Citola Blog
Australia to set Carbon Price at $23 per tCO2
The Australian Prime Minister Julia Gillard, Deputy Prime Minister Wayne Swan and the Minister for Climate Change and Energy Efficiency Greg Combet have today outlined a policy to put a price on carbon pollution for Australia to “seize its clean energy future.”
The carbon price will be AU$23 for each tonne of pollution (i.e. AU $23 per tCO2) beginning on 1 July 2012. The price will rise by 2.5% a year during a three-year fixed price period until 1 July 2015. The carbon price mechanism will then transition to an emissions trading scheme where the price will be determined by the market.
So how does it work? As Prime Minister Gillard outlined in a speech today in Canberra:
“Well, in its essence it’s incredibly simple: we will require around 500 big polluters to pay a price for every tonne of carbon pollution they put into our atmosphere.
At the moment, those big polluters can release that pollution into our atmosphere for free. We will require them to pay a price per tonne. The price will be $23 at the start of the scheme.
Because something they used to do for free now costs them money, they will innovate, they will change, they will find a way of reducing that bill and in doing so they will reduce their carbon pollution.
This all adds up to a reduction in carbon pollution of 160 million tonnes by 2020. That’s the equivalent of taking 45 million cars off the road. It’s a big difference in carbon pollution, achieved by requiring polluters to pay the price.
The mechanism will be a fixed-price mechanism for three years. That works effectively like a tax; it means the government set the price. At the end of the three year fixed price period, the period that works effectively like a tax, we will move to an emissions trading scheme, where the amount of pollution our economy can create will be capped and a market mechanism will set the price.”
When asked by a journalist about legislating the carbon price policy and how this scheme compares to the previous government climate policy, the CPRS, the PM stated:
“In terms of differences between the two schemes, first and foremost the CPRS ran into a brick wall. I’ve knocked the brick wall down. This is going through, this done - full stop.”
The implications of this policy are large for Australia as it is an economic reform that will affect the fundamental drivers of the market economy and put the country at the forefront globally of transitioning to a clean-energy future. A price on carbon pollution is the economic driver and incentive to encourage investment into new clean technologies and positive land-use change. It is complemented by the Carbon Farming Initiative legislation introduced to parliament in June that provides the framework and commercial incentive for foresters, landowners and farmers to undertake carbon sequestration programs.
"We have the right package. It will be in the parliament and legislated later this year," Gillard said. "We are going to get this done. We are going to create a clean energy future."
More infomation can be seen at: http://www.cleanenergyfuture.gov.au/
The full transcript of the statements by the PM, Treasure and Minister can be seen below:
PM: I’m joined today by the Deputy Prime Minister, Wayne Swan, and by the Minister for Climate Change, Greg Combet, and I’m here today to announce how Australia will seize its clean energy future. My focus will be on explaining how we will build that clean energy future, but I want to talk about two things that have brought us to this moment today.
First, the avalanche of science that tells us our climate is changing. The science is in. We know that our planet is warming. We know that that warming is changing our climate: causing sea levels to rise; meaning that there will be more days of extreme heat; meaning that we are at risk of more bushfires and droughts; meaning that great icons like the Great Barrier Reef are at risk.
So we are here today because the science is in. The science is clear - our planet is warming. That warming is caused by carbon pollution, by human activity, and we need to cut carbon pollution.
The second thing that’s brought us to this moment has been more than a decade of debate. Another female leader, Margaret Thatcher, warned the planet about the effects of climate change. John Howard, when he was Prime Minister, determined to put a price on carbon pollution.
This has been a difficult debate that has brought us to this moment and there have been false starts and there have been missteps, but we are here now and now is the time to get this done. As a nation we need to put a price on carbon and create a clean energy future.
So, how will this all work? I know that there are many Australians who think to themselves ‘This is really complicated. Will I ever understand how carbon pricing works?’ Well, in its essence it’s incredibly simple: we will require around 500 big polluters to pay a price for every tonne of carbon pollution they put into our atmosphere.
At the moment, those big polluters can release that pollution into our atmosphere for free. We will require them to pay a price per tonne. The price will be $23 at the start of the scheme.
Because something they used to do for free now costs them money, they will innovate, they will change, they will find a way of reducing that bill and in doing so they will reduce their carbon pollution.
