Government announces carbon price mechanism

On 24 February 2011, the Australian Government announced a two-stage plan for a new carbon price scheme to address climate change. The first part of the plan is a carbon tax before transitioning to a cap and trade emissions trading scheme. The Federal Government's aim is to reduce Australia's carbon emissions by 60% of 2000 levels by 2050.

Overview

Under the current proposal, Australia could have a fixed price on carbon as early as 1 July 2012 (subject to parliamentary approval this year). The fixed price term would last three to five years, with the price of carbon increasing to a predetermined rate in each year.

At the end of the fixed price period, the scheme could convert to a flexible price cap and emissions trading scheme.  However, an option could exist to defer the commencement of the flexible price.  Any decision to continue with the fixed price arrangements is likely to be taken 12 months before the end of the fixed price phase.  In making this