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Australia's Carbon Pricing Mechanism

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Australia's Carbon Pricing Mechanism Climate Law 2 (2011) 583–603 583 DOI 10.3233/CL-2011-052 IOS Press Notes from the Field Australia’s carbon pricing mechanism Lisa Caripis, Jacqueline Peel, Lee Godden and Rodney J. Keenan* I. Introduction Australia’s response to climate change has been under discussion in national policy fora for more than two decades. A long-standing preference for market-based instruments has seen successive Australian governments consider the introduction of an emission trading scheme,1 but legal implementation has proved more difficult. Under the federal government led by Prime Minister John Howard (1996–2007), early policy discussions around the design of an ETS in the wake of the conclusion of the Kyoto Protocol subsided into obscurity with the Howard Government’s decision not to ratify the Protocol.2 The incoming Australian Prime Minister, Kevin Rudd, declared climate change to be the “moral challenge of our generation”,3 and promised swift national action on the problem through introduction of an ETS. The Rudd government ratified the Kyoto Protocol in December 2007 and initiated a complex policy process to consider options for design of an ETS. However, its Carbon Pollution Reduction Scheme (CPRS) failed to secure sufficient political support and it was ultimately shelved. Partly as a consequence of this, the government’s leadership changed to Prime Minister Julia Gillard. During the 2010 Australian federal election campaign, climate change was a peripheral issue, overwhelmed by economic concerns stemming from the global financial crisis. Prime Minister Gillard fatefully declared during the campaign that if elected she would not introduce a carbon ∗ The authors would like to acknowledge the funding support under Australian Research Council Discovery Project DP0987850, Responding to Climate Change: Australia’s Environmental Law and Regulatory Framework. 1 Lee Godden and Jacqueline Peel, Environmental Law: Scientific, Policy and Regulatory Dimensions (2010), 370-371. 2 See, e.g. the series of discussion papers published by the Australian Greenhouse Office (AGO) in 1999, National Emissions Trading: Establishing the Boundaries, Discussion Paper 1 (1999); National Emissions Trading: Issuing the Permits, Discussion Paper 2 (1999); National Emissions Trading: Crediting the Carbon, Discussion Paper 3, (1999); and National Emissions Trading: Designing the Market, Discussion Paper 4 (1999). 3 Kevin Rudd, Opening Remarks to the National Climate Change Summit (National Climate Change Summit, Canberra, 31 March 2007). 1878-6553/11/$27.50 © 2011 – IOS Press and the authors. All rights reserved 584 L. Caripis et al. / Australia’s carbon pricing mechanism tax.4 However, the actual election result—a hung parliament with neither of the major parties having a majority—saw the Labor party led by Gillard enter into a deal with the Greens Party and independent members in the Australian Parliament’s Lower House in order to form a government. The Greens insisted as a condition of their support that the government reconsider the need for national action on climate change, including a means for putting a price on carbon. This resulted in the establishment of the Multi-Party Climate Change Committee (MPCCC) as a negotiating forum for reaching agreement on a carbon pricing mechanism. In July 2011, the MPCCC released its Clean Energy Agreement, which was shortly followed by the Gillard government’s plan for Securing A Clean Energy Future.5 These instruments presented the basis for a new wide-ranging Australian climate change policy and legislative package that extends significantly beyond a mechanism to introduce a carbon price to include measures to support the development and deployment of renewable energy technology and improve energy efficiency. Draft legislation to implement the carbon pricing element of the Clean Energy package was released in July 2011, and, after a short period of consultation, was presented to the Australian Parliament in September 2011. With support from the Greens and independent members of Parliament, the Clean Energy legislation—consisting of 18 Acts in total—was passed on 12 October 2011 in the House of Representatives and by the Senate on 8 November 2011. The national carbon pricing mechanism established by the legislation will come into operation on 1 July 2012.6 It is intended to operate in conjunction with a carbon-credit scheme—the Carbon Farming Initiative (CFI)—which provides for the generation of Australian Carbon Credit Units (ACCU) from a range of agricultural and land-sector activities.7 Further federal legislation to implement other elements of the Clean Energy Agreement, for instance, measures for renewable energy promotion and financing, are due to be released at the beginning of 2012. This note provides an overview of the Australian carbon pricing mechanism, focusing on five key features of the scheme. These are: (1) the institutional innovations the scheme introduces, notably the establishment of a Climate Change Authority; (2) its measures for price containment (default cap-setting arrangements and a price “collar”); (3) the scope for the use of both domestic carbon credits (under the CFI) and international credits (generated under mechanisms such as the Kyoto Protocol’s Clean Development Mechanism) in order to offset emissions and meet liabilities under the Australian scheme; (4) the potential for linkage between the Australian carbon pricing mechanism and other emission trading schemes and carbon-credit arrangements operating in other countries and regions of the world; and (5) the compensation provided under the scheme to emission-intensive industries. 4 ABC Television, Climate Change drops of the radar in 2010 election, 7 : 30 Report, Australian Broadcasting Corporation, 29 July 2010 <http://www.abc.net.au/7.30/content/2010/s2968227.html>. 5 Commonwealth of Australia, Securing a Clean Energy Future: the Australian Government’s Plan (2011). 6 Clean Energy Act 2011, s. 4. 7 Carbon Credits (Carbon Farming Initiative) Act 2011..
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