Carbon pricing in Australia
A carbon pricing scheme in Australia was introduced by the Gillard Labor minority government in 2011 as the Clean Energy Act 2011 which came into effect on 1 July 2012. Emissions from companies subject to the scheme dropped 7% upon its introduction. As a result of being in place for such a short time, and because the then Opposition leader Tony Abbott indicated he intended to repeal "the carbon tax", regulated organizations responded rather weakly, with very few investments in emissions reductions being made. The scheme was repealed on 17 July 2014, backdated to 1 July 2014. In its place the Abbott government set up the Emission Reduction Fund in December 2014. Emissions thereafter resumed their growth evident before the tax.
The carbon price was part of a broad energy reform package called the Clean Energy Futures Plan, which aimed to reduce greenhouse gas emissions in Australia by 5% below 2000 levels by 2020 and 80% below 2000 levels by 2050. Although Australia does not levy a direct carbon price, the plan set out to achieve these targets by encouraging Australia's largest emitters to increase energy efficiency and invest in sustainable energy. The scheme was administered by the Clean Energy Regulator. Compensation to industry and households was funded by the revenue derived from the charge. The scheme required entities which emit over 25,000 tonnes of carbon dioxide equivalent greenhouse gases per year, and which were not in the transport or agriculture sectors, to obtain emissions permits, called carbon units. Carbon units were either purchased from the government or issued free as part of industry assistance measures. As part of the scheme, personal income tax was reduced for those earning less than per year and the tax-free threshold was increased from to. Initially the price of a permit for one tonne of carbon was fixed at for the 2012–13 financial year, with unlimited permits being available from the government. The fixed price rose to for 2013–14.
The government had announced that the scheme was part of a transition to an emissions trading scheme in 2014–15, where the available permits will be limited in line with a pollution cap. The scheme primarily applied to electricity generators and industrial sectors. It did not apply to road transport and agriculture. The Department of Climate Change and Energy Efficiency stated that in June 2013 only 260 entities were subject to the scheme, of which approximately 185 were liable to pay for carbon units. Domestic aviation did not face the carbon price scheme, but was subject to an additional fuel excise levy of approximately 6 cents per liter.
In February 2012, the Sydney Morning Herald reported that Clean Energy Future carbon price scheme had not deterred new investment in the coal industry, as spending on exploration had increased by 62% in 2010–2011, more than any other mineral commodity. The government agency Geoscience Australia reported that investment in coal prospecting reached $520 million in 2010–2011. Falls in carbon emissions were observed following implementation of this policy. It was noted that emissions from sectors subject to the pricing mechanism were
1.0% lower and nine months after the introduction of the pricing scheme, Australia's carbon dioxide emissions from electricity generation had fallen to a 10-year low, with coal generation down 11% from 2008 to 2009. However, attribution of these trends to carbon pricing have been disputed, with Frontier Economics claiming trends are largely explained by factors unrelated to the carbon tax. Electricity demand had been falling and in 2012 was at the lowest level seen since 2006 in the National Electricity Market.
History
In 2003, the Howard Government was close to creating an emissions trading scheme, but business lobbying caused the government to stop considering it in September of that year. In October 2006 the Stern Review on the effect of climate change on the world's economy was released for the British government. This report recommended a range of measures including ecotaxes to address the market failure represented by climate change with the least amount of economic and social disruption. In response to this report and subsequent pressure from the Kim Beazley led Labor opposition, in December 2006 the Howard government established the Prime Ministerial Task Group on Emissions Trading, chaired by Peter Shergold, to advise on the implementation of an emissions trading scheme in Australia. In opposition, Kevin Rudd called for a cut to greenhouse gas emissions by 60% before 2050. Both the incumbent Howard government and the Rudd Labor opposition promised to implement an emissions trading scheme before the 2007 federal election. Following the release of the final Shergold report, the Howard government committed to introduce an ETS in June 2007.Going into the 2007 federal election, the Labor opposition party presented itself as a "pro-climate" alternative to the Government, with Kevin Rudd, who had by then deposed Beazley as leader, famously describing climate change as "the great moral challenge of our generation". Labor differentiated itself from the government by promising an ETS with an earlier start date of 2010 rather than the 2012 timeframe advocated by Howard. It also promised ratification of the Kyoto Protocol, investment in clean coal and renewable energy, and slightly more aggressive targets for renewable energy.
Labor won the election on 24 November 2007, and on 3 December 2007 the Rudd government signed the ratification of the Kyoto Protocol at the 2007 United Nations Climate Change Conference. By ratifying the Kyoto Protocol, Australia committed to keeping emissions to no more than 108% of its 1990 emissions level by 2012. Australia's ratification came into effect on 11 March 2008.
The Rudd government began negotiating the passage of an ETS through the Parliament. The Opposition led by Brendan Nelson called for the vote on the government's ETS be delayed until after the United Nations climate change summit in Copenhagen in December 2009. Prime Minister Rudd said in response that it would be "an act of absolute political cowardice, an absolute failure of leadership not to act on climate change until other nations had done so" and the government pursued the early introduction of the Scheme.
