The two-stage plan for a carbon price mechanism is proposed to start with a fixed price period for three to five years, before transitioning to an emissions trading scheme. The official price is yet to be announced by Prime Minister Gillard, however in March Professor Ross Garnaut, the Federal Government’s chief climate change adviser, flagged a price of $20–30 a tonne.

The Government will propose that the carbon price commences on 1 July2012, subject to the ability to negotiate agreement with a majority in both houses of Parliament and pass legislation this year.

The Multi-Party Climate Change Committee, a Federal Government initiative spearheading the implementation of a carbon price, says that it will continue to discuss other important elements of the proposal including the starting level of the fixed price, any phasing in of sectors of the economy, and assistance for both households and industry.

Support for the carbon price

The Federal Government’s proposal has been supported by a series of updates to Professor Ross Garnaut’s 2008 Climate Change Review.

Professor Garnaut states in the update paper Carbon Pricing and Reducing Australia's Emissions that “an emissions trading scheme, initially with a fixed (and rising) price, is the best instrument for long-term emissions reductions.

“This model provides the benefits of credibility and steadiness in its early years, as industry and institutions build confidence and capability, with later trade in abatement allowing emissions reductions to take place where they are cheapest. It also provides substantial revenue.”

The Government has said that the proposed carbon price will raise revenue from large polluters, who will be responsible for the first time for the carbon pollution they create. This money will then be available to assist households with price increases, to support jobs and to tackle climate change.

In his final update entitled Transforming the electricity sector, Professor Garnaut highlighted the crucial role the renewable energy will play in the transition to a low carbon economy.

The report states that “There will be early switching of fuels, especially from coal to gas and an increasing focus on less emissions-intensive forms of generation.”

The report also indicates that having a high carbon price is what will result in major fossil fuel capacity retirements and a substantial level of new renewable generation, particularly wind.

The industry responds

The Climate Institute warned that without additional regulations, higher pollution prices would be needed to ensure Australia maximises the use of its world leading clean energy sources.

“Professor Garnaut's proposals for pollution pricing to unlock clean energy investment in Australia are practical and politically pragmatic,” Climate Institute CEO John Connor said.

“The initial pollution pricing proposed would start to reduce our economic dependence on pollution, but without faster price escalators it would be insufficient to peak pollution levels or maximise the Australian investment in our abundant clean energy resources," says Mr Connor.

“However, pollution prices of only $20–30 per tonne that increase slowly would need to be backed up with strong regulatory measures to encourage more efficient use of energy in the homes, industries, transport choices and to ensure we don't lock in investments in highly polluting traditional coal-fired power stations.”

The Sustainable Energy Association (SEA) says that reforms that produce cost-reflective pricing will eliminate a mechanism that led to subsidies for the use of fossil fuel in the generation of energy, and an absence of cost-reflective pricing that has perversely inhibited the take up of renewable energy in Australia.

“Continuing provisions to encourage the installation of renewable energy on the roof together, many will avoid rises in price of energy inclusive of any price on carbon as they will be generating and selling their own energy,” says SEA.

The Coalition campaign for direct action

Federal Opposition leader Tony Abbott has said that he believes climate change to be real and that he accepts that Australia needs a strong and effective policy to deal with it.

The Coalition’s Direct Action policy is to implement a climate change strategy based on ‘direct action’ to reduce emissions and improve the environment.

“Direct action on soil carbons will be the major plank of our strategy, supported by other direct action measures that will reduce carbon dioxide emissions by 5 per cent by 2020 based on 1990 levels and deliver significant environmental outcomes – without the need for a great big new tax,” says Mr Abbott.

The Direct Action plan includes an Emissions Reduction Fund to support emissions reduction activity by business and industry, Direct Action on Renewable Energy and a New Solar Sunrise for Australia, which includes a range of initiatives to boost renewable energy use in Australian homes and communities, including investing $100million each year for an additional one million solar energy homes by 2020.