How big is the tax?

$23/tCO2e, rising 2.5% p.a. in real terms (i.e. that much faster than inflation). Including inflation, expect it to reach around $27 over three years.

When does it start and how long will it last?

The tax phase starts in July 2012 and will last three years. After that, it is replaced by a carbon permit trading scheme.

Who will pay the tax?

Approximately 500 companies will have to pay the tax in the first instance. The tax will appy to

• Stationary energy (power generation)
• Industrial processes
• Fugitive emissions
• Emissions from new waste (but not existing waste dumps)

Emissions not yet covered are:

• Agriculture
• Light commercial and household transport

How will companies be compensated?

A key point is that industry compensation is to be based on historic emissions levels per unit of production rather than actual emissions. This may seem subtle, but it is vital in preserving the incentive to switch to greener technologies.

The amount of compensation is on a sliding scale, with the most emissions intensive getting the highest percentage discount: 94.5%. These amounts decline at 1.3% p.a. A review in 2014/2015 might reduce it faster.

What will it do to the cost of living?

Treasury modelling says the $23/t will cause a 0.7% increase in CPI. Further smaller increases come in as the price rises. Average household weekly cost of living to increase $9.90, including $3.30 on electricity bills, $1.50 on gas, 80 cents on food.

What about petrol?

Petrol is exempted for now, mainly because voters have been sensitised to fuel price rises over the years. In reality, not exempting would only have added another $2/week to the average household bills, and that could have been matched by a corresponding increase in the household compensation.

However, non-agriculture businesses face a reduced fuel tax credit, and aviation faces excise increases. Heavy transport is to pay tax from 2014.

Sadly, rail will have to pay more for its electricity, so effectively is hit with a carbon tax that road transport will dodge.

How will households be compensated?

Average household compensation will be $10.10, but it is heavily loaded towards the worse off. This includes a tripling of the tax-free threshold to $18,000, a move regarded by many economists as overdue. The impact on more affluent households will depend on their ability to cut their carbon footprint.

Pensions and Family Tax Benefit are to rise 1.7%; Self-funded retirees to receive increase in Senior Supplement.

What support for renewables?

A tax of $20-$30/t will not in itself allow renewables to compete with fossil fuels in the short term. Massive investment will still be needed to kick-start these fledgling industries.

The scheme sets up two new bodies:

• Clean Energy Finance Corporation (CEFC)

An independent (but government-appointed) chair and board comprising experts in banking, investment management and renewable energy to invest $10 bn over 5 years from 2013/14 to help

• businesses get innovative renewable and clean energy proposals up and running;
• existing manufacturers tool up for the clean energy sector

Importantly, Carbon Capture and Storage is excluded.

• Australian Renewable Energy Agency (ARENA)

To manage $3.2 bn in existing renewables funding and a $200m Clean Technology Innovation Program.

Renewable energy generation in Australia faces structural obstacles to participation in the grid.  The Australian Energy Market Operator, AEMO, will be tasked with preparing plans for the grid to operate with 100% renewable energy.

What about using electricity more efficiently?

• $1 bn for energy efficiency programs for manufacturing, small business, community groups, foundries and more.
• A National Energy Savings Initiative (energy efficiency target scheme) to replace existing state schemes.
• The Energy Efficiency Opportunities Act to be expanded.
• 'Opt in' programme for householder compensation
  

How will it affect the economy?

Treasury predicts incomes to rise in real terms at 1.1% p.a. with the carbon tax, 1.2% p.a. without. The changes are not revenue-neutral: there is a net deficit of $4bn over the first four years.

How will it affect the job market?

Treasury predicts no net impact: 1.6m new jobs by 2020 with or without the carbon price.

What will the cost of permits be when the trading scheme comes in?

Based on an international market, somewhat speculative Treasury modelling suggests $29/tCO2e. Since only 50% of permits can be derived overseas, there is some scope for the local price to rise higher.

There will be a floor price of $15, providing some much needed certainty to the renewables industry, and a ceiling set initially at the international price plus $20. These amounts rise at 4% and 5%, plus inflation, respectively.

Will future governments be able to adapt to changing needs?

