The proposed Carbon price and Carbon Trading Scheme

The proposed scheme

On 10 July 2011, the Government released a new Climate Change Plan with four key elements:

  • Introducing a carbon price and using revenue raised to assist households and businesses;
  • Promoting innovation and investment in renewable energy;
  • Encouraging energy efficiency; and
  • Creating opportunities in the land sector to cut pollution, improve productivity, sustainability and resilience.

Legislation is proposed to be introduced that would establish a carbon price by:

  • an emissions trading scheme (ETS) starting on 1 July 2012; and
  • adjustments to fuel tax and synthetic gas arrangements

A fixed carbon price

Around two thirds of Australia’s emissions will face a carbon price. A carbon price will not apply to agricultural emissions, light on-road vehicles or on-site use of fuel by the agriculture, forestry and fisheries industries.

The Scheme commences with a three year fixed price period:

  • $23.00 in 2012-13
  • $24.15 in 2013-14
  • $25.40 in 2014-15

A flexible trading scheme in carbon units

From 1 July 2015, it is proposed that a fully flexible ETS will be operational with caps under the ETS set five years in advance and permits auctioned or freely allocated.

A price ceiling and price floor will apply for first 3 years of the flexible price period:

  • The price ceiling will be set $20 above expected international price in 2015/16; will rise by 5% real p.a.
  • The price floor set at $15 in 2015-16; will rise by 4% real p.a.

It is proposed that there will be unlimited banking and limited borrowing. International permits and domestic offsets will be allowed to be used for compliance.

Futures contracts on carbon units

ASX anticipates that it will be able to introduce a futures market for carbon units prior to the commencement of the fully tradeable ETS in order to help industry participants manage risk.

The introduction of a futures market in emission permits will:

  • Reduce transactions costs for participants in the market (the cost of buyers and sellers finding each other);
  • Provide forward price discovery and facilitate the transfer of risk (underpinning investment decision making); and
  • Minimise the potential for counter-party and settlement default (assisting the market’s credibility and providing security for market participants).

Additional information