Australia introduces historic carbon price mechanism

On 8 November, the Australian Parliament passed the clean energy legislative package. The newly created law includes:

• the Clean Energy Act 2011 (Cth), which establishes a carbon price mechanism, also known as the greenhouse gas scheme;
• the Clean Energy Regulator Act 2011 (Cth), which establishes the Clean Energy Regulator, the regulatory body that will administer the greenhouse gas scheme; and
• the Climate Change Authority Act 2011 (Cth), which establishes the Climate Change Authority, the authority that will advise on the future design of the greenhouse gas scheme.

The greenhouse gas scheme will commence on 1 July 2012.

Design of the scheme

The greenhouse gas scheme is designed to help meet Australia’s emissions reduction target of 5% below 2000 levels by 2020.

Liable entities will be required to acquire and surrender carbon units for each tonne of carbon dioxide equivalent emitted. There will be an initial fixed price period before a transition into a cap-and-trade emissions trading scheme with a flexible price.

Fixed price periods

Under the Clean Energy Act, the financial years beginning on 1 July 2012, 1 July 2013 and 1 July 2014 will be known as “fixed charge years”. The greenhouse gas scheme will operate like a tax during the fixed charge years, with carbon units being issued by the government at a fixed price starting at A$23, increasing to A$24.15 and then to A$25.40 (a rise of 2.5% per annum in real terms).

Michael Sheng is a partner in the Shanghai office and Jeff Lynn is a partner in the Melbourne office of Blake Dawson

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