This all adds up to a reduction in carbon pollution of 160 million tonnes by 2020. That’s the equivalent of taking 45 million cars off the road. It’s a big difference in carbon pollution, achieved by requiring polluters to pay the price.
The mechanism will be a fixed-price mechanism for three years. That works effectively like a tax; it means the government set the price. At the end of the three year fixed price period, the period that works effectively like a tax, we will move to an emissions trading scheme, where the amount of pollution our economy can create will be capped and a market mechanism will set the price.
Now, that’s the essence of pricing carbon. Of course there are other effects that we need to deal with in this scheme. First and foremost some of the costs that will be incurred by the businesses as they pay their price for carbon will be passed through to households. So, we will use more than 50 per cent of the money paid by big polluters to provide assistance to households on the form of tax cuts and payment increases.
Nine out of ten households will get a tax cut, or a benefit increase, or a combination of the both. What that means is around 6 million households will receive enough through a tax cut or payment increase to enable them to meet the average cost of carbon pricing on them and their family. That is, to fully meet the expected impact of carbon pricing on them and their family, as big polluters pass through some of the costs for things that families use every day.
4 million Australian households will get a buffer, a 20 per cent buffer. This is pitched at lower-income Australians and that’s because we understand that for low-income Australians their budgets are tight and we want to provide them with the benefit of that buffer as we move to pricing carbon and they see some flow-through price impacts.
All in all, the price impact is the equivalent of 0.7 per cent of CPI - that is, less than 1 per cent of CPI. The modelling to give us that figure has been done by the same people who did the modelling for the GST. They were right when they modelled then and they have provided the modelling for this package.
We have determined, in providing tax cuts to Australian families, that we will also reform the tax system. As I believe is well known, as Prime Minister I have put a strong emphasis on increasing workforce participation. I believe in the benefits and dignity of work. I believe in creating jobs. I believe in getting more people into our workforce so that they can enjoy the benefits that come from working - not just the financial benefits, but the sense of purpose that comes from having a job.
That’s why the mechanism we have used to provide tax cuts is through increasing the tax-free threshold. It will go from $6,000 per year to $18,200 a year. By using that mechanism, what we are doing is creating better incentives for people to participate in work, particularly people who are making a journey from welfare to work, and particularly second-income earners in households who may be returning to work on a casual or part-time basis.
This is an important tax reform. I want us to have a clean energy future. I want us, as a nation, to have higher workforce participation. We, in this package, are achieving both.
Then, of course, as a result of this package, we also have to work to support Australian jobs. We want to work with businesses and industries as they make the transition that carbon pricing will bring, to a clean energy economy.
That’s why in this package you are seeing support for important industries, like the coal industry, like the steel industry, like manufacturing, like many of our businesses that generate high levels of carbon pollution but trade internationally and effectively take the world price for what they produce.
In this package, clearly today we are focussing on explaining the way that carbon pricing works. Carbon pricing is the foundation stone of this package, but this package has three important additional elements.
It’s got a focus on energy efficiency. It’s got a focus on renewable energy. These are also important ways of us tackling climate change. And it’s got an important focus on the land sector.
Out of all of those, today I want to particularly highlight the huge investments in renewable energy that this package brings - billions of dollars of new resources to help build that clean energy future for Australia.
Now, I understand, standing here as Prime Minister, this is a big day in Canberra. A lot of people in the room - it’s a bit day in Canberra. It’s a big day as we transition our nation to a clean energy future.
But I also understand it’s Sunday and right around the country Australian families are doing what families do on Sunday – hopefully getting the benefit of a little bit of rest and respite and some family time, and for many of them, they will be sitting there thinking ‘what does this mean for me?’
Well, I want Australian families to understand what it will mean for them. Information is available to them through our cleanenergyfuture.gov.au website. I want them to understand we are seizing a clean energy future: we will cut carbon pollution; we will be tackling climate change; we will be putting a price on carbon pollution that our biggest polluters pay.
Standing here, as Prime Minster, I understand that this has been a long, complicated and at sometimes a very difficult debate for Australians to follow and to listen to. My message to Australians today is: we are now moving from the days of words to deeds.
We have the right package. It will be in the Parliament and legislated later this year. We are going to get this done. We are going to create a clean energy future.
I’ll turn now to Minister Combet for some comments, to be followed by the Treasurer.
