Who needs to know?

A carbon price will affect all Australian businesses.

What is happening?

The government and Greens today announced an agreement for a carbon price to start as early as 1 July 2012.

Details

The proposal1 presents ‘framework elements’, including:

  • An initial carbon tax (fixed price on emissions) as early as 1 July 2012. No starting price has been announced. It is anticipated to be at least $20/t CO2e (but potentially $25–$30), with a fixed annual increase (potentially 4%+CPI pa). The final price will likely be influenced by a May Productivity Commission report.
  • Then a transition to an emissions trading scheme (ETS) within three to five years. Criteria for moving from the 'carbon tax phase' to an 'ETS phase' have not been announced. The transition date will be determined before the legislation is introduced and would be subject to review a year before the scheduled ETS commencement. The ETS could be further deferred. In the 'ETS phase', the price would be unrestricted, set by the market, with some expecting a starting price of $40–$45/t CO2e.
  • Coverage of stationary energy, transport, industrial processes, fugitive emissions (other than from decomissioned coal mines) and non-legacy waste. Other sectors could be phased in. Emissions covered by the Carbon Farming Initiative,2 including agriculture, would be excluded.
  • International credits could not be used during the carbon tax phase, but indications are that domestic offsets could be used (potentially including from agricultural sources). Accepted international credits could be used in the ETS phase.
  • The 2020 emissions reduction target would be set prior to the ETS commencement.
  • Complementary measures will be reviewed.  

Details are yet to be released of:

  • industry, community and household assistance, and
  • support for low emissions technology and innovation.

It is expected that industry assistance will be no more than under the proposed CPRS.

Implementation of these plans will require further negotiation. The Greens are expected to require strong emissions reductions and less compensation. The Coalition will likely continue to oppose.

Will it happen?

The Greens’ backing means Senate support is likely (where the Senate was the CPRS’ stumbling block). Independents Rob Oakeshott and Tony Windsor joined the government and Greens for today’s announcement. They are yet to endorse the proposal but supported its release to enable discussion.

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 will be 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’.3

If you are going through an approval process, any carbon offset proposals or negotiations should be revisited.