On Sunday the Government released the long awaited details of its plan to act on climate change by putting a price on carbon pollution.
Here are ten important details about the scheme, more detail after the jump
1. A price on pollution of $23 a ton
2. Pollution cuts of at least 5% by 2020 and 80% by 2050
3. Scheme starts as a tax but moves to an emissions trading scheme in 2015
4. 500 biggest polluters will pay for their carbon pollution
5. Price rises will be modest - expected to raise average prices by 0.7%
6. Compensation for households will see most better or no worse off
7. Tackling climate change now is cheaper and easier than waiting or doing nothing
8. Over 10 billion dollars for renewable energy
9. Money for storing carbon in land, improving biodiversity, closing down the dirtiest coal plants and helping industry be more efficient.
10. Vulnerable industries who are trade exposed get generous assistance
1. Carbon price of $23 a ton
Up till now it's be free to pollute the air with carbon dioxide and other greenhouse gasses, this is going to change and the countries biggest polluters will have to pay to pollute
This price is very similar to that recommended to Prof Ross Garnaut and quite similar to the expected price under K Rudd's emissions trading scheme (ETS)
The price will increase at 2.5% a year on top of inflation (about $1.15 after the first year)
2. Aims for a minimum cut in pollution of 5% 2020 and 80% by 2050 (below pollution levels in the year 2000). The 2020 target is quite low but by switching to a emissions trading scheme where the government caps and then lowers the amount of pollution that can be emitted this could certainly be ramped up.
The 80% cut in pollution by 2050 is a big improvement on the 60% cut in Rudd's ETS but will need to be strengthened further if Australia is to play its part in keeping global warming under 2 degrees.
3. Carbon price scheme switches from a tax to an ETS in 2015
Again this is what the Garnaut review recommended, fixing the price at the start of the scheme will provide some certainty for business as everyone gets used to paying for pollution.
The ETS will have a "price floor" of $15 (ie: the price won't be able to drop below this and this will provide extra certainty for investors).
4. The carbon tax (and ETS) will be levied at the 500 biggest polluters.
They will then have an incentive reduce their emissions to reduce their "tax" bill. This will have a big effect on investment decisions especially when deciding on new electricity generation.
Petrol is excluded from the scheme so the carbon price is not levied at households.
5. Price rises are predicted to be modest - prices will rise 0.7% over the whole economy in 2012/2013
Because polluters will pay more, some will pass on these costs to their customers and there will be a initial jump in prices. However the rises won't actually be that large, much smaller than when GST was introduced for example. E.g. The government estimate an 80c a week rise in food prices
Price rises for households are estimated to be $9.90/week on average, however the average compensation for households will be $10.10/week
6. Most people will get compensation and be no worse off
The tax free threshold will be tripled to $18 200 a year
Pensioners, self-funded retirees, students etc will also receive compensation through increased benefits
Many experts like these tax cuts, basically we are going to tax something we don't like (pollution) and reduce the taxes on something we do like (work).
Lower income households are expected to be about 20% better off (i.e. the compensation they receive will be 20% more than the increase in expenses). This aims to ensure that the costs of cutting pollution don't fall on those who can least afford it.
Anyone who uses their compensation money to cut their electricity bill through energy efficiency or who choose to buy low-pollution products, will end up even better off.
7. Treasury modeling shows that the earlier you start tackling climate change the cheaper and easier it is
This has been the key message of economic modeling studies from Stern in 2006 for the UK and global economies, through to the Garnaut review and Australia's Productivity Commission and Treasury studies this year. They find it is cheaper to prevent climate change than deal with the negative effects and that the earlier you get start the cheaper it is.
Jobs and economic growth will continue to grow. In the long term economic growth will only be 0.1% lower per year than it otherwise would have been.
8. Funding for renewable energy
The renewable energy fund is worth over 10 billion dollars.
~10 billion dollars in new money over 5 years, to be managed by the new 'Clean Energy Finance Corporation'
This will be similar to a "Green bank" in that it will provide funding and services such as loan guarantees for clean energy projects. Of this 10 billion, $5 billion over 5 years is guaranteed to go only to renewable energy, and renewable projects can tender for the further $5 billion stream. No 'clean coal' nor CCS projects will be eligible for Clean Energy Finance.
~3.2 billion in existing money for funding of R&D through to deployment. This integrates the existing, fragmented funding into a coherent program which will be overseen by a new independent body, the Australian Renewable Energy Agency (ARENA).
All together this will help to get renewable energy plants built. A big positive and certainly much better than what was in Rudd's ETS.
9. Money for other complementary measures including:
Carbon farming (sequestering carbon in trees and the land), a new $1 billion Biodiversity fund for revegetation and habitat protection.
Money to retire 2000MW of the dirtiest coal fired power plants by 2020.
Around 1.2 billion dollars for industry to make themselves more energy efficient. This will help to modernise industry making them more competitive and also reduce their emissions.
10. Emissions intensive and trade exposed industries will get 94.5% compensation.
This will decrease slowly at 1.3% a year, but is expected to last for 5 years (not 10 as in the CPRS).
There is also extra money for some areas like the steel industry, and transitional programs for workers in coal mines.
11. Offsets - will be allowed (ok so we said ten but this one's important too)
International offsets will be allowed from 2015 on, up to a maximum of 50% of permits for any company or entity.
This level of offsets is considerably less than in Rudd's ETS and ensures more emissions reductions occur at home here in Oz.
Authors' note: In my opinion, this is probably about the best scheme that could be achieved when you needed The Greens and Tony Windsor to agree and some parts are better than I expected. I give it a pass mark.
Areas where we need to move next include:
– phase out of fossil fuel subsidies worth billions a year, and re-directing this funding to support the transition to a sustainable economy
– national plan to improve energy efficiency at the household and small business level
– more action to address transport. If we are going to leave petrol out of the scheme then we should look at other mechanisms to decrease transport emissions like fuel efficiency standards and support for electric vehicles.