MINISTER COMBET: Thank you very much Prime Minister. And as the Prime Minister was pointing out there are four key elements to our plan for a clean energy future that we are announcing today. Firstly, the carbon pricing mechanism, secondly the support for renewable energy and clean energy in the future, and thirdly the support for energy efficiency, and finally the support that the package offers for the storage of carbon in the landscape. All of these are important elements of the plan released today that will cut pollution in our economy. It will drive investment in clean energy in the future whilst at the same time providing important assistance for households and supporting jobs.
I’d like to spend a little bit of time explaining a bit further how the carbon price mechanism itself would work. We all know that the world is releasing too much pollution into the atmosphere and it is contributing to climate change. The problem now, as the Prime Minister indicated, is that it is free of charge for large industrial facilities to put carbon pollution into the atmosphere.
There is no incentive effectively to cut pollution and to innovate to produce things more efficiently.
That means at the end of the day that the whole of society bears the economic and environmental cost of climate change. So the Government will put a price tag on the pollution produced by around 500 of the largest polluters in our economy.
A carbon price then means that those businesses will pay a price for each tonne of pollution that they release into the atmosphere and it will create an incentive to cut pollution and to innovate. If a business reduces their pollution they won’t pay as much and that’s how the carbon price drives innovation. It does encourage businesses to adopt new technologies which will allow them to produce the same goods and services while generating less pollution.
It’s important to emphasise as we have been in recent months that this must be done at the cheapest cost to our economy and that’s what a market-based approach achieves. Letting the market provide the price signal to cut pollution, through a carbon price, means that the Government does not prescribe to individual businesses or industries how they are going to reduce pollution. A market-based approach is the cheapest in our economy, it is the most effective and it is the most efficient way to deal with this issue.
The carbon price will start next year on 1 July. Around 60 per cent of Australia’s pollution will be covered by the carbon price. It will include pollution from electricity generation, stationary energy, some business transport, waste, industrial processes and fugitive emissions.
As the Prime Minister has indicated, the price will be fixed during the first three years and then transition to a fully flexible emissions trading scheme. Businesses covered by the scheme will need to buy and surrender to the Government a permit for each tonne of pollution they produce. As the Prime Minister indicated, the price will start at $23 per tonne and rise slightly over the fixed-price period.
From 1 July 2015 when we move to an emissions trading scheme, the price will be set by the market and the number of permits issued by the Government each year will be capped – and that means there will be a cap on pollution each year.
All revenue, as we have committed, will be used to assist households, to support jobs and competitiveness and build our new clean energy future. In fact, we’re expecting that this will drive 100 billion dollars’ worth of investment in renewable energy to 2050, and as a result we will be able to reduce our net national emissions to 80 per cent below their year 2000 levels by 2050.
The carbon price mechanism will also be accompanied by the establishment of a new body, the Climate Change Authority. The Authority will provide expert advice on key aspects of the Carbon Price Mechanism and the Government’s other climate change policies. However the Government and the Parliament will still retain the final authority for setting the pollution caps and these decisions will of course be informed by the advice of the Climate Change Authority.
Importantly, this package contains strong support for jobs. For a Labor Government, this is always an important priority. To support jobs and industries that face international competition and yet produce a lot of pollution, the Government will establish a Jobs and Competitiveness Program. It will be a program of $9.2 billion of support over the first three years of the scheme and be specifically designed to support the jobs in those important industries like steel and aluminium smelting and many others that are both emissions-intensive and trade-exposed industries.
The package announced today also announces some additional measures to support the steel industry which is feeling some severe pressures at this time due to the high value of the dollar, high commodity prices and patchy local demand for steel. Recognising this, the Government is announcing a four-year Steel Transformation Plan worth $300 million over that period.
The Government has also been very concerned to ensure that the jobs in the most effective coal mines will also receive strong support and there is in the package today $1.3 billion worth of support for the most affected coal mines and the people who work within them.
The electricity sector of course is also fundamental when considering the pricing of carbon. The Government will help transform the electricity generating sector while securing the energy supplies for Australian households and businesses.
We will seek to negotiate the closure of up to 2000 megawatts of highly-polluting coal-fired electricity generating capacity. This will make room for investment in new cleaner electricity generation capacity.
The Government will also provide assistance to some electricity generators to underpin energy security in our market.
