CARBON PRICE FRAMEWORK
Introduction
In Australia, at the federal level there is bipartisan support for a minimum greenhouse gas
emissions reduction target of five per cent of 2000 levels by 2020. However, the two major
parties differ in their approach. The Coalition opposition prefers a ‘direct action’ approach
providing incentives for polluters to reduce their emissions by providing taxpayers funds from
the existing tax base, whilst the minority Australian Government supports a cost to polluters
through a market based approach.
The Australian Government, after failing under Prime Minister Rudd to deliver the Carbon
Pollution Reduction Scheme, has released their carbon price framework and complementary
measures package, Securing a Clean Energy Future. The package was developed with
support of the Multi-Party Climate Change Committee, which included Labor, the Australian
Greens, and Independents Tony Windsor and Rob Oakeshott.
The carbon price framework is the central component of the scheme, with a price starting at
$23 per tonne of carbon dioxide equivalent (CO2e) on 1 July 2012. The carbon price will be
will be fixed for three years until 1 July 2015, when the price will be determined by the
market under a cap-and-trade emissions trading scheme. The price will be payable by
Australia’s 500 most carbon-intensive entities across the stationary energy, waste, transport
and industrial sectors for each tonne of CO2e they produce. This will include local
government with certain landfills. This additional cost will be passed on through to
businesses and households.
Key elements of the ‘Clean Energy Future’ Scheme include:
Target: To cut greenhouse gas pollution by at least five per cent compared with 2000
levels by 2020, with a view to 80 per cent cuts by 2050
Timing: Commences 1 July 2012, with three years as a fixed scheme before moving
to a full ‘cap and trade’ emissions trading scheme in 2015–16
Price: $23.00 per tonne in 2012–13, increasing by 2.5 per cent per year until
emissions trading commences
Oversight: A new independent Climate Change Authority chaired by Bernie Fraser
(former Reserve Bank Governor) to provide expert advice and conduct regular public
reviews, plus a Clean Energy Regulator to administer the carbon pricing scheme
Compensation: More than 50 per cent of the revenue from the carbon price will be
used to assist households through tax cuts and Government payments, plus a $9.2
billion package for industry
Support programs: $10 billion over five years for a new Clean Energy Finance
Corporation; a new independent Australian Renewable Energy Agency to administer
$3.2 billion in existing Australian Government renewable energy research and
development grants; $946 million over six years to protect biodiversity; $429 million
over six years for carbon farming programs; and an $800 million Clean Technology
Investment Program for manufacturers.
Complementary Funding Programs relevant to Local Government
$200 million will be provided over six years for street lighting, energy efficiency
upgrades in council buildings and cogeneration. This is up from $80 million under the
Australian Government’s Low Carbon Communities program. A discussion paper for
consultation on the scheme is due to be released shortly.
$100 million will be available for consortiums of local and state governments to assist
low-income households to reduce energy costs and future impacts from the carbon
price
$44 million will be provided over five years for natural resource management regions
to plan for climate change impacts
A household and local government advice line and website will be funded until 2014–
15.
Impacts on Local Government
The MAV undertook work on the financial implications of the previous CPRS in 2009.
Councils were surveyed to understand their costs and then these were used to forecast
potential impacts at a $25/T CO2e and $40/T CO2e carbon price. At the time, the impact on
total expenses was two per cent and the impact on rates was around 3.3 per cent. It is
important to note that the set of assumptions was different to the Securing a Cleaner Energy
Future package. For example, under the CPRS, legacy waste (waste already in landfill when
the scheme commenced) didn’t attract a liability until 2018, whereas under the current
package legacy waste is excluded altogether. The MAV is finalising an updated survey, in
consultation with the other Local Government Associations, for release.
The Federal Treasury has modelled the economy-wide impacts of a carbon price in
determining the income compensation for households, apparently taking into consideration
cost flow through to local government. This modelling estimated that the increase in
Consumer Price Index attributable to a carbon price would be 0.7 per cent across the
economy. Given that local government nationally spends an estimated $28 billion per
annum, the Australian Local Government Association (ALGA) has estimated that the
expenditure directly attributable to a price on carbon (excluding costs associated with
emissions from landfills) will increase local government spending by $230 million, or 0.8 per
cent.
The Victorian Government recently released excerpts of the modelling it had commissioned
by Deloitte/Access Economics, which lists the economic and job impacts by
municipality. The full report has not been published and the MAV has requested a copy so
we can advise councils further.
