A carbon pricing scheme in Australia was introduced by the Gillard Labor minority government in 2011 as the Clean Energy Act 2011 which came into effect on 1 July 2012. Emissions from companies subject to the scheme dropped 7% upon its introduction.^[2] As a result of being in place for such a short time, and because the then Opposition leader Tony Abbott indicated he intended to repeal "the carbon tax", regulated organizations responded rather weakly, with very few investments in emissions reductions being made.^[3] The scheme was repealed on 17 July 2014, backdated to 1 July 2014. In its place the Abbott government set up the Emission Reduction Fund in December 2014. Emissions thereafter resumed their growth evident before the tax.^[4]

This article uses bare URLs, which are uninformative and vulnerable to link rot. (September 2022)

The factual accuracy of parts of this article (those related to most everything other than the historic as the relevant legislation has been repealed) may be compromised due to out-of-date information. (July 2014)

The carbon price was part of a broad energy reform package called the Clean Energy Futures Plan, which aimed to reduce greenhouse gas emissions in Australia by 5% below 2000 levels by 2020 and 80% below 2000 levels by 2050. Although Australia does not levy a direct carbon price, the plan set out to achieve these targets by encouraging Australia's largest emitters to increase energy efficiency and invest in sustainable energy. The scheme was administered by the Clean Energy Regulator. Compensation to industry and households was funded by the revenue derived from the charge. The scheme required entities which emit over 25,000 tonnes of carbon dioxide equivalent greenhouse gases per year, and which were not in the transport or agriculture sectors, to obtain emissions permits, called carbon units. Carbon units were either purchased from the government or issued free as part of industry assistance measures. As part of the scheme, personal income tax was reduced for those earning less than A$80,000 per year and the tax-free threshold was increased from A$6,000 to A$18,200.^[5] Initially the price of a permit for one tonne of carbon was fixed at A$23 for the 2012–13 financial year, with unlimited permits being available from the government. The fixed price rose to A$24.15 for 2013–14.

The government had announced that the scheme was part of a transition to an emissions trading scheme in 2014–15, where the available permits will be limited in line with a pollution cap. The scheme primarily applied to electricity generators and industrial sectors. It did not apply to road transport and agriculture. The Department of Climate Change and Energy Efficiency stated that in June 2013 only 260 entities were subject to the scheme,^[6] of which approximately 185 were liable to pay for carbon units. Domestic aviation did not face the carbon price scheme, but was subject to an additional fuel excise levy of approximately 6 cents per liter.

In February 2012, the Sydney Morning Herald reported that Clean Energy Future carbon price scheme had not deterred new investment in the coal industry, as spending on exploration had increased by 62% in 2010–2011, more than any other mineral commodity. The government agency Geoscience Australia reported that investment in coal prospecting reached $520 million in 2010–2011.^[7] Falls in carbon emissions were observed following implementation of this policy.^[8] It was noted that emissions from sectors subject to the pricing mechanism were 1.0% lower^[9] and nine months after the introduction of the pricing scheme, Australia's carbon dioxide emissions from electricity generation had fallen to a 10-year low, with coal generation down 11% from 2008 to 2009.^[10] However, attribution of these trends to carbon pricing have been disputed, with Frontier Economics claiming trends are largely explained by factors unrelated to the carbon tax.^[11][12] Electricity demand had been falling and in 2012 was at the lowest level seen since 2006 in the National Electricity Market.^[13]

In 2003, the Howard Government was close to creating an emissions trading scheme, but business lobbying caused the government to stop considering it in September of that year.^[15] In October 2006 the Stern Review on the effect of climate change on the world's economy was released for the British government. This report recommended a range of measures including ecotaxes to address the market failure represented by climate change with the least amount of economic and social disruption. In response to this report and subsequent pressure from the Kim Beazley led Labor opposition, in December 2006 the Howard government established the Prime Ministerial Task Group on Emissions Trading, chaired by Peter Shergold, to advise on the implementation of an emissions trading scheme (ETS) in Australia.^[16][17] In opposition, Kevin Rudd called for a cut to greenhouse gas emissions by 60% before 2050.^[18] Both the incumbent Howard government and the Rudd Labor opposition promised to implement an emissions trading scheme (ETS) before the 2007 federal election. Following the release of the final Shergold report, the Howard government committed to introduce an ETS in June 2007.^[19][20]

