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Carbon pricing mechanism

Accelerating carbon abatement for Australia by pricing carbon from 2012–2015

Purpose

The carbon pricing mechanism contributed to a reduction in Australia's net greenhouse gas emissions by requiring Australia's largest carbon emitters to report and pay for emissions they produced.

The mechanism was in place from 2012–15. It was repealed with effect from 1 July 2014, with obligations from the 2013–14 year continuing into 2015.

Performance

In summary, the carbon pricing mechanism achieved its aim in 2014–15, with close to 100 per cent compliance and payments made for more than 286 million tonnes of emissions produced during 2013–14.

How it worked

Under the carbon pricing mechanism, Australia's largest carbon emitters, called liable entities, were required to report and pay for the carbon emissions they produced.4

Liable entities had to purchase and surrender one eligible emissions unit for each tonne of carbon dioxide equivalent (CO2-e) emissions produced. If they did not surrender enough units, they became liable to pay a shortfall charge.

The carbon pricing mechanism applied to approximately 60 per cent of Australia's carbon emissions including from electricity generation, stationary energy, landfills, wastewater, industrial processes and fugitive gas emissions.

The repeal of the Clean Energy Act 2011 abolished the carbon price from 2014–15.

Reporting emissions and surrendering units

During 2014–15, liable entities still had to meet their obligations for the carbon price that applied to the 2013–14 year. This included reporting on their 2013–14 emissions, both interim and final numbers, and surrendering enough eligible emissions units to acquit their liability.

Liable entities with an interim emissions number for 2013–14 had to report and surrender sufficient emissions units to meet their provisional liability by 16 June 2014.5

All liable entities had to report a final emissions number for 2013–14 by 31 October 2014. Final liability was determined by the final emissions number minus provisional liability (if any). Liable entities were required to surrender sufficient emissions units to meet their final liability by 2 February 2015.

In total for 2013–14, emissions of 287 414 693 tonnes of C02e greenhouse gases were reported and 286 001 110 eligible emissions units were surrendered (see full details in Table 6 on page 42).

Compliance rate

The Clean Energy Regulator provided education and training support to liable entities (clients) throughout the year.

The resulting 2013–14 compliance rate was very high:

SNAPSHOT

99.5% of the total carbon price liability across 2013–14 was acquitted on time.

  • 100 per cent of liable entities required to do so reported interim emissions numbers on time
  • 100 per cent of liable entities reported final emissions numbers, and
  • 99.5 per cent of the total liability across 2013–14 was acquitted on time.

Shortfall charges

Liable entities that did not surrender enough emissions units incurred a shortfall charge.

The Clean Energy Regulator has an obligation to pursue any unpaid debts from shortfall charges as well as any charges or penalties required to correct previously reported emissions under the carbon pricing mechanism.

During 2013–14, liable entities could purchase carbon units from the Clean Energy Regulator for a fixed price of $24.15 per unit. The unit shortfall charge was 130 per cent of the fixed price, multiplied by the number of shortfall units. This created an incentive to acquire and surrender units under the carbon pricing mechanism, rather than pay the higher unit shortfall charge.

In 2013–14:

  • Three liable entities did not meet the provisional deadline for 2013–14 and incurred a provisional unit shortfall charge. Two of these liable entities were under administration.
  • Three liable entities (including the two under administration) did not meet the final deadline for 2013–14 and incurred a final unit shortfall charge.
  • Five liable entities incurred an estimation error shortfall charge as a result of reporting an interim estimate of 75 per cent of their 2013–14 emissions in June 2014, which proved to be a low estimate when assessed against their full-year report in October 2014.
Table 6: Results of the 2013–14 compliance period under the carbon pricing mechanism
ActivityResult
Liable entities362
Total emissions numbers reported in tonnes of carbon dioxide equivalent greenhouse gases (includes emissions reported for the 2013–14 interim period in June 2014)287 414 693
Provisional unit liability (due by 16 June 2014)203 507 553
Balance of unit liability (due by 3 February 2015 )83 907 140
Eligible emissions units surrendered286 001 110
Provisional unit shortfall948 999
Final unit shortfall334 446
Estimation error unit shortfall 130 138

Outstanding shortfall charges and penalties

The Clean Energy Regulator is pursuing outstanding shortfall debts from 2013–14 and 2012–13.

On 30 June 2015, total outstanding shortfall-related debts were approximately $54 million. This includes approximately $45 million in unpaid shortfall charges and approximately $9 million in late payment penalties that continue to accrue at a rate of 20 per cent per annum.

The Clean Energy Regulator is continuing to work with the three liable entities responsible, to recover the outstanding shortfall charges and penalties.

Table 7: Summary of outstanding shortfall charges at 30 June 2015
ActivityResult
2012–13 provisional unit shortfall$1.57 million
2012–13 final unit shortfall$6.36 million
2012–13 estimation error unit shortfall $0.62 million
2013–14 provisional unit shortfall$34.34 million
2013–14 final unit shortfall$11.16 million
2013–14 estimation error unit shortfall$0

Liable Entities Public Information Database

Under the Clean Energy Act 2011, the Clean Energy Regulator was required to keep a database known as the Liable Entities Public Information Database. This database contains details of all persons the Clean Energy Regulator had reasonable grounds to believe were, or were likely to be, liable entities in either 2012–13 or 2013–14.

Even though the carbon pricing mechanism was repealed with effect from 1 July 2014, the Clean Energy Regulator was required to maintain the Liable Entities Public Information Database and make it publicly available until 30 June 2015.

As at 30 June 2015:

  • 349 liable entities, representing reported total emissions numbers of 284 666 610 were listed on the database for 2012–13, and
  • 362 liable entities, representing reported total emissions numbers of 287 414 693 were listed on the database for 2013–14.

