The Australian government introduced a carbon pricing scheme or "carbon tax" through the Clean Energy Act 2011. The initiative was intended to control emissions in the country, as well as support the growth of the economy through the development of clean energy technologies. It was supervised by the newly-created Climate Change Authority and the Clean Energy Regulator. However, although it did achieve a reduction in the country's carbon emissions, the initiative faced significant challenges from the opposition and the public, as it resulted in increased energy prices for both households and industry and was finally repealed in 2014.
By 2009, it had become evident that climate change could have a significant adverse effect on Australia's natural environment. "The Australian Government produced the report, Climate Change Risks to Australia’s Coasts, followed in 2011 by an update to this report entitled Climate Change Risks to Coastal Buildings and Infrastructure." Its analysis indicated that Australia and the surrounding islands were at significant risk from the rising sea levels and potential storm surges that result from climate change, and these were also expected to impact coastal settlements, infrastructure and ecosystems.
The economic impact of a hotter and drier climate on the water supply infrastructure was likely to affect many areas, and water quality was at risk of declining significantly by 2050, due to rising salinity levels. Projections indicated that there would be a lower rainfall across South Australia. The higher temperatures, reduced rainfall, and more frequent extreme weather events were also likely to affect agricultural productivity, which was at additional risk from natural resource degradation, such as soil erosion and salinity. Since 1997 South Australia’s agricultural regions had experienced a marked decline in rainfall in the growing season (April to September), because season breaks were occurring later in the year and bringing less rain.
The Australian Capital Territory was likely to experience rising temperatures and a greater number of extremely hot days (above 35 degrees Celsius). Similarly, as the number of very hot days increased, the number of illnesses and heat-related deaths could more than double, with the elderly particularly vulnerable. "An estimated 14 people aged 65 and over die annually in Canberra from heat-related deaths (1997-1999 average). This could potentially rise to between 37 and 41 deaths a year by 2020, and 62 to 92 deaths by 2050."
Despite these environmental hazards, Australia was in 2012 the highest carbon emitter per head in the developed world. In order to reinforce its commitment to the climate challenge, the country became party to the Climate Change Convention and signed the Kyoto Protocol in 1998, ratifying it in 2007.
The Australian government introduced a carbon pricing scheme or "carbon tax" through the Clean Energy Act 2011, which came into effect on 1 July 2012. This was one of the initiatives to control emissions in the country, with the intention that polluters would pay a certain amount as tax per tonne of carbon that they released into the atmosphere.
Each year, selected entities were required to surrender one emissions unit for every tonne of carbon dioxide equivalent (CO2-e) they produced. In the first year (2012–13), carbon units could be purchased from the Clean Energy Regulator CER) for a fixed price of AUD23 per unit, and in 2013–14, carbon units could be purchased for AUD24.15 per unit. Those who did not surrender any or enough units, incurred a "unit shortfall charge". This charge created an incentive for companies to surrender extra units under the mechanism rather than pay a higher unit shortfall charge.
The carbon price of AUD23 per tonne was to apply to around 500 of the nation’s biggest polluters from 1 July 2012, and would transition to a cap-and-trade emissions trading scheme on 1 July 2015, linking Australia to international carbon markets. The law was intended to transform the Australian economy and provide support to low and middle income households as it cut pollution and grew the economy. As support and compensation mechanisms, the Act also included:
- Payment increases for pensioners and other government payment recipients, including eligible families, self-funded retirees, students and jobseekers to total around AUD7 billion in the period to 1 July 2015;
- A Jobs and Competitiveness Program would support emissions-intensive, trade-exposed industries and help them reduce their carbon and energy intensity;
- An AUD300 million Steel Transformation Plan would support the steel industry;
- An Energy Security Fund would provide assistance to the most emissions-intensive, coal-fired generators, support energy security and help transition to cleaner energy;
- An independent Climate Change Authority would be established to advise on pollution caps and climate change policies, taking into account Australia’s legislated reduction target of 80 percent below 2000 levels by 2050.
