In November 2011, the Australian Federal Parliament passed its much awaited (and debated) Clean Energy legislation establishing a carbon pricing mechanism, which launched this week on 1 July 2012. The scheme will effectively operate as a carbon tax for the first three years, before transitioning to a cap and trade scheme similar to New Zealand's ETS.

The new carbon pricing mechanism captures emissions in the stationary energy, industrial processing, resources and waste sectors.  A sliding fixed carbon price of AUD$23 per tonne of emissions will apply for the first year, increasing to $24.15 in the second year, and moving to $25.40 in the third year.  From 1 July 2015, the scheme will move to a flexible price within a trading scheme.

Some key differences from New Zealand's scheme are:

  • Australia's scheme covers 4 of the 6 greenhouse gases recognised under the Kyoto Protocol (however, hydroflurorcarbons and sulphur hexafluoride will be alternatively covered via changes to existing import and manufacturing levies).
  • Agriculture and forestry sectors are excluded, but are dealt with in the Government's Carbon Farming Initiative.
  • Most liquid fossil fuels are excluded (however, they are subject to an alternate type of carbon tax via existing fuel tax credits and fuel excise/customs duties from 1 July 2012).
  • An opt-in option for liquid fossil fuels is to be established by 1 July 2013.

Assistance will be given to internationally trade-exposed businesses, with free allocation of carbon units (similar to New Zealand). The assistance to be given to coal-fired electricity generators is estimated at $5.5 billion in the first five years.  At the same time, the Government is hoping to see the closure of approximately 2,000MW of the most emissions-intensive coal-fired electricity generation by 2020.

A new Clean Energy Regulator has been established to administer the carbon pricing mechanism, the National Greenhouse and Energy Reporting scheme, the Renewable Energy Target and the Carbon Farming Initiative.

A new independent Climate Change Authority has also been established to advise on annual scheme emissions caps five years in advance of the stated year and to make recommendations for Australia's long-term emissions reductions goals.  It will also be responsible for carrying out the first review of the carbon pricing mechanism and Carbon Farming Initiative, both to be completed by December 2016.

In addition, the Australian Competition and Consumer Commission (ACCC) has been allocated an additional AUD$12.8 million over the next four years to police any alleged price gouging as a result of the new carbon pricing.

The Federal Opposition party (led by Tony Abbott) is strongly opposed to the carbon pricing scheme and has vowed to repeal the entire scheme if it comes into power at the next election (likely to be in November 2013).  To do this, however, it would need to win control of both the House of Representatives and the Senate, currently considered a long shot at best. If this were to eventuate, it could significantly change the climate change landscape both in Australia and New Zealand in 2014/2015.