Electricity
Federal Treasury modelling estimates that the increases in electricity prices attributable to
the carbon price are an anticipated 10 per cent in 2012-13 and a further 0.9 per cent in
2013-14. Nationally, with almost 50 per cent of council electricity costs incurred from the
provision of street lighting, this represents a significant source of exposure. In Victoria, street
lighting electricity costs are around $24 million per annum.
Fuel
Light commercial vehicles (4.5 tonnes or less gross vehicle mass) and domestic vehicles will
not face a carbon price. Other business off-road fuel use will be subject to an equivalent
carbon price, generally applied by reducing fuel tax credits as per the table below.
Off-road Fuel tax credit reduction through to 2012-15 –
cents / litre
Fuel 2012-13 2013-14 2014-15
Petrol 5.52 5.796 6.096
Diesel and other 6.21 6.521 6.858
liquid fuels
LPG 3.68 3.864 4.064
LNG & CNG 6.67 7.004 7.366
Heavy on-road vehicles (over 4.5 tonne gross vehicle mass) will not face a carbon price from
the commencement of the scheme. However, the Australian Government has indicated it
intends to apply a carbon price on heavy on-road vehicles from 1 July 2014. Read more.
Gaseous fuels such as LPG, LNG and CNG used for on-road transport will not be subject to
an effective carbon price, as their eligibility for a fuel tax credit is reduced to zero due to the
Road User Charge.
Landfills
A number of councils will have direct liabilities under the carbon price framework. Of the 500
identified carbon emitters, 190 are landfill operators, even though these contribute only 3 per
cent of Australia’s carbon emissions profile. Further, the methodologies for estimation of
landfill emissions are still being finalised and there has been no support given by the
Australian Government to build the capacity of councils to calculate and report their landfill
emissions.
The key aspects of the landfill carbon price liability include:
Landfills that emit more than 25 000 tonnes of CO2e (carbon dioxide equivalent),
from old (deposited before 1 July 2012) and new waste, net of mitigation measures
such as flaring or energy generation, will be caught under the scheme
Smaller landfills emitting more than 10 000 T CO2e, but less than 25 000 T CO2e,
will be caught by the scheme only if they are within a ‘prescribed distance’ of a larger
landfill – although this distance is yet to be determined. This measure is meant to
prevent waste displacement from larger to smaller landfills to avoid the carbon
liability. Under the Carbon Pollution Reduction Scheme, this distance was initially 80
km, and then revised downwards. The MAV understands the current distance being
considered is around 40 km, although this is yet to be confirmed.
The carbon price liability will only apply to waste deposited after 1 July 2012, even
though the total emissions reported will be greater
Councils will be able to generate credits on the old waste, under the Carbon Farming
Initiative (CFI), which can be sold to liable entities once the emissions trading
scheme commences in 2015.
The following chart, courtesy of the Australian Landfill Owners Association1, gives an
indication of the emissions profile of a landfill (NSW regional landfill taking 75 000 tonnes of
mixed waste per annum with gas flaring) and ‘new’ and ‘legacy’/'‘old’ waste.
1
Max Spedding, Australian Landfill Owners Association (ALOA), 2011.
Emissions covered by CFI Emissions covered by carbon ‘tax’ Emissions covered by ETS
MAV’s Position
The MAV does not have a formal position on the current Clean Energy Future package.
However, based on the MAV’s previous consultations and submissions with the Victorian
local government sector, the Association is supportive of a carbon price framework that
recognises local government as a major service delivery organisation to the community,
providing appropriate compensation or exemption where appropriate. See MAV Media
Release.
The MAV in 2009 undertook extensive consultation on the Victorian Government’s Climate Change
Green Paper, and subsequently said in our submission, that had been reviewed by the sector and the
MAV Board, that:
“The sector accepts that a CPRS or similar carbon pricing mechanism is likely. The Victorian
local government sector is broadly supportive of the proposed CPRS, and agrees that the
national emissions reduction effort should be driven by the Australian Government and
complemented by state based policy and programs.”
Further, there have been a number of MAV State Council resolutions since 2008, recognising not only
that a carbon price framework was inevitable, but that the MAV should advocate for more rapid
transition, suggesting interim levies when the CPRS was deferred and for purchases of GreenPower
to be additional to the national greenhouse reduction target on an annual basis.
FURTHER INFORMATION
The following Briefing Papers may also be of interest:
NetBalance – a general overview -
http://helpdesk.ecoteq.com.au/CleanEnergy_Netbalance.pdf
Maddocks - a local government update -
http://www.maddocks.com.au/uploads/articles/clean-energy-future-plan-briefing-for-
local-government-update-july-2011.pdf
MAV contact person: Ben Morris, Manager - Environment
Phone Number: 03 9667 5580
Email: bmorris@mav.asn.au