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Federal

Feb 24, 2011

Gillard, Greens unveil fixed carbon price

The Greens' proposal to adopt an initial fixed carbon price from July 1, 2012 has been adopted by the government -- but not necessarily by the cross-benches.

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The government and the Greens today unveiled the first concrete result from the cross-party “Climate Change Committee” process established following the 2010 election, a commitment to start carbon pricing via a fixed carbon price.

The agreement announced this morning proposes a process involving:

  • a carbon pricing scheme to start on July 1, 2012, based on an emissions trading scheme with a fixed price (as yet undecided) for permits;
  • an initial fixed carbon permit price for 3-5 years — possibly out to 2017;
  • fixed price period to be followed by a transition to a flexible price-based scheme with a price linked to international markets and a 2020 carbon reduction target;
  • the length of initial period to be established in coming months;
  • scheme “hard-wired” to move to a flexible price system but with a review of transition to cap-and-trade a year out from commencement, with the possibility the transition may be delayed depending on the outcome of the review;
  • agriculture omitted from the scheme; it will cover the stationary energy sector, transport sector, the industrial processes sector, fugitive emissions (other than from decommissioned coal mines) and emissions from non-legacy waste. Climate Change Minister Greg Combet noted that a phased approach may be adopted in relation to different sectors;
  • compensation yet to be determined but “the overall package should take appropriate account of impacts on the competitiveness of all Australian industries, and the principle of energy security recognised that the introduction of the carbon price should be accompanied by measures that are necessary for maintaining energy security.”

The framework has been agreed between the government and the Greens but other members of the Climate Change Committee, Rob Oakeshott and Tony Windsor, have only agreed to the release of framework to enable consultation.

This first, heavily caveated and detail-light announcement of a carbon price commitment reflects Labor’s decision late last year to abandon its pre-election recalcitrance on carbon pricing and participate in a process proposed by the Greens to break the Parliamentary deadlock on passing a carbon pricing scheme to start by  July 1, 2012, legislated after the Greens take the balance of power in the Senate on July 1. It represents a win for the Greens, who proposed an initial fixed price followed by a cap-and-trade scheme in 2010, and received the backing of Professor Ross Garnaut in doing so.

It also reflects a shift in thinking not merely within official circles but more widely that a fixed-price/carbon tax-type approach may be a simpler and more workable carbon abatement mechanism than a more complex cap-and-trade scheme until there is a robust international agreement for carbon trading. The Rudd government’s refusal to explain its Carbon Pollution Reduction Scheme and sell the case for climate change action set the scene for a political shift against Labor on the issue, climaxing in the Rudd government abandoning the CPRS in May last year.

Windsor insisted he was not yet committed to the proposal, saying today’s announcement was only “the start” of further discussions.

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