Australia Passes Clean Energy Legislation

by Mary Swire, Tax-News.com, Hong Kong

14 November 2011

On November 8, 2011 the multiple Bills comprising the Clean Energy legislative package were passed into law by the Australian Senate. From July 1,2012 the package will force about 500 of the country’s biggest polluters to pay a levy of AUD23 (USD23) for each tonne of carbon dioxide they emit.

The aim of the new "carbon tax" is to reduce pollution by at least 160m tonnes a year by 2020 by putting a price on pollution, fostering renewable energy technologies, encouraging energy efficiency and creating opportunities to reduce pollution on the land. Treasury modelling shows the Gillard Government's carbon price will reduce emissions and drive investment in clean energy while ensuring the economy continues to prosper, with 1.6 million jobs to be created by 2020.

The carbon price will rise at a 2.5% real rate per year before moving to a market-driven price after three years. Businesses with individual plants emitting more than 25,000 tonnes of CO2 equivalent per year will need to buy and surrender to the government a permit for every tonne of pollution they produce.

The Minister for Climate Change Greg Combet claimed that carbon pricing is a charge on pollution, not a tax on households or small businesses. However as polluters can pass on the increased costs in the form of price rises, many critics of the carbon tax point out that it is the consumer who will foot the final bill. The government's own estimates predict an increase of around 10% in energy bills for households. In order to soften the impact of price rises the government is increasing the income tax-free threshold from AUD6,000 to AUD18,000, and also increasing certain welfare payments.

Concern regarding the carbon tax has been expressed by Australian business groups, both large and small. They believe that their profitability will be squeezed from three sides: an increase in costs passed down the supply chain; a reduction of competitiveness against foreign imports; and a withering of consumers' disposable income. The Business Council of Australia have also publicly stated their misgivings over the optimistic nature of the Treasury forecasts, especially given the increased uncertainty in the global economy, and its effect on Australia's resource-based economy.

In addition concern has also been expressed from many quarters that the introduction of the levy will lead to unrelated price increases. The government has attempted to counter this concern by providing the Australian Competition and Consumer Commission with approximately AUD13m of extra funding to investigate suspected opportunistic increases, a sum that represents 0.14% of the AUD9.2bn worth of free permits to be handed out to trade exposed industries.

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