Australia Carbon Policy
Current carbon policy in Australia is a carbon pricing mechanism, which is also referred to as a carbon tax. However, since its implementation on 1 July 2012, there have been a lot of discussion and criticism about its effectiveness and distribution effects. As a result, the government recently has introduced some legislation trying to repeal the carbon tax and commence other carbon policies. Uncertainty about the repeal, as well as discussion and negotiation among different parties will remain until 1 July 2014, when the new financial year will come and the continuity of the carbon tax will be decided. Before the decision is made, let us discuss whether the carbon price is to blame.
Policy Origin and Goal
Carbon policy was firstly put on the political table by Howard Government in December 2006, when an emissions trading scheme was advised. Nevertheless, due to the change of government and leadership, the emissions trading scheme was never implemented. Research and negotiation about the detail of the carbon policy continued. It was not until the end of 2011 when the Clean Energy Act 2011 passed the Lower House in October and the Upper House in November that a carbon pricing policy finally came onto the stage. The carbon price was effective on 1 July 2012.
Carbon Pricing is the major part of a broad energy reform package called the Clean Energy Act 2011, which aims to increase energy efficiency and encourage investment in clean energy in order to meet Australia’s long-term target of reducing Australia’s net greenhouse gas emissions to 5% below 2000 levels by 2020 and 80% below 2000 by 2050.
How It Works
The carbon pricing policy requires corporations which emit over 25,000 tonnes of carbon dioxide equivalent greenhouse gases per year to report on greenhouse gas emissions and pay a price for every tonne of carbon pollution or equivalent greenhouse gases that they emit. The price of a permit for one tonne of carbon was fixed at $23 for the 2012-2013 financial year, and $24.15 for 2013-2014 financial year, with unlimited permits available from the government. From 2015 or 2016, it will transition to a flexible market price under a “cap and trade” scheme. Due to the characters of the industry, agriculture and transport sectors are exempted from the carbon pricing. 75% of each company’s annual obligation must be paid by 15 June each year and the remaining 25% by the following 1 February2. According to the 2012-2013 annual report, 100% of the 377 liable entities have reported their emissions and 99.74% of their liability was acquitted on time. The government has collected $3,630 million in carbon price revenue receipts with accrued revenue of $1,417 million due for collection in 2013-2014.
In order to reduce the burden on entities that face high carbon costs and are constrained in their capacity to pass through costs in global markets, the Jobs and Competitiveness Program, a part of the carbon pricing scheme, will issue free carbon units to eligible applicants. In 2012-2013 financial year, the government has issued around 89 million free carbon units to 123 applications who are in the most emissions-intensive industries in the economy that are highly exposed to international competition3.
The carbon pricing mechanism is actually a carbon tax on heavy emission companies in industries such as electricity generation, stationary energy, landfills, wastewater and industrial processes. Some highlights of the policy are:
- Only cover big electricity generators and industrial processors
- Fixed price
- Unlimited permits
- Free permits available
Compared to the cap-and-trade model, the tax model is an easier way for government to monitor and control the implementation and for clients to comply with their obligations. Besides, it will lead to a better result in the uncertainty condition where the abatement costs change. If abatement costs increase, the quantity of abatement will decrease; if abatement costs decrease, the quantity of abatement will increase. The flexibility of the abatement quantity allows companies to better adjust to the variation of the economy and minimize their loss. However, the carbon tax is also controversial due to its coverage and distributional differences.
Coverage and Cost-effectiveness
The carbon pricing mechanism is expected to cover a selection of large business and industrial facilities, which account for approximately 60% of Australia’s carbon emissions. In reality, the total number of carbon units lodged for 2012-2013 was 283 million, which means the carbon tax covers just over 50% of Australia’s 552 million units. Since the carbon tax was only implemented last year and many large businesses were receiving free permits, there is not enough evidence to show that the tax has an effect on greenhouse gas emissions. The emissions has decreased in the past five years while the economy also slowed down because of the financial crisis, so it is difficult to tell the effectiveness of the carbon tax. It is possible that the carbon tax has very little effect on the emission.
Distribution Effects
Since the carbon tax was introduced, wholesale electricity prices have increased significantly, which has increased the cost of households, small business and agriculture. This evidence shows that carbon tax has increased the cost of electricity generators who can transferred most of the cost to consumers. If there is not enough subsidy to the victims, the tax system will retard economy development and generate inequality. Some people argue that the agriculture sector is losing competitiveness because of the high electricity prices due to carbon tax. It seems that the carbon tax is affecting everyone except the polluters. There are a lot of redistribution problems in the carbon pricing mechanism.
Changes
To conclude, the carbon pricing scheme was well implemented but there is uncertainty about its effectiveness and revenue redistribution. Obviously, there is some problems in the policy design. Hopefully, the carbon tax will be repealed and a more comprehensive and efficient carbon policy will be introduced later this year.
References
- Clean Energy Regulator Annual Report 2012-13, Australian Government Clean Energy Regulator
- Clean Energy Act 2011, Office of Parliamentary Counsel, Canberra