The public impact
The Act partially achieved its goals by reducing the country’s greenhouse gas emissions by 1.4 percent in the second year after the carbon price introduction – the largest recorded annual decrease in the previous decade.
However, it also caused an increase in electricity costs for households and industry, which led to business closures and other economic hardships for businesses:
- The tax reportedly increased the cost of electricity for the average family by 10 percent.
- Approximately 75,000 businesses paid the carbon tax directly or paid an equivalent penalty through changes to duties and rebates. They typically passed on part or all of this cost to their customers, smaller businesses and households, which experienced higher prices as a result of the tax. “The introduction of the carbon tax from 1 July 2012 (at AUD23 per tonne in 2012-13) was estimated by the Treasury to have increased the cost of living of households by around AUD9.90 per week on average, and increased the Consumer Price Index by 0.7 percent.”
- For businesses, the impact was more significant with “up to 30 percent of small and medium sized enterprises’ electricity bills stemmed from carbon pricing and other green schemes”. There were also reports of factory closures due to cost increases, with resulting job losses. One CEO at the time reported that their company had to pay AUD8 million a year for the carbon tax, which it negotiated down, but which still forced it to stop operations.
What did and didn't work
Stakeholder Engagement Fair
Environment legislation has a long history in Australia, with contrasting levels of support from the leading political parties. For example in 2008, the Labor government announced details of a Carbon Pollution Reduction Scheme to start by 2010, but this was voted down in parliament; in 2009, the government revised the scheme, but suffered resistance from industry groups like the Minerals Council – which ran a campaign against it. The Liberal party opposition leader, Tony Abbott, also strongly opposed the initiative.
In April 2010, Prime Minister Kevin Rudd put the emissions trading scheme on hold after accepting that the senate was unlikely to pass the legislation, but the same year he was replaced by Julia Gillard, who in February 2011 unveiled plans for a carbon tax from July 2012. When forming the new government, Prime Minister Gillard and the Australian Greens agreed to address the impact of climate change via a carbon price. The Greens were the most engaged stakeholders in the policy, representing the views of environmental groups and others who strongly supported action to control climate change.
A written agreement notes “that Australia must tackle climate change and that reducing carbon pollution by 2020 will require a price on carbon. Therefore the Parties agree to form a well-resourced Climate Change Committee which encompasses experts and representative ALP, Greens, independent and Coalition parliamentarians who are committed to tackling climate change and who acknowledge that reducing carbon pollution by 2020 will require a carbon price."
On September 2010, the government announced the establishment of the Multi-Party Climate Change Committee, which comprised the prime minister as chair, the deputy prime minister, the minister for climate change and energy efficiency, two representatives from the Australian Greens, one independent member of parliament and four expert advisers. The opposition were invited to nominate two members, but rejected the offer.
Political Commitment Fair
There was commitment for the carbon tax scheme from the Labor governments of 2007 to 2013, with the strongest external support coming from the Australian Greens. However, the Liberal party was opposed to it, and the Australian parliament as a whole expressed certain concerns regarding the potential of such a scheme. “It is likely that a carbon tax that is successful in reducing emissions will be set at far too high a level to be politically sustainable. This is because the activities on which a tax must be levied to reduce emissions (such as emissions from coal-fired power generation) are linked to goods and services that the consumer simply will not do without (such as electricity). The political pressure arising from higher electricity prices due to the imposition of a carbon tax could swiftly lead to the reduction or removal of that tax.”
When the government introduced the Clean Energy Bill, it did include a range of measures that demonstrated a commitment to its objectives, including funding for energy efficiency assistance and clean technology investments. The government of Prime Minister Gillard also stated that the only realistic way of meeting Australia's climate change obligations was that low-income earners were compensated. "People have already seen pension increases and family payment increases and this assistance to families around the country will continue… Businesses have got themselves ready for carbon pricing. New investments are being made." The government also committed to spend half the revenue from the carbon tax in compensating households for higher electricity and other living costs that polluters passed on. “Another 40 percent of revenue will help businesses and industry to adjust, and to switch to cleaner forms of energy.”
