Carbon Pricing Mechanism

Carbon pricing covered:
electricity generation, stationary energy, landfills, waste water, industrial processes and fugitive emissions

Carbon pricing did not cover:
agriculture, transport fuels, synthetic greenhouse gases, decommissioned underground coal mines, legacy emissions from landfills, combustion of biomass, biofuels, and biogas.

Exclusions fell into 2 categories

• Emissions that were not covered by the mechanism but were covered by an equivalent emissions price:
  • Non transport or off road use of petroleum, excl petroleum used by agriculture, forestry, and fishing
  • Synthetic GHGs hydrofluorocarbons and sulphur hexafluoride)
  • Aviation fuel
• Emissions without a carbon price or equivalent:
  • Petroleum fuels used by cars and light commercial vehicles
  • Petroleum fuels used by agriculture, forestry, and fishing
  • Small uses of coal
  • Decommissioned mines
  • Waste deposited before July 1, 2012
  • Sub threshold facilities (those emitting less than 25,000 tonnes annually)

Fixed vs Flexible Price period

• Fixed Price period:
  • During this period, the government issued an unlimited number of carbon units at the specified price
• Flexible Price period:
  • carbon pollution cap was to limit the total carbon units that the government can issue (by auction or free distribution) each year

Industry assistance

• ‘assistance’ provided to industries for certain ‘emissions intensive trade exposed’ (EITE) activities
  • free carbon permits worth up to 94.5% or 66% of the average carbon cost in the first year
• assistance level reduced by 1.3% each year and was to be guaranteed until 2017
  • provided industry ~6 years notice top reduce emissions

Assistance provided to prevent ‘Carbon leakage’

• When some manufacturers incur carbon cost & some do not
  • (competing in the same)
• manufacturer incurring a carbon cost is penalised
  • the market price is set by a lower cost provider who does not incur a carbon price
• result is “carbon leakage”
  • manufacturer with embedded carbon cost struggles to compete
  • market share gained by producer not subject to carbon price
    • Manufacturer with embedded carbon cost may move manufacturing to new location where there is no carbon cost and import products instead of manufacturing locally
• emissions ‘leak’ from the country/economy without a carbon price
  • no change in consumption
  • only change in location of emissions
  • jobs / profit sent elsewhere