Carbon Price Announcement

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OK, so I was surprised on the upside and the starting price is $23/t. The Greens have indeed exerted their influence through the negotiation and what has emerged is a surprisingly strong package, which when implemented will perhaps be the most comprehensive carbon scheme in the world. You can see the influence of the Garnaut Review and the Productivity Commission report here; countries around the world have shown that there are a multitude of policies you can use to reduce emissions, but the most effective one is a broad based carbon pricing mechanism.

Other details of the package:

  • starting price of $23/t, escalating at 2.5% nominal, commencing 1 July 2012
  • transition to floating price (cap-and-trade) from 1 July 2015
  • targeting 5% reductions (below 2000 levels) by 2020 and a new target 80% reduction (was 60%) by 2050.
  • compensation for households in the form of tax cuts and payment increases, using 50%+ of the revenue. tax-free threshold top be tripled (linked to Henry Tax Review recommendations)
  • EITE assistance: Most trade exposed emission intensive industries get 94.5%. LNG gets 50%. Certain industries get special focus for jobs and abatement solution: steel ($300m over 4 years) and at-risk (gassy) coal mining ($1.3b over 4 years).
  • Energy sector: Negotiated closure of 2,000 MW of capacity (probably Hazelwood and Playford), and assistance to financially at-risk generators to refinance debt. Energy Supply Council to monitor security of supply issues.
  • $3.2b Australian Renewable Energy Agency (ARENA)
  • $10b Clean Energy Finance Corporation (CEFC)

Economic impact:

  • 0.7% once of increase in inflation
  • 0.1% reduction in GDP relative to what it would otherwise have been
  • expected average food price increase per week: $0.80/week
  • expected electricity price increase per week: $3.30/week
  • total average household increase: $9.90/week
  • average household compensation: $10.10/week
  • reduction of emissions by 160MT relative to Business As Usual by 2020.

One interesting departure from the Garnaut recommendation is the 2.5% nominal year on year increase, rather than 4% real. However, starting at $23/t and rising at 2.3% gets you to the same point as starting at $20/t and rising at 7% (around $24.50-24.70 for 1 July 2015 year)

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Next step is of course getting this through Parliament. What’s changed relative to the CPRS legislation is that we have a negotiated package that was arrived at with the key parties (Greens & Independents) that are critical to package through both houses.