Going into the 2007 federal election, the Labor opposition party presented itself as a "pro-climate" alternative to the Government, with Kevin Rudd, who had by then deposed Beazley as leader, famously describing climate change as "the great moral challenge of our generation". Labor differentiated itself from the government by promising an ETS with an earlier start date of 2010 rather than the 2012 timeframe advocated by Howard. It also promised ratification of the Kyoto Protocol, investment in clean coal and renewable energy, and slightly more aggressive targets for renewable energy.^[16]

Labor won the election on 24 November 2007, and on 3 December 2007 the Rudd government signed the ratification of the Kyoto Protocol at the 2007 United Nations Climate Change Conference. By ratifying the Kyoto Protocol, Australia committed to keeping emissions to no more than 108% of its 1990 emissions level by 2012. Australia's ratification came into effect on 11 March 2008.^[21]

The Rudd government began negotiating the passage of an ETS through the Parliament. The Opposition led by Brendan Nelson called for the vote on the government's ETS be delayed until after the United Nations climate change summit in Copenhagen in December 2009. Prime Minister Rudd said in response that it would be "an act of absolute political cowardice, an absolute failure of leadership not to act on climate change until other nations had done so" and the government pursued the early introduction of the Scheme.^[22]

On 16 July 2008, the Rudd government released a green paper for its Carbon Pollution Reduction Scheme (CPRS) (also known as Australia's ETS), outlining the intended design of the scheme. The CPRS was criticised by those who were both for and against action to mitigate climate change. Environmental lobby groups protested that the emissions reductions targets were too low, and that the level of assistance to polluters was too high. Industry and business lobby groups however argued for more permits and assistance to offset the economic impacts of the scheme on many enterprises, particularly during the financial crisis of 2007–2008.^[16] Malcolm Turnbull became the new Liberal Opposition Leader on 18 September 2008. On 30 September 2008, the Garnaut Climate Change Review, commissioned in April 2007 by Rudd when he was leader of the Opposition, released its final report. Garnaut recommended a price between $20 and $30 per tonne of carbon dioxide (CO₂) equivalent with a rise of 4% each year.^[14] A more detailed white paper on the CPRS was released on 15 December 2008.

Unable to secure the support of the crossbench for their preferred model, the government entered negotiations with Turnbull, and in the lead up to the Copenhagen Conference, presented an amended CPRS scheme, with the support of Turnbull. The Turnbull-led Opposition supported the CPRS scheme in principle, although at times over 2009 they indicated disagreement with various details including the timing of implementation of the scheme, timing of the vote on the relevant legislation and on the level of assistance to be provided to polluting industries. The Opposition was able to negotiate greater compensation for polluters affected by the scheme in November 2009.^[16][23]

Shortly before the Senate was due to vote on the carbon bills, on 1 December 2009 Tony Abbott replaced Turnbull as leader of the Liberal Party.^[24] Abbott immediately called a secret ballot on support for the ETS among coalition MPs, which was overwhelmingly rejected.^[25] The Coalition then withdrew their support for the carbon pricing policy and joined the Greens and Independents in voting against the relevant legislation in the Parliament of Australia on 2 December 2009.^[26] As the Rudd government required the support of either the Coalition or the Greens to secure passage of the bill, it was defeated in the Senate. Abbott described Labor's ETS plan as a 'Great big tax on everything'.

