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Carbon pricing mechanism—economic solutions to environmental problems

Posted on August 16, 2011 16:41

Australia is one of the top 20 carbon polluters in the world due to a heavy dependence on cheap and abundant coal for electricity generation. Transport, agriculture, deforestation and industry are also big contributors to our carbon pollution problem.

The Australian Government has determined that a market-based carbon pricing mechanism is the best option to tackle climate change issues in an economically efficient and environmentally effective way.

According to Australian Government Treasury modelling, delaying global action by just three years will add around 20 per cent to the initial global mitigation cost. Delaying another three years will add another 30 per cent to the initial mitigation cost, providing a clear incentive for action to be taken now.

The Australian Government’s Clean Energy Future Plan helps to move Australia towards a decarbonised economy through a carbon pricing mechanism. The plan has four main elements:

introducing a carbon price as an incentive to promote clean and affordable technology
promoting investments in renewable energy
promoting energy use efficiency
creating opportunities in the land sector to cut emissions.

The carbon pricing mechanism is the first element under the Clean Energy Future Plan. Under the carbon price mechanism, the country’s 500 biggest polluters will have to pay for every tonne of carbon emitted into the atmosphere. Pricing carbon will encourage cleaner and greener energy production as demand shifts toward cleaner, non-carbon-intensive technologies such as solar and wind.

The Australian Treasury model predicts that as a result of carbon pricing, in 2050 the contribution from renewable energy to our electricity generation will be 40 per cent, compared to current contribution of around 10 per cent.

Promoting investment in clean and affordable technology is the second element under the plan. This will be enhanced through significant government funding to promote clean energy technologies.

Reducing carbon emissions by promoting efficient energy use is the third element of the Clean Energy Future Plan. In addition to reducing carbon emissions, this initiative has other benefits, including improving energy security and helping communities and businesses cope with rising energy prices. One proposal under this initiative is to expand the Low Carbon Communities program from $80 million to $330 million to help councils and communities improve their energy efficiency.

Under the expanded Low Carbon Communities program, grants will be provided for pilot programs to promote energy efficiency and improve energy and financial sustainability in low-income households. Grants will also be made available for local councils and community organisations to upgrade community facilities to promote energy efficiency in communities.

Landholders will be pleased to know that under the Clean Energy Future Plan the carbon price will not apply to the agriculture sector. Farmers and landholders will not have to pay for their emissions but they will benefit through the scheme. The carbon pricing mechanism is intended to increase farmers’ income and create new job opportunities to regional and rural Australia through the Carbon Farming Initiative (CFI).

Regional farmers and landholders will benefit financially through the CFI by creating and selling credits for each tonne of carbon emissions reduced or stored in the land and other co-benefits, such as improved biodiversity, reduced land degradation and increased resilience to adverse weather conditions. These CFI credits can be sold in the Kyoto Protocol compliance market as well as in voluntary markets. The CFI includes emission avoidance projects such as controlled savanna burning and feral animal management, as well as sequestration projects such as forestry and soil carbon projects.

Further information
www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/securing-a-clean-energy-future-summary.pdf

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Carbon pricing mechanism—economic solutions to environmental problems

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