Australia's Carbon Pricing Mechanism

Abstract

The commencement of the carbon pricing mechanism (CPM) on 1 July 2012 marks a significant milestone in Australia’s legal and policy response to climate change. Negotiated as part of a suite of measures forming the Clean Energy Package, the CPM represents an important achievement for Australia, which has up until this point struggled to implement comprehensive national climate change policy. After an initial fixed price period, the CPM will transition to fully flexible cap-and-trade emissions trading scheme on 1 July 2015, bringing it into line with other jurisdictions around the world. This note outlines five key features of the CPM: (1) the institutions and governance arrangements; (2) the price containment measures; (3) the scope for inclusion of offset credits; (4) the possibility for linking with other emissions trading schemes; and (5) the compensation arrangements for emissions-intensive industries. The article comments on how these design features affect Australia’s ability to contribute effectively to global emissions reduction efforts through the CPM.