Abbott announced a new Coalition policy on carbon emission reduction in February 2010, which committed the Coalition to a 5% reduction in emissions by 2020. Abbott proposed the creation of an 'emissions reduction fund' to provide 'direct' incentives to industry and farmers to reduce carbon emissions.^[27] In April 2010, Rudd deferred attempts to advance the scheme to at least 2013,^[28] opting not to present the legislation to the Senate a second time, creating a trigger for a double dissolution election. In June 2010, Julia Gillard replaced Rudd as leader of the Labor Party and became Prime Minister. Factional leader and key Gillard supporter Bill Shorten said that the sudden announcement of change of policy on the ETS was a factor that had contributed to a collapse in support for Rudd's leadership.^[29]

Shortly afterwards Gillard called a federal election for 21 August 2010. During the election campaign Gillard stated that she supported a price on carbon emissions and that she would prosecute the case for action for as long as she needed to win community support.^[30] However, she also indicated that she would not introduce carbon pricing until there was a sufficient consensus on the issue,^[31] that any carbon price legislated would not come into effect until after the 2013 election,^[32] and she specifically ruled out the introduction of a "carbon tax".^[30]

The result of the election left Australia with its first hung parliament in 70 years. To form a majority in the House of Representatives both of the major parties needed to acquire the support of cross-benchers, including the Greens. After two weeks of negotiations Gillard had enough support to gain a majority including the support of the Greens and their single MP in the House, Adam Bandt. Gillard, therefore, remained Prime Minister and Abbott remained in Opposition. One of the conditions for Greens support was that the formation of a cross-party parliamentary committee to determine policy on climate change. Gillard honoured that agreement and on 27 September 2010 the Multi-Party Climate Change Committee (MPCCC) was formed, its terms of reference including that it was to report to Cabinet on ways to introduce a carbon price.^[33][34] The MPCCC agreed on the introduction of a fixed carbon price commencing 1 July 2012, transitioning to a flexible-price cap-and-trade ETS on 1 July 2015.^[35] Initially the price of permits is fixed and the quantity unlimited i.e. there is no cap; the scheme thus functions similarly, and is popularly referred to as a tax.

In February 2011, the government proposed the Clean Energy Bill,^[36] which the opposition claimed to be a broken election promise.^[37] The Liberal Party vowed to overturn the bill if it was elected.^[38]

The Gillard government had asked the Productivity Commission to report on the steps taken by eight major economies to address climate change. In June 2011, the report found that more than 1,000 climate policies were already enacted across the globe.^[39][40] It also supported a market-based carbon price as being the most cost-effective way to reduce emissions.^[40] The report's findings were one of the major reasons that support for the carbon tax was provided by independent Tony Windsor.^[40] Windsor made it clear that he would not support the clean energy legislation if it included a carbon tax on transport fuels.^[41] He did not want to penalise people who lived in rural areas, where there was no public transport as an alternative to private vehicles.

The Clean Energy Plan was released on 10 July 2011.^[26] The Clean Energy Bill 2011 passed the Australian House of Representatives in October 2011 and the Australian Senate in November 2011 and was thus brought into law.^[42][43]

On 1 July 2012 the Australian Federal government introduced a carbon price scheme. To offset the impact of the tax on some sectors of society, the government reduced income tax (by increasing the tax-free threshold) and increased pensions and welfare payments slightly to cover expected price increases, as well as introducing compensation for some affected industries. On 17 July 2014, a report by the Australian National University estimated that the Australian scheme had cut carbon emissions by as much as 17 million tonnes, the biggest annual reduction in greenhouse gas emissions in 24 years of records in 2013 as the carbon tax helped drive a large drop in pollution from the electricity sector.^[44]

On 17 July 2014, the Abbott government passed repeal legislation through the Senate to abolish the carbon pricing scheme.^[45] In its place the government set up the Emission Reduction Fund,^[46] paid by taxpayers from consolidated revenue, which according to RepuTex, a markets consultancy, estimated the government's main climate policy may only meet a third of the emissions reduction challenge if Australia is to cut by 5% of 2000 levels by 2020.^[47]

The carbon price came into effect on 1 July 2012 and applied to direct emissions from a facility (scope-1 emissions), but not to indirect emissions (scope-2 emissions). The scheme only applied to facilities which emit more than 25,000 tonnes CO₂-e per year, and did not apply to agriculture or to transport fuels. The carbon price was set at AUD$23 per tonne of emitted CO₂-e on selected fossil fuels consumed by major industrial emitters and government bodies such as councils.

