Q&A: How does the carbon tax work?

16 May 2012, 10:50 am   -   Source: Chiara Pazzano, SBS
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The carbon tax will start on July 1, 2012, and apply to 500 emitters. (AAP)

The carbon tax will start on July 1, 2012, and apply to 500 emitters. (AAP)

As Australia prepares to introduce a carbon tax on July 1, we take a look at how it works.

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As Australia prepares to introduce a carbon tax on July 1, we take a look at how it works.

Why is the government introducing a carbon tax?

The federal government says it wants to put a price tag on pollution. At the moment business and industry can pollute for free. The government says this is the most efficient way to discourage polluters to emit greenhouse gases, which are contributing to climate change.

Who will pay the tax?

The tax applies to Australia's largest 500 emitters, which are companies that emit more than 25,000 tonnes of carbon dioxide or supply or use natural gas.

When will the carbon tax start?

Carbon pricing begins on July 1, 2012.

How much is the tax?

It will start at $23 a tonne of carbon dioxide pollution.

Will the tax go up?

In the first three years, the carbon price will be fixed. From July 1 2015, the price will be set by the market.

In the 2012-2013 financial year, the carbon price will be $A23 per tonne. It will rise to $A24.15 per tonne in the following financial year and then to $A25.40 per tonne in 2014-15.

Will the tax last forever?

Not in this form. From July 1, 2015, it will convert into an emissions trading scheme.

From that date, the number of units issued by the government each year will be capped by a pollution cap set by regulators. Most carbon units will be auctioned by the Clean Energy Regulator and the price will be set by the market, starting from a floor price of $A15 per tonne.

What's the difference between a carbon tax and an emissions trading scheme?

While under a carbon tax there is no limit to the amount of greenhouse gases that can be emitted, under an emission trading system, a central authority sets a cap on how much a pollutant such as CO2 may be emitted. The cap is allocated to companies in the form of emissions permits, which give them the right to emit a certain amount of the pollutant. Firms are required to hold a number of permits equivalent to their emissions.

The total number of permits issued to all companies cannot exceed the emissions cap, and firms that need to increase their emission permits must buy them from companies that require fewer permits. This means permit buyers are paying a charge for polluting more, while sellers are being rewarded for reducing emissions.

How much money does the government expect to raise?

About $24.5 billion over three years.

How will the government use the money raised from the carbon tax?

The government says it will use $15.3 billion to assist households affected by the tax through tax cuts and payments. It will also assist industries which may be particularly impacted, as well as invest in research and development of cleaner and more efficient technologies.

How much pollution will be cut by the carbon tax?

The government says its Clean Energy Strategy (of which the carbon tax is the main component) will cut net expected pollution by at least 23 per cent in 2020 -- the equivalent to taking over 45 million cars off the road by 2020.

What is the carbon farming initiative and how does it work?

Under the Carbon Farming Initiative (CFI), farmers and land managers can earn carbon credits by storing carbon or reducing greenhouse gas emissions on the land.

These credits can be sold to people and businesses wishing to offset their emissions.

This scheme includes credits earned from activities such as reforestation, savannah fire management and reductions in emissions from livestock and fertiliser use.

CFI credits can also be sold to international companies.

Will the tax hurt the Australian coal industry?

The government says the majority of Australian coal mines do not release significant amounts of greenhouse gases and will only have small liabilities under a carbon price.

A number of mines, however, release significant amount of greenhouse gases, mainly methane. The government says it will provide $1.3 billion in assistance to support jobs in these gassy mines.

Carbon Tax

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