Case Study: Australias carbon pricing scheme

Low Carbon Green Growth Roadmap for Asia and the Pacific

CASE STUDY
Taking a bold stand on pollution

Australia’s carbon pricing scheme
Key points
•

Australia, one of the world’s biggest polluters, passes legislation to change its habits, starting with the
charging of fees to industries that contribute to the abundance of emissions.

•

The scheme gives industries time to acclimate to the new system and to start planning ways to reduce
their pollution.

There was a problem…
Contributing 1.5 per cent of the world’s greenhouse gas emissions due to its heavy dependence on coal for
electricity generation (about 80 per cent),1 Australia is considered one of the worst per-capita polluters in the
world. Considering that the country is expected to produce an estimated 690 million metric tons of carbon dioxide equivalent by 2020 – representing a 24 per cent increase from its 2000 emissions if the current business-asusual economic pattern continues – the Government recognized that the “clean up later” time had arrived.
Reducing Australia’s greenhouse gas emissions became increasingly critical for the Government.2

What was done?
To move towards a low-carbon economy, the country passed legislation to introduce a carbon pricing scheme
in February 2011.
A two-stage system
The carbon pricing mechanism is composed of an initial three years’ carbon tax, starting from July 2012 and
switching to a market-based emission trading scheme thereafter. For the fixed price period of the initial three
years, the scheme will affect 500 of Australia’s biggest polluting companies, which generate more than 25,000
tons of carbon dioxide each year.3 Activities such as burning of fossil fuel for electricity generation and transportation, heavy industries (such as steel making or concrete), mining industries (such as coal and liquefied natural

gas mining) and waste management will be liable under the scheme.
The price will start at A$23 per ton as of 1 July 2012.4 In each of the next two years, it will rise by 2.5 per cent in real
terms, assuming inflation of 2.5 per cent a year.5 This will give industries time to acclimate to the new system and
start planning ways to reduce their pollution. In the flexible price period, starting from July 2015, the carbon price
will be set by the market.

1 Reuters, “Australia Passes Forest, Farm Offsets Scheme”, August 22, 2011. Available from www.energyenviro.fi/index.php?PAGE=2&NODE_ID=4&ID=3767 (accessed 8 November 2011); and The Economist, “Pushing for a carbon tax in Australia:
An expensive gamble”, July 14, 2011. Available from www.economist.com/node/18959030 (accessed 8 November 2011).
2 Balazs Koranyi, “Australia Plans Carbon Tax from 2012: Report”, Reuters, February 11, 2011. Available from
www.reuters.com/article/2011/02/12/us-australia-emissions-idUSTRE71B0DZ20110212 (accessed 8 November 2011).
3 Commonwealth of Australia, Securing a Clean Energy Future: The Australian Government’s Climate Change Plan (Canberra, Australian
Government, 2011). Available from www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/Consolidated-Final.pdf (accessed 5
January 2012).
4

Australian Government website “Clean Energy Future: Carbon Price” (2012), Available from www.cleanenergyfuture.gov.au/cleanenergy-future/carbon-price/#content01 (accessed 17 February 2012).
5

Commonwealth of Australia, Securing a Clean Energy Future: The Australian Government’s Climate Change Plan (Canberra, Australian
Government, 2011). Available from www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/Consolidated-Final.pdf (accessed 5
January 2012).


Low Carbon Green Growth Roadmap for Asia and the Pacific : Case Study - Australia’s carbon pricing scheme

Recycling revenue for mitigating distributional impacts, job creation and investing in clean energy and climate
change programmes
The revenue from the carbon tax will be recycled by the Government in three main areas:
•
•

•

Assist households (50 per cent of the revenue)
Support jobs and enhance competitiveness
Invest in clean energy and climate change programmes (40 per cent).6

With the scheme, household spending will increase by an estimated A$9.90 a week on average, including electricity and gas bills. Households will receive, however, an average of A$10.10 a week in assistance through tax
cuts, an increase in pensions or family payments, particularly focusing on pensioners and low- and middleincome households.7 A Jobs and Competitiveness Programme will receive A$1.3 billion in assistance. About A$10
billion will also be invested over five years in wind, solar and other reusable energy sources; and A$1.2 billion will
be used for a Clean Technology Programme to improve energy efficiency and support research.
A separate arrangement for the agriculture industry
Agriculture is not included in the scheme, but the Clean Energy Future’s Land Sector Package will allocate A$1.7
billion across a range programmes and measures, including the Carbon Farming Futures, which incorporates
research, deployment and outreach into new methods and technologies for land management for carbon
farming. It also includes the Biodiversity Fund, the Indigenous Carbon Farming Fund, the Regional Natural
Resource Management Planning for Climate Change Fund, the Carbon Farming Skills programme, the Carbon
Farming Initiative Non-Kyoto Carbon Fund and the establishment of a Land Sector Carbon and Biodiversity
Board to provide expert advice on the implementation of these measures.
The entire package is “about creating new opportunities for land managers to enhance productivity, gain economic benefits and help the environment by reducing greenhouse gas emissions. Actions to reduce greenhouse
gas emissions or increase carbon storage can also increase the land sector’s resilience to climate change,
protect Australia’s natural environment and improve long-term farm productivity.”8
Management and monitoring by multiple independent authorities
To make the carbon pricing scheme efficient, different roles have been assigned to multiple authorities, including independent entities: the Government and the parliament will be responsible for making major policy decisions that require the balancing of economic, social and environmental factors. The Climate Change Authority
will review pollution caps, the future trajectory of Australia’s pollution levels and the overall performance. It will
also track Australia’s progress towards meeting its targets for reducing carbon pollution. The Clean Energy Regulator will administer elements of the carbon pricing mechanism. The Productive Commission will also review
industry assistance and the impact of the carbon price on industry and continue reporting on actions by other
countries to reduce carbon pollution.

Expected outcomes
From this scheme, Australia expects to reduce its carbon emissions by 159 million tons by 2020, which would be 5

per cent below the 2000 levels, and by 80 per cent of their 2000 levels by 2050.9 During the same period, the
share of large-scale renewable energy (excluding hydropower) is expected to expand by 18 times; including
hydropower, 40 per cent of the electricity generation would be covered by renewable energy.
6

The Economist, “Pushing for a carbon tax in Australia: An expensive gamble”, July 14, 2011. Available from
www.economist.com/node/18959030 (accessed 8 November 2011).

7

Commonwealth of Australia, An Overview of the Clean Energy Legislative Package (Canberra, Australian Government, 2011). Available
from www.cleanenergyfuture.gov.au/wp-content/uploads/2011/11/CEF-overview-20111109.pdf (accessed 5 January 2012).

8

Commonwealth of Australia, Department of Agriculture, Fisheries and Forestry website “Carbon Farming Futures” (15 November, 2012).
Available from www.daff.gov.au/climatechange/carbonfarmingfutures (accessed 20 February 2012).

9

Commonwealth of Australia, Securing a Clean Energy Future: The Australian Government’s Climate Change Plan (Canberra, Australian
Government, 2011). Available from www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/Consolidated-Final.pdf (accessed 5
January 2012).


Low Carbon Green Growth Roadmap for Asia and the Pacific : Case Study - Australia’s carbon pricing scheme

Double dividend
An economic dividend is also expected: By 2050, the country should experience an increase in gross national
income per person, by about A$30,000 in today’s dollar terms.10 In addition, 1.6 million jobs are expected to be

created by 2020 due to carbon pricing.11

10

ibid.

11

ibid.