Agricultural emissions were exempt due to difficulty in tracking emissions and the related complexity of administering such a scheme.^[48] Households and business use of light vehicles did not incur a carbon price. However, changes to the fuel tax regime were proposed to effectively impose a carbon tax on business liquid and gaseous fuel emissions. There were plans for heavy on-road vehicles to pay from 1 July 2014.^[49]

In effect, the scope of the scheme meant that only a small number of large electricity generators and larger industrial plants were subject to the carbon price scheme. The tax was payable by surrendering carbon units, which had been either purchased (at $20 per tonne in 2012–13) or acquired free under an industry assistance program. The pricing mechanism was expected to cover 60% of Australia's carbon emissions.^[1] 75% of each company's annual obligation were to be paid by 15 June each year with the remaining 25% by the following 1 February.

A list of companies which had paid the carbon tax, and the amount which each had paid, was published by the Clean Energy Regulator (CER).^[50][51] This was called the Liable Entities Public Information Database or LEPID. The LEPID for 2012–13 was updated on 12 July 2013 and the companies which were the fifteen largest payers of carbon tax in 2012–13 are shown in the summary below (related companies are grouped together where identifiable).

The Climate Change Authority, a statutory agency, was created to advise the government on the setting of carbon pollution caps, to conduct periodic reviews of the carbon pricing process, and to report on progress towards meeting national targets.^[52] These pollution caps were to form the basis for the cap-and-trade structure to commence in 2015.

The Government ran several major 'Industry Assistance' programs to reduce the impact of carbon tax for the 185 affected companies. These have the effect of significantly reducing the actual carbon tax raised.

This section needs to be updated. (March 2014)

The introduction of a carbon price in Australia was controversial. The day before the 2010 federal election, Prime Minister, Julia Gillard sent out a message regarding carbon pricing, stating "I don't rule out the possibility of legislating a Carbon Pollution Reduction Scheme, a market-based mechanism." However the article also articulated her position on that term of government. "While any carbon price would not be triggered until after the 2013 election... She would legislate the carbon price next term if sufficient consensus existed",^[61] and the federal opposition accused the government of breaking an election promise to not introduce a carbon tax.^[62] Julia Gillard responded to these accusations by saying that circumstances changed following the 2010 election.^[63][64] Then opposition leader Tony Abbott criticised the carbon pricing policy on economic grounds referring to it as "toxic" and likening it to an octopus embracing the whole of the economy.^[65] He pledged to repeal the tax after the 18 clean energy bills passed through the House of Representatives and stated that the next election would be a referendum on the "carbon tax".^[66][67]

The opposition (and since the 2013 election the Abbott government) proposed an alternative "direct-action" carbon emissions reduction scheme. Modelling produced by the Department of the Treasury indicated that this scheme would cost twice as much as the Clean Energy Futures Plan.^[68] Abbott was unable to find an Australian economist who supported his policy, although he did cite international economists who are supportive.^[69] Tony Abbott's "Direct Action Plan" has been criticised because there is no disincentive to continue polluting at the same rate, meaning that emissions will increase rather than decrease by 2020. In addition, "under Direct Action it is the public, not polluters who pay."^[70]

The Australian Renewable Energy Agency (ARENA) was established as part of the Clean Energy Fund, and commenced operations on 1 July 2012. It consolidated existing renewable energy technology innovation programs. It had funds to provide financial assistance to research, develop, demonstrate, deploy and commercialise renewable energy in Australia and related technologies.^[71] The government-established but independent Clean Energy Finance Corporation (CEFC) commenced investment operations from 1 July 2013, with a focus on investments in renewable energy, low-emissions and energy efficiency technology and the manufacturing companies that produce materials used in such technologies.^[72]

The majority of big emitters in Australia supported a price on carbon as at July 2012.^[73] However business groups and some big emitters, especially in the mining sector, were opposed to the pricing scheme.^[74]

Research by Preston Teeter and Jorgen Sandberg at the University of Queensland revealed that liable organisations responded with very few investments in emissions reduction activities, largely due to the great deal of policy uncertainty surrounding the scheme.^[3]