The database also included information on the numbers and types of units surrendered by liable entities and any shortfall charges.

Jobs and Competitiveness Program

The Jobs and Competitiveness Program assisted 'emissions-intensive trade-exposed' entities that faced high carbon pricing mechanism costs but were constrained in their capacity to pass through those costs in markets.

The Jobs and Competitiveness Program issued free carbon units to eligible applicants. In 2014–15 the Clean Energy Regulator continued to receive applications relating to both 2012–13 and 2013–14.

Applications for 2012–13

This year the Clean Energy Regulator received five Jobs and Competitiveness Program applications relating to 2012–13 (in addition to the 132 applications received during 2012–13 and 2013–14).

These applications were allowed due to additional activities added to the eligibility criteria that applied retrospectively to 2012–13.

The Clean Energy Regulator processed four applications within legislated timeframes. One application was processed outside legislative timeframes due to legislative complexities.

Of the five applications, four were approved and one was refused. In addition, one outstanding application (out of the 132 applications received before 2014–15) was approved during 2014–15.

A total of 32 647 free carbon units (of 2013–14 vintage) were issued in 2014–15, relating to the five approved applications relating to 2012–13.

Applications for 2013–14

This year the Clean Energy Regulator also received five Jobs and Competitiveness Program applications relating to 2013–14 (in addition to the 128 applications received during 2013–14).

All five were approved within legislated timeframes. In addition, one application from 2013–14 (out of the 128 applications received during that year) remained pending at 30 June 2015, subject to legal advice on the specific case. Another 2013–14 application was processed in the prescribed timeframe but is subject to a review of the original decision.

A total of 102 240 free carbon units were issued in 2014–15, relating to the five approved applications for carbon price liability in 2013–14.

The 2013–14 'true-up'

Allocations of free carbon units issued under the Jobs and Competitiveness Program for 2013–14 were subject to a final 'true-up' process this year. This was in accordance with the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 and Clean Energy Legislation (Carbon Tax Repeal) (Jobs and Competitiveness Program) Rules 2014.

The aim was to correct any under-allocation or over-allocation of free carbon units for 2013–14 by issuing additional free carbon units or requiring carbon units to be relinquished or payment of an equivalent cash amount.

The Clean Energy Regulator received 100 true-up reports. Of these:

  • 56 under-allocations were identified, resulting in an additional 2 839 738 free carbon units (of 2013–14 vintage) being issued, and
  • 43 over-allocations were identified, requiring 2 218 337 free carbon units to be relinquished or payment of an equivalent cash amount (at $24.15 per unit).

By 2 February 2015, a total of 602 945 free carbon units were relinquished and cash payment6 was received for 1 144 636 free carbon units.

After 2 February 2015, the value of all outstanding over-allocated units was required to be paid in the form of a true-up shortfall levy of $24.15 per unit. The Clean Energy Regulator issued 18 true-up shortfall levy notices regarding the 470 756 outstanding over-allocated units and all true-up shortfall levies were paid by 30 June 2015.

A total of 99 true-up reports were finalised by the legislated deadline of 2 February 2015.

As at 30 June 2015, the Clean Energy Regulator was working with one remaining company to finalise their true-up report.

Energy Security Fund

Under the Energy Security Fund Coal Fired Generators Assistance—Free Carbon Units scheme (Energy Security Fund) the Clean Energy Regulator had previously provided assistance to nine pre-qualified coal fired electricity generators.

The Energy Security Fund was discontinued from 1 July 2014 when the Australian Government abolished the carbon price mechanism and no free carbon units were issued under this scheme from the start of 2014–15.

FEATURE

A coal train to represent a liable entity under the former carbon pricing mechanism.

Efficient and affective administration

Carbon pricing mechanism closes with well-planned efficiency

When the Australian Government repealed the carbon price, it removed the obligation for liable entities to report and pay for their carbon emissions for future years. The Clean Energy Regulator was responsible for ensuring efficient and effective closure of carbon pricing obligations for 362 liable entities, while still ensuring they correctly acquitted their liabilities by the deadline of 2 February 2015.

Over the two years of the scheme, the agency refined its systems, built strong relationships with liable entities, and achieved consistently high compliance rates. Collaboration across the agency proved key to achieving more than 99.5 per cent compliance by clients in acquitting their carbon price liabilities by 30 June 2015.

The agency employed active case management—delivering regular, individually targeted client education and assistance—to help clients comply and avoid shortfall charges. The agency identified areas where there were higher risks of shortfall charges and resolved system, process and technical issues to support clients to meet their obligations. The agency also pursued debts to ensure all entities paid outstanding amounts in accordance with the legislation. The only outstanding debts relate to companies in administration or receivership.

Since 2 February 2015, the agency has modified its systems, archived records and updated its website to reflect the repeal of the carbon price. The agency has incorporated lessons learnt from administering the scheme to build on existing systems and processes, and redirected staffing and resources to deliver the Emissions Reduction Fund.

The positive response from clients is reflected in the following feedback:
'Your help in getting us to the end of this is much appreciated.'

Image acknowledgment: Clean Energy Regulator. A coal train to represent a liable entity under the former carbon pricing mechanism.

4 Entities were liable if they were responsible for one or more facilities that released 'covered scope 1 emissions' of 25 000 tonnes of CO2-e or more in an eligible financial year. Covered scope 1 emissions means greenhouse gas released into the atmosphere as a direct result of a facility's activities.

5 An interim emissions number is a representation of 75 per cent of the liable entity's estimated liability for the relevant financial year. Not all liable entities had interim emissions number/s. To have interim emissions number/s, direct emitters had to have provisional emissions not less than 35 000 tonnes for the facility in both 2011–12 and 2012–13.

6 Electronic funds transfer made to the Clean Energy Regulator.

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