The Australian Government has introduced a carbon tax on each tonne of emissions produced by industry, with the aim to reduce Australia’s carbon pollution by 5 per cent by 2020 (measured against the base year of 2000). The tax will commence from the 1st July this year.
The carbon price will be fixed for the first three years and then be replaced by a market driven system referred to as an Emissions Trading Scheme (ETS) from 1 July 2015. The price or tax will start at $23 per tonne of CO2e (“e” represents “equivalents” as it is not just carbon dioxide that is measured) and will rise by 2.5 per cent annually over a three-year period.
The top 500 polluters will be required to pay the carbon tax. A facility must produce 25,000 tonnes a year or more of CO2e to be subject to the tax. This affects approximately 0.02 per cent of Australian businesses; these businesses account for around 60 per cent of Australia’s carbon pollution. It is likely that companies will pass this cost on to their customers, resulting in higher prices, particularly for energy.
Households will not be taxed under this scheme. The cost of living however, is expected to increase with the Government forecasting that average weekly household expenditure will increase by around $9.90 due the introduction of the carbon tax. The Government has legislated to provide assistance to households to help them meet higher living costs through increases to pensions, allowances and family payments, as well as income tax cuts to apply from 1 July 2012.
Small businesses with less than $2 million turnover a year will not be subject to the tax and do not have to monitor their carbon pollution. The carbon tax will not be applied to the agricultural or land sector.
Carbon Farming Initiative
The Government’s “Carbon Farming Initiative” (CFI) program can provide opportunities for economic rewards for farmers and landholders who take steps to reduce their carbon emissions.
Farmers and landholders may receive credits for each tonne of carbon pollution that is reduced or stored in land. These credits can then be sold to businesses to offset their carbon pollution. Participation in CFI is voluntary; farmers and landholders can choose whether or not to be involved.
Carbon credits represent reductions in greenhouse gases in the atmosphere through:
- Increasing the amount of carbon stored in soil or trees; or,
- Removing or avoiding emissions.
The larger carbon emitting businesses will find carbon farming credits more attractive than paying the carbon tax as the credit is expected to trade at a lower price than the fixed tax. The diagram below explains how the Carbon Tax and Carbon Farming Initiative interact:
There are seven key steps in participating in CFI, as demonstrated in the diagram below:
For an activity to be eligible under the CFI, it must:
- be within the scope of the CFI
- be covered by an approved CFI methodology
- be on the positive list, and;
- not be on the negative list.
Individual projects must also comply with other scheme requirements, including having the necessary water, planning and environmental approvals from all levels of government.
There are many organisations who claim they can measurably increase the level of carbon in soil. This is a worthwhile objective as it should result in a soil that is healthier, more productive and consequently more profitable. However it would seem, apart from planting trees, that the reality is that there is currently little practical knowledge and know-how to enable individual farmers to profit through the sale of carbon credits created and stored in the soil on their land.
There are also barriers around participation in the CFI that relate to the political climate, skills, market access, landholder resistance, information gaps and transactions costs.
What can you do in your home or business?
We anticipate that families and businesses will focus further on their already high energy costs and look to identify ways of using energy more efficiently.
Areas for consideration and review should include: motor vehicles, plant and equipment, heating/cooling and lighting etc. As well, businesses should look to improve systems and management practices to reduce energy (and consequently other) costs.
- Conventional wisdom suggests one hectare planted with trees should equal ten tonnes of carbon reduction.
- Buyers for carbon credits are wanting to buy in 10,000 to 50,000 tonne parcels.
- It is anticipated that Australia will not be able to generate anywhere near the required carbon credits to offset the carbon emissions produced in Australia.
- The Clean Energy Regulator (CER) started on 2 April 2012. It is the statutory authority under the Federal Government that will administer the carbon pricing mechanism, CFI, Australian National Registry of Emission Units, Liable Entities Public Information Database (LEPID) etc. Its chair and executive officer will be Ms Chloe Munro.
- The Opposition leader, Tony Abbott, has said that he will repeal the carbon price if elected in 2013.
- The National Carbon Offset Standard (NCOS) has been released. This document provides guidance for Australian business looking to offset their products with credits certified under the CFI.
If you would like more information please contact your local Boyce Accountant.
Director - Boyce Wagga Wagga