Australia’s carbon-reduction scheme

Highlights of the Australian government’s revised plan to cut carbon emissions by 5 percent by 2020 from 2000 levels:

CARBON SCHEME ARCHITECTURE

* Reduce carbon emissions by 159 million tonnes in 2020, to be achieved with a carbon tax from mid-2012 to mid-2015, followed by a carbon-trading system.

* Carbon tax to be at A$23 a tonne in 2012-13 (July-June), A$24.15 in 2013-14 and A$25.40 in 2014-15. No international carbon credits may be imported during this period.

* Carbon trading to begin in 2015-16, subject to three-year price ceiling of A$20 above the expected international price for 2015-16, rising by 5 percent in real terms for the next two years. There will be a price floor of A$15, rising by 4 percent per annum.

* In 2014, the government will set national emissions caps stretching out five years, consistent with a minimum overall reduction target of 5 percent by 2020 if parliament does not agree to increase that target in the meantime.

* International credits will be recognised from the start of trading in mid-2015, though their import will be limited to the equivalent of half of national emissions. Eligible credits listed as certified emission reductions (CERs) and emission reduction units (ERUs) — both excluding nuclear-generated credits among other exceptions — and removal units (RMUs).

* Scheme will cover about 60 percent of national emissions and will exclude farming and land sectors and will not flow through to the price of petrol at the pump, though rail and shipping firms, large trucking businesses and mines will pay the carbon tax indirectly on fuels such as diesel.

* Airlines will also pay the tax indirectly through a rise in an existing aviation fuel excise, though fuel used for international flights will be excluded. COMPENSATION & ECONOMIC IMPACTSEmissions-intensive, trade-exposed industries, such as aluminium and zinc refiners and steel-makers, will be given free permits covering 94.5 percent of average industry emissions for the first three years.Assistance worth A$300 million over four years to encourage investment and innovation in the Australian steel manufacturing industry. The assistance aims to help the sector become more efficient and sustainable. Steelmakers also face pressures from a high Australian dollar and rising commodity prices.The LNG industry to receive a supplementary allocation of permits to have 50 percent effective assistance.The government to negotiate the shut-down or part-closure of the most emissions intensive electricity generators before 2020, removing up to 2,000 megawatts of capacity. The government aims to replace older coal-fired power stations with cleaner generatorsTransitional assistance will also be offered to strongly affected generators through payments and permits. The government will also offer short-term loans to help finance purchase of permits and debt re-structuring.Carbon tax to boost consumer price index by 0.7 percent in 2012-13, then 0.2 percent in 2015-16.The government did not give revised economic growth forecasts but said the economy would continue to grow strongly through the implementation of both the tax and the later carbon-trading mechanism.

Reuters