An independent body, the Climate Change Authority, is to issue reports every two years, recommending targets and numbers of permits. The Government is not bound by these, but is required to explain any deviations.

The number of permits to be issued is set at budget time, 5 years in advance. This trades the Government's freedom to act against business certainty.

Will permit trading be international?

At most 50% of permits yielded by an emitter can come from international offsets. This helps limit the potential for fraudulent offset schemes to undermine the market, and helps develop innovation locally.  Unfortunately, it is not nearly such a constraint as it sounds and is extremely unlikely to be relevant.  A 10% limit might have value.

How much will it reduce Australia's emissions?

The government's targets are 5% below 2000 levels by 2020 and 80% below them by 2050. That 5% might not sound much, but it means 20% below what we emitted in 2010 and 33% below expected business-as-usual in 2020.

Since 2020 is after 5 years of a trading scheme, it should be possible to set the number of permits at that time to achieve the stated target. Of course, there will be a federal election before then.

How does the trading scheme phase compare with Kevin Rudd's ETS?

It is highly significant that the new scheme has won the support of the Greens. The Greens rejected the ETS because of the extent of industry compensation, the allowance for 80% of permits to come from overseas offsets, and the in-built constraints on the rate at which permits could be reduced.

Anything missing?

• Market reforms
  

The National Electricity Market determines the price generators are paid minute by minute.  Reforms may be appropriate to accommodate the characteristics of renewables.  In part, this entails conducting research the better to understand those characteristics.  A surprising feature is that the price paid to generators can go negative!  This is because baseload generators have contracts that pay them a minimum price whatever the price they bid for a timeslot.  With no such contract, wind loses.

In NSW, Transgrid controls access to the grid.  Driven solely by short term economics, there is massive bias towards generating near existing grid infrastructure.  Coal is relatively easily moved around, while a 330kV power line costs $1m/km.

• Supporting R&D now
  

The CEFC won't get its first half billion until mid 2013.

• Supporting deployment of existing technology

The "REC wreck" needs repair.  Bonus certificates generated by the 5x multiplier still flood the MRET, delaying demand for renewables by electricity retailers.

• Will the money be spent?
  

Australian governments have a long record of allocating funds for clean energy but not spending them.

References:

[Note: some of the references below omit to point out, or are unaware, that the 2.5% p.a. rise in the carbon price is to be on top of inflation.]

http://theconversation.edu.au/explainer-australias-carbon-price-mechanism-in-six-dot-points-4230 (10th Nov)

http://www.choice.com.au/green-home/saving-energy/carbon-climate-change/carbon-price-and-you.aspx

http://www.crikey.com.au/2011/07/10/carbon-tax-gillards-clean-energy-future-%20at-a-glance/

http://theconversation.edu.au/the-carbon-tax-the-experts-respond-2254

http://www.abc.net.au/news/stories/2011/07/10/3265732.htm

http://www.bloomberg.com/apps/news?pid=syndmedia_news&sid=apgHD5wY_n.E&refer=syndmedia%0A%09%09%09

http://theconversation.edu.au/carbon-price-package-a-step-forward-but-gaps-remain-in-renewable-energy-funding-2195

http://www.arnnet.com.au/article/393023/govt_set_up_10bn_clean_energy_fund/

The Greens' media release:http://www.greensmps.org.au/webfm_send/571

PM's Press Conference:http://www.pm.gov.au/press-office/transcript-press-conference-canberra-13

Media Treatment

A study by the Australian Centre for Independent Journalism found substantial bias against the tax in the media, particularly in News Ltd coverage.  The headline most reported on this study is that News' negative coverage outweighed the positive by 82% to 18%.  But of course, that does not prove bias.  More telling are subtler measures, for example:

• Fossil fuel lobby and other big business sources opposed to the policy were very strongly
  represented, often without any critique or second source.  Meanwhile, clean energy and other businesses sources in favour of the tax, The Greens, independent green groups, academics and scientists were under-represented.
  
• Where the content of an article was neutral, anti-tax slants in the headline outnumbered pro-tax slants by more than 2 to 1.
  

Read the full report at http://www.acij.uts.edu.au/pdfs/sceptical-climate-part1.pdf