Australian government announces proposed carbon tax framework

Practical Law UK Legal Update 6-505-3392 (Approx. 3 pages)

Australian government announces proposed carbon tax framework

by Leigh De Jong and Stephen Clugston, Minter Ellison

Published on 31 Mar 2011 • Australia

This article is part of the PLC Global Finance March 2011 e-mail update for Australia.

The Australian government announced a two-stage plan to implement its proposed carbon pricing mechanism. The framework includes a fixed price carbon tax phase (fixed price phase) followed by a cap-and-trade emissions trading phase (cap-and-trade phase).

On 24 February 2011, the Australian government announced a two-stage plan to implement its proposed carbon pricing mechanism. The framework includes a fixed price carbon tax phase (fixed price phase) followed by a cap-and-trade emissions trading phase (cap-and-trade phase).

Key features of the framework include:

A commencement date of 1 July 2012 (if approved and implemented by parliament).
An initial fixed price (not yet determined) which is scheduled to operate for a period of three to five years, with an option to extend for a longer period.
A transition period to ensure a smooth transition from the fixed price phase to the cap-and-trade phase.
Coverage of the six greenhouse gases under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (1997) and a broad coverage of sectors of the Australian economy (excluding sectors covered by the government's proposed Carbon Farming Initiative – a carbon offsets scheme to be established by the Australian government to provide, among other things, new economic opportunities for farmers and landowners) including:
- the stationary energy sector;
- the transport sector;
- the industrial processes sector;
- the fugitive emissions (other than from decommissioned coal mines);
- emissions from non-legacy waste.
Linking with international markets during the cap-and-trade phase to enable the use of international units for compliance with the scheme domestically.

The government's decision on whether to exercise its option to extend the fixed price phase can made be at least 12 months before the end of the phase, based on some of the following factors:

The state of international carbon markets (including availability, integrity, and price of international units).
Developments in carbon pricing in key economies.
Australia's position with regard to its internationally agreed targets.
The impact on the Australian economy and the competitiveness of Australian industry.
Implications on 'green' investments locally.

As the framework only outlines the 'broad architecture' of the national carbon pricing mechanism, there is still a lack of detail on specific mechanical factors such as (amongst others):

The starting price under the fixed price and relevant formulations relating to annual rate increases in the context of the government's carbon reduction commitments.
Assistance mechanisms for emissions-intensive trade-exposed businesses.
The impact on, and government support for, households (particularly low and middle income) to meet the rising cost of energy.
Support and incentives for green technology innovation.
Criteria for the use of international emissions units.

Once details of the framework are released, businesses (as well as financiers and investors considering target businesses) with material emissions volumes should be sensitive to the potential impact of carbon pricing on business operating costs as well possible commercial arrangements to mitigate such costs (such as 'pass through' or 'offset' mechanisms).

Australian government announces proposed carbon tax framework | Practical Law