Most of the manufacturing sector will see small cost impacts due to the carbon price. Many of the manufacturers in this country will be in a position to receive support under the Jobs and Competitiveness Program. For those that aren’t, there are additional measures that have been announced today including a new Clean Technology Program that will provide over $1 billion to help manufacturers and with co-contributions from the manufacturers themselves we’re expecting that that will result in up to $4 billion in new investment in saving energy and reducing pollution in the manufacturing sector
In summary, this is a package that will create the right incentives to clean up the pollution in our economy over time. Households will be looked after especially low- to middle-income households.
The Government will support jobs and competitiveness in Australian industry and the electricity generation sector will be assisted in a long-term transition to cleaner energy. It’s an important economic reform in the Labor tradition.
TREASURER: Thank you very much, Greg. It’s great to be here with my colleagues today to talk about what is a very important environmental reform but also a fundamental economic reform. We simply cannot allow our country to become a technological backwater. We’ve got to price carbon pollution to drive the investment in innovation, and to provide the incentive for energy efficiency, and to develop renewable energy – failing to do so means that we would be passing on lower living standards to our children and to our grandchildren. So this is one of those fundamental reforms that we require to our economy to ensure that we pass on a better world and a stronger economy to our children and to our grandchildren.
Australia can't power ahead without clean energy. To be a first rate economy in the 21st century you must be driven by clean energy.
I do want to say a few things about the Treasury modelling, and I certainly look forward to all of your questions about that. But essentially the Treasury modelling shows that the economic cost of pricing carbon is small and it’s small if we act now. The longer we delay the greater the cost and the more difficult the transition. So under a carbon price we can see strong growth in the economy. We can see strong jobs growth. We can see strong growth in incomes. And we can do all of that while making deep cuts in carbon pollution.
Now what the modelling shows is that the economy will continue to grow with average growth in gross national income per capita of 1.1 per cent a year, only one tenth of a percentage point less than what it would be without carbon pricing. Average incomes will grow rising by around $9,000 per person by 2020 and of course jobs will continue to grow strongly with 1.6 million more jobs created by 2020. At the same time, we cut domestic emissions in half compared to what they would have otherwise been in 2050 and as Greg said before we will drive $100 billion of investment in renewable energy.
The introduction of a $23 carbon price will also lead to a small increase in the price level of 0.7 per cent in 2012-13. Now that’s a modest price increase from a scheme that applies to the 500 largest polluters. And of course in coming weeks, we’ll see all sorts of claims made about price impacts, about jobs impacts. What we have published here today is comprehensive modelling done by the most professional people in the business – the most professional people in the business who have been through these exercises before and have worked with the previous government to put in place modelling of this type. This Treasury modelling is important and I do urge you to spend some time looking at their conclusions because what it shows is that we can make the transition to a clean energy economy whilst we maintain strong growth, create jobs and look to the industries for the future. And of course in this regard the assistance packages are quite important. As the Prime Minister said before 9 out of 10 households will get assistance through tax cuts or extra payments or both. Almost $6 million households will get assistance that covers the average price impact from the carbon price. And over 4 million households will get assistance that is 20 per cent more than the average price impact, and of course there will be an increase in family payments and other payments of 1.7 per cent. For pensioners this will mean an extra $338 for single pensioners, up to $510 for pensioner couples combined and it means $110 per year for Family Tax Benefit Part A per the child. And of course it does mean tax cuts for everyone below $80,000 with most getting a tax cut of at least $300.
So these are not just tax cuts, they are also tax reform. Over 1 million extra people will be removed from the tax system. Over 1 million extra people will no longer have tax withheld from their pay packet and therefore they will not have to lodge a tax return. That is tax reform, fundamental tax reform and the tax cuts will be permanent. The extra payments will be permanent. And of course assistance will grow over time. Now the Government has been able to deliver substantial reforms and we remain on track to bring the Budget to surplus. The reforms have a net cost of $4.3 billion over the next four years but the bulk of this $2.9 billion is in the first year as you would expect with a reform of this magnitude. Now once the scheme is up and running, the impacts are broadly budget neutral and have only a modest impact on Budget surpluses. So this is a very big economic reform for Australia. The type of reform we require so we can have a clean energy future, create jobs and lift living standards.
Thank you.
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