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Energy and the Environment

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  1. Introduction
  2. Transport Fuels
    5 Topics
  3. Energy Sources: Fossil Fuels
    8 Topics
  4. Energy Sources: Renewables
    10 Topics
  5. Electricity
    10 Topics
  6. Energy Sources: Nuclear
    6 Topics
  7. Demand Response
    6 Topics
  8. Energy/Emissions Policy
    15 Topics
  9. Energy Economics
    2 Topics
    1 Quiz
Lesson 8, Topic 15
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Carbon Pricing Mechanism

Abdulaziz July 19, 2020
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Carbon pricing covered:
electricity generation, stationary energy, landfills, waste water, industrial processes and fugitive emissions

Carbon pricing did not cover:
agriculture, transport fuels, synthetic greenhouse gases, decommissioned underground coal mines, legacy emissions from landfills, combustion of biomass, biofuels, and biogas.

Exclusions fell into 2 categories

  • Emissions that were not covered by the mechanism but were covered by an equivalent emissions price:
    • Non transport or off road use of petroleum, excl petroleum used by agriculture, forestry, and fishing
    • Synthetic GHGs hydrofluorocarbons and sulphur hexafluoride)
    • Aviation fuel
  • Emissions without a carbon price or equivalent:
    • Petroleum fuels used by cars and light commercial vehicles
    • Petroleum fuels used by agriculture, forestry, and fishing
    • Small uses of coal
    • Decommissioned mines
    • Waste deposited before July 1, 2012
    • Sub threshold facilities (those emitting less than 25,000 tonnes annually)

Fixed vs Flexible Price period

  • Fixed Price period:
    • During this period, the government issued an unlimited number of carbon units at the specified price
  • Flexible Price period:
    • carbon pollution cap was to limit the total carbon units that the government can issue (by auction or free distribution) each year

Industry assistance

  • ‘assistance’ provided to industries for certain ‘emissions intensive trade exposed’ (EITE) activities
    • free carbon permits worth up to 94.5% or 66% of the average carbon cost in the first year
  • assistance level reduced by 1.3% each year and was to be guaranteed until 2017
    • provided industry ~6 years notice top reduce emissions

Assistance provided to prevent ‘Carbon leakage’

  • When some manufacturers incur carbon cost & some do not
    • (competing in the same)
  • manufacturer incurring a carbon cost is penalised
    • the market price is set by a lower cost provider who does not incur a carbon price
  • result is “carbon leakage”
    • manufacturer with embedded carbon cost struggles to compete
    • market share gained by producer not subject to carbon price
      • Manufacturer with embedded carbon cost may move manufacturing to new location where there is no carbon cost and import products instead of manufacturing locally
  • emissions ‘leak’ from the country/economy without a carbon price
    • no change in consumption
    • only change in location of emissions
    • jobs / profit sent elsewhere