On 16 July 2008, the Rudd government released a green paper for its Carbon Pollution Reduction Scheme , outlining the intended design of the scheme. The CPRS was criticised by those who were both for and against action to mitigate climate change. Environmental lobby groups protested that the emissions reductions targets were too low, and that the level of assistance to polluters was too high. Industry and business lobby groups however argued for more permits and assistance to offset the economic impacts of the scheme on many enterprises, particularly during the 2008 financial crisis. Malcolm Turnbull became the new Liberal Opposition Leader on 18 September 2008. On 30 September 2008, the Garnaut Climate Change Review, commissioned in April 2007 by Rudd when he was leader of the Opposition, released its final report. Garnaut recommended a price between $20 and $30 per tonne of carbon dioxide equivalent with a rise of 4% each year. A more detailed white paper on the CPRS was released on 15 December 2008.
Unable to secure the support of the crossbench for their preferred model, the government entered negotiations with Turnbull, and in the lead up to the Copenhagen Conference, presented an amended CPRS scheme, with the support of Turnbull. The Turnbull-led Opposition supported the CPRS scheme in principle, although at times over 2009 they indicated disagreement with various details including the timing of implementation of the scheme, timing of the vote on the relevant legislation and on the level of assistance to be provided to polluting industries. The Opposition was able to negotiate greater compensation for polluters affected by the scheme in November 2009.
Shortly before the Senate was due to vote on the carbon bills, on 1 December 2009 Tony Abbott replaced Turnbull as leader of the Liberal Party. Abbott immediately called a secret ballot on support for the ETS among coalition MPs, which was overwhelmingly rejected. The Coalition then withdrew their support for the carbon pricing policy and joined the Greens and Independents in voting against the relevant legislation in the Parliament of Australia on 2 December 2009. As the Rudd government required the support of either the Coalition or the Greens to secure passage of the bill, it was defeated in the Senate. Abbott described Labor's ETS plan as a 'Great big tax on everything'.
Abbott announced a new Coalition policy on carbon emission reduction in February 2010, which committed the Coalition to a 5% reduction in emissions by 2020. Abbott proposed the creation of an 'emissions reduction fund' to provide 'direct' incentives to industry and farmers to reduce carbon emissions. In April 2010, Rudd deferred attempts to advance the scheme to at least 2013, opting not to present the legislation to the Senate a second time, creating a trigger for a double dissolution election. In June 2010, Julia Gillard replaced Rudd as leader of the Labor Party and became prime minister. Factional leader and key Gillard supporter Bill Shorten said that the sudden announcement of change of policy on the ETS was a factor that had contributed to a collapse in support for Rudd's leadership.
Shortly afterwards Gillard called a federal election for 21 August 2010. During the election campaign Gillard stated that she supported a price on carbon emissions and that she would prosecute the case for action for as long as she needed to win community support. However, she also indicated that she would not introduce carbon pricing until there was a sufficient consensus on the issue, that any carbon price legislated would not come into effect until after the 2013 election, and she specifically ruled out the introduction of a "carbon tax".
The result of the election left Australia with its first hung parliament in 70 years. To form a majority in the House of Representatives both of the major parties needed to acquire the support of cross-benchers, including the Greens. After two weeks of negotiations Gillard had enough support to gain a majority including the support of the Greens and their single MP in the House, Adam Bandt. Gillard, therefore, remained prime minister and Abbott remained in Opposition. One of the conditions for Greens support was that the formation of a cross-party parliamentary committee to determine policy on climate change. Gillard honoured that agreement and on 27 September 2010 the Multi-Party Climate Change Committee was formed, its terms of reference including that it was to report to Cabinet on ways to introduce a carbon price. The MPCCC agreed on the introduction of a fixed carbon price commencing 1 July 2012, transitioning to a flexible-price cap-and-trade ETS on 1 July 2015. Initially the price of permits is fixed and the quantity unlimited i.e. there is no cap; the scheme thus functions similarly, and is popularly referred to as a tax.
In February 2011, the government proposed the Clean Energy Bill, which the opposition claimed to be a broken election promise. The Liberal Party vowed to overturn the bill if it was elected.
The Gillard government had asked the Productivity Commission to report on the steps taken by eight major economies to address climate change. In June 2011, the report found that more than 1,000 climate policies were already enacted across the globe. It also supported a market-based carbon price as being the most cost-effective way to reduce emissions. The report's findings were one of the major reasons that support for the carbon tax was provided by independent Tony Windsor. Windsor made it clear that he would not support the clean energy legislation if it included a carbon tax on transport fuels. He did not want to penalise people who lived in rural areas, where there was no public transport as an alternative to private vehicles.
The Clean Energy Plan was released on 10 July 2011. The Clean Energy Bill 2011 passed the Australian House of Representatives in October 2011 and the Australian Senate in November 2011 and was thus brought into law.
On 1 July 2012 the Australian Federal government introduced a carbon price scheme. To offset the impact of the tax on some sectors of society, the government reduced income tax and increased pensions and welfare payments slightly to cover expected price increases, as well as introducing compensation for some affected industries. On 17 July 2014, a report by the Australian National University estimated that the Australian scheme had cut carbon emissions by as much as 17 million tonnes, the biggest annual reduction in greenhouse gas emissions in 24 years of records in 2013 as the carbon tax helped drive a large drop in pollution from the electricity sector.
On 17 July 2014, the Abbott government passed repeal legislation through the Senate to abolish the carbon pricing scheme. In its place the government set up the Emission Reduction Fund, paid by taxpayers from consolidated revenue, which according to RepuTex, a markets consultancy, estimated the government's main climate policy may only meet a third of the emissions reduction challenge if Australia is to cut by 5% of 2000 levels by 2020.