Public Confidence Weak
When the policy was introduced, the public was generally opposed to it, worrying that electricity prices would increase. Over 50 percent of voters thought it would increase fuel prices by a lot, around 40 percent of voters thought it would increase grocery prices a lot, and around 20 percent thought it would increase interest rates. The world’s largest aluminium company reported at the time that large-scale projects providing hundreds of jobs would have to be halted due to the carbon tax.
On the other hand, evidence indicates that support increased over time: an annual poll by the Climate Institute in 2014 found the number of Australians who disagreed with the laws had fallen to 30 percent, down from 52 percent in 2012 when the coalition's campaign against the carbon tax was at its peak. It also represented an 11 percent decline in opposition from the previous year. The percentage of Australians who supported the carbon tax also rose by 6 percent, to 34 percent, the last year. This was the first rise in support under the Climate Institute poll since the laws were introduced.
Clear Objectives Good
The policy goals included the following: "reduce greenhouse gas emissions; include 'compensation' for some trade-exposed industries... finance compensation for households...[and] provide AUD3 billion a year for low emissions technology innovations".
The principal objectives of the Act were clearly defined:
- “To give effect to Australia’s obligations under the Climate Change Convention and the Kyoto Protocol
- “To support the development of an effective global response to climate change, consistent with Australia’s national interest in ensuring that average global temperatures increase by not more than 2 degrees Celsius above pre‑industrial levels;
- “To take action directed towards meeting Australia’s long‑term target of reducing Australia’s net greenhouse gas emissions to 80 percent below 2000 levels by 2050; and take that action in a flexible and cost‑effective way;
- “To put a price on greenhouse gas emissions in a way that: encourages investment in clean energy, supports jobs and competitiveness in the economy, and supports Australia’s economic growth while reducing pollution.”
There is evidence that the Australian government reviewed previously implemented tax policies before introducing a similar scheme in the country. A historical review on the Parliament of Australia's website listed similar policies across the world, including:
- The first carbon tax on fuels enacted in Finland in 1990, following those by Norway, Sweden, and Denmark in 1991 and 1992
- Germany’s tax on heating fuel, petrol, natural gas and electricity in 1999
- Japan's enactment of a tax on high-polluting vehicles in 2001
- The UK's implementation of a "climate change levy" in 2001 on electricity, which states that revenues in the UK were recycled by reducing the National Insurance contributions of those who pay the levy.
It is likely that these examples fed into Australia’s own carbon tax mechanism.
A report from the Productivity Commission, commissioned by Prime Minister Gillard, also reviewed initiatives by eight major economies – the US, China, Germany, India, Japan, New Zealand, South Korea and the UK – with positive conclusions. The independent Productivity Commission report said: "The consistent finding from this study is that much lower-cost abatement could be achieved through broad, explicitly carbon-pricing approaches, irrespective of the policy settings in competitor economies".
The Australian government announced comprehensive legislation and funding support for the Clean Energy Act, with a range of initiatives to support the combined objectives of cutting carbon pollution and driving investment in new clean energy sources. For example, businesses were helped to make the transition to a clean energy future through the Jobs and Competitiveness Program, the Clean Technology Program, the Steel Transformation Plan, and other measures to support energy efficiency.
These programmes aimed to foster investment in capital, skills and innovation to improve competitiveness and support jobs in a low carbon economy. Additional support for innovation and investment in renewable energy was channelled through the Australian Renewable Energy Agency, and the Clean Energy Finance Corporation. Details of the financing initiatives launched in support of the energy bill included:
- “Competitive grants to industry associations and NGOs to provide energy efficiency advice and assistance which will cost AUD40 million over the period to 2014–15
- “Funding of AUD90 million over 2012–13 to 2014–15 has been set aside to provide assistance for regions ‘strongly’ affected by the introduction of a carbon price
- “The Clean Energy Skills Program will provide AUD32 million over the period to 2014–15 to assist educational institutions and industry develop the materials and expertise to promote ‘clean energy’ skills
- “The Clean Technology Focus for Supply Chains Program provides an additional AUD5 million over the period to 2014–15 targeting clean technology businesses under existing industry assistance programmes.”
