emissions. The dollars of polluting the atmosphere will be used to compensate households and businesses, and funding renewable energy programs. However, the starting carbon price and the assistance measures for both households and businesses are still in the discussions agenda of the Multi-Party Climate Change Committee (MPCCC).  The pricing scheme expected to passage its legislation by the end of the year, to come into operation on 1 July 2012.

In theory, putting a price on carbon pollution offers incentives to conduct cleaner businesses. The more emitting carbon pollution simply means the more costly the carbon compliance costs. Looking through a 'business spectacle', the indications of the starting level of carbon price and the forward curve, also the clarity of the transition measures and business compensations are essential for decision making, especially for long-term investments. The details of the interim measures, i.e. the transition rules from fixed to flexible carbon price mechanisms, can be translated into targets to be achieved in adjusting to a low-carbon economy while maintaining business competitiveness.


Click on Carbon Price Mechanisms 24 Feb 2011 for more (pdf).