One criticism of the carbon pricing scheme has been that Australia should not proceed with its introduction ahead of other countries. However, according to the Department of Climate Change and Energy Efficiency, Australia will be one of around 50 jurisdictions implementing similar schemes worldwide.^[76] The starting price of $23 per tonne has also been a point of contention.^[76]

Emissions figures from the 2010–11 financial year suggest the electricity generation sector may be due to pay around A$3.9 billion.^[77] Loans have been made available so that electricity generators can purchase carbon permits. Macquarie Generation, a Government of New South Wales owned electricity generator, wrote down the value of its assets by about A$1 billion as a result of the carbon tax.^[78] Power generators in the La Trobe Valley also face substantial write-downs.

Modelling undertaken by the Virgin Australia airline calculated that the average increase per flight would be A$3. They responded by implementing a surcharge of between $1.00 and 5.00 to a one-way flight starting in July 2012.^[79] Qantas is raising its ticket prices by between $1.50 and 5.50.

In a survey conducted by the Economic Society of Australia, 60% of economists thought the carbon pricing proposal was sound economic policy, while 25% disagreed.^[80] A number of public protests both in support of and against the carbon price (or tax) were held in the run up to its introduction. These include the No Carbon Tax Climate Sceptics rallies and Say Yes demonstrations.

The carbon pricing scheme was intended to improve energy efficiency, convert electricity generation from coal to alternatives and shift economic activity towards a low carbon economy.^[81] Its impact on business was forecast to be 0.1 – 0.2% lower than the business as usual scenario.^[82] The scheme aimed to prevent 160 million tonnes of carbon dioxide from entering the atmosphere by 2020,^[83] as well as generating $24 billion over three years.^[84]

In May 2012, the Australian Competition & Consumer Commission (ACCC) reported it was investigating about 100 cases where customers had possibly been misled into paying excessive price rises falsely claimed to be as a result of the carbon tax.^[85] By the middle of June, the commission was investigating about 200 cases.^[86] The consumer watchdog also set up a phone hotline and online form for complaints regarding excess pricing claimed to be due to the carbon tax. The ACCC had forecast that home construction costs would be at the lower end of the 0.7% to 1.8% range predicted by building companies.^[87] The Housing Industry Association estimated an average new house would experience a price increase of between 0.8% and 1.7% due to the carbon price.^[88] Housing construction was expected to be significantly impacted by the carbon tax because new homes require cement, bricks, aluminium, and glass, which are all typically energy-intensive materials.^[89] A forecast by the Centre for International Economics predicted the housing construction industry could decline by 12.6% as a result of the carbon price.^[89]

The coal industry was expected to be impacted due to the emissions produced as coal is mined, however a similar expense is not expected to be incurred by Australia's coal exporting competitors.^[81] The Institute of Public Affairs claimed that the Australian coal industry would lose jobs to overseas competitors and mines will be closed.^[90] Despite the announcement of the scheme, spending on mineral exploration in the March quarter was the highest ever at $1.086 billion.^[91] The impact on the LNG industry in Australia was expected to be minor to moderate.^[92] No major projects were expected to be cancelled as a result of the introduction of the carbon pricing scheme. Dairy farmers will be impacted because of higher power costs for milk processing.^[93]

Household bills were expected to rise by an average of around $5 per week.^[94] Energy retailer Synergy said the carbon price would result in a 7.1% rise to power bills.^[95]

Heading into the 2013 Australian federal election, the Liberal Party platform included the removal of the 'Carbon Tax', claiming that the election was in effect a referendum on carbon pricing in Australia. The incoming Liberal government placed removing the carbon pricing scheme at the head of its legislative program.

The carbon tax repeal legislation received Royal Assent on 17 July 2014 and the bills which were part of the package became law, with effect from 1 July 2014.^[108]

• Climate change in Australia
• Energy development
• Economics of climate change mitigation
• List of climate change initiatives
• New South Wales Greenhouse Gas Abatement Scheme