Overall, the programmes would provide approximately AUD9.2 billion in support during the first three years of the mechanism to safeguard jobs in industries with high emissions or strong international competition. However, critics doubted that such backing would be adequate.
Additionally, only the top 500 polluters in the country (half of those originally planned) would participate. Thus, only a total of 0.02 percent of Australia's 3 million businesses would be taxed, with industries such as fuel suppliers and distributors and companies emitting synthetic greenhouse gases, including the refrigeration and air-conditioning industries exempted.
There were two Commonwealth agencies created by the Clean Energy Act of 2011 to advise and regulate the operation of the carbon price mechanism: the Climate Change Authority (CCA) and the Clean Energy Regulator (CER).
The CCA's responsibilities included:
- Providing recommendations to the government on future pollution caps
- Making recommendations on the indicative national trajectories and long-term emissions budgets
- Providing advice to the government on the progress made to reduce Australia’s emissions to meet national targets, as well as indicative national trajectory or budget
- Conducting reviews and making recommendations on the carbon pricing mechanism and the National Greenhouse and Energy Reporting system, the Renewable Energy Target and the Carbon Farming Initiative
- Advising government on the role of the price floor and price ceiling beyond the first three years of the flexible price phase.
The CER's responsibilities included:
- Providing education on the carbon pricing mechanism, particularly administrative arrangements
- Assessing emissions data to determine each entity’s obligations and operating the emissions registry for emissions units
- Monitoring, facilitating and enforcing compliance with the carbon pricing mechanism as well as allocating permits
- Applying legislation to determine eligibility for assistance in the form of permits to be allocated administratively, and the number of other permits to be allocated
- Administering the National Greenhouse and Energy Reporting system, the Renewable Energy Target and the Carbon Farming Initiative
- Accrediting auditors for the Carbon Farming Initiative and the National Greenhouse and Energy Reporting System.
Finally, the Productivity Commission was responsible for reviewing the assistance provided as well as the impact of the carbon price arrangements on industry.
The CER's responsibilities included "overseeing the administration of the carbon tax, monitoring compliance and assessing the emissions of individual firms”.
The Australian Institute of Energy commissioned Griffith University's 2013 report, 'Australia’s Carbon Tax: An Economic Evaluation'. The report analysed the performance and impact of the tax and tracked a number of indicators measuring the impact of the policy, including:
- The estimated contribution of the introduction of the carbon tax and other green schemes to a typical household electricity bill
- The estimated effect of the carbon tax on wholesale electricity prices (up to 2050)
- The annual reduction in real wages vs annual reduction in GDP under the carbon tax (relative to baseline)
- Inflation-adjusted household electricity prices
- The expected cumulative fiscal impact of the carbon tax and associated policies
- Estimates and revisions of carbon tax revenue
- Projections of Australia’s domestic CO2 emissions under the carbon tax and electricity CO2 emissions.
There was some stakeholder alignment for the implementation of this policy, especially from the ruling government and related bodies. The main incentive for the government to implement the carbon tax was to give effect to Australia’s obligations under the Climate Change Convention and the Kyoto Protocol. Similarly, the Productivity Commission backed the federal government's argument that other world economies were taking significant measures to combat climate change, and that it was thus a competitively beneficial initiative.
However, there was much less support from the consumer and industrial sector, as well as Tony Abbott’s Liberal opposition, who called the tax "toxic" and announced at a Liberal party conference that the new tax “will raise every family's cost of living, it will make every job less secure but it won't help the environment".
Overall, the history of the initiative was conflictive. The government that introduced the policy failed to sell it, while its critics portrayed it as a burden that would hurt businesses and cost households. So even though public support - along with concerns for climate change - increased over time and the scheme was succeeding in reducing emissions, it failed to get the support it needed "A recent poll found that almost two-thirds of Australians believe there should be carbon pricing for major emitters, but 42 percent agreed with the repeal of the tax (against 36 percent who did not)."