Who needs to know?

A carbon price will affect all Australian businesses.

What is happening?

It is reported1 that the government is planning to introduce a carbon price on 1 July 2012. As reported, the government’s plans are:

  • a carbon tax (fixed price on emissions) for four years from 1 July 2012 to 30 June 2016 (probably at least $20/t CO2e, but potentially $25–$30, with 4%+CPI pa increase, the final price to be influenced by the report of the Productivity Commission in May)
  • from 1 July 2016, an emissions trading scheme (potentially with a starting price of $40–$45/t CO2e)
  • probable emissions reduction target of 5% by 2020, subject to clarity in the direction of international negotiations, and
  • compensation for emissions-intensive, trade-exposed industry, and for electricity generation, at similar levels to the CPRS proposed in February 2010.

It is also reported2 the government will put its proposal to the Multi-Party Climate Change Committee on Friday 18 February 2011.

These reports build on announcements made in January 2011. For further information see our article ‘Combet outlines government climate change thinking’.3

Implementation of these plans will require negotiation, including with the Greens, the Independents and with industry. The Greens will likely require stronger reductions and less compensation. The Tony Abbott led Coalition will likely continue to oppose.

What does it mean?

A carbon price will impose a cost on carbon emissions, including for non-renewable electricity. Direct costs are likely to be imposed on the ‘head company’ in any corporate group. Businesses will look to ‘pass-through’ these costs wherever they can. Consequently carbon costs will be indirectly spread through the economy.

What should you do?

Review and design contracts

It is important to review and design your contractual arrangements to ensure any carbon costs are effectively passed through (and not bottlenecked).

You should always consider where emissions (and therefore costs and risks) are likely to arise and how they can be best managed.

Offsets

Carbon offsets may be one key way to manage carbon costs. The proposed ‘Carbon Farming Initiative’ voluntary scheme will likely lay the framework and, with its planned 1 July 2011 start date, will allow trial preparation for the mandatory carbon price. For CFI scheme information see our article ‘New carbon legislation released’.4