About the carbon pricing mechanism

Carbon pricing mechanism repeal

The Clean Energy Act 2011 has been repealed. This abolishes the carbon pricing mechanism from 1 July 2014. Liable entities must still meet their carbon price obligations for the 2013-14 financial year.

Content on the Clean Energy Regulator website will be progressively updated to reflect these changes. More information can be found on the carbon pricing mechanism repeal page.

What is it?

The carbon pricing mechanism was an emissions trading scheme that puts a price on Australia's carbon pollution. It was introduced by the Clean Energy Act 2011 and related legislation and applied to Australia's biggest carbon emitters (called liable entities). While the carbon pricing mechanism has been abolished from 1 July 2014 with the repeal of the Clean Energy Act 2011, liable entities must still meet their obligations under the carbon pricing mechanism for the financial years it operated, i.e. - 2012-13 and 2013-14.

Under the mechanism, liable entities must pay a price for the carbon emissions they produce each year. This covered approximately 60 per cent of Australia's carbon emissions including from electricity generation, stationary energy, landfills, wastewater, industrial processes and fugitive emissions.

The carbon pricing mechanism covered a range of large business and industrial facilities. It did not directly cover the vast majority of Australian businesses, including smaller businesses, or households.

How does it work?

Liable entities must report annually on their emissions or potential emissions in relation to the 2012-13 and 2013-14 financial years under the National Greenhouse and Energy Reporting Act 2007 (NGER Act).

For each of these financial years, liable entities must surrender one carbon unit for every tonne of carbon dioxide equivalent (CO2-e)—that they have produced in that financial year.

In 2012–13, the carbon price is a fixed price of $23 a tonne of carbon pollution, and in 2013–14 it is $24.15 a tonne. Liable entities can purchase carbon units at these fixed prices up to their emissions levels. Purchased units cannot be traded or banked. For more information, see fixed price 2012–14.

If a liable entity does not surrender any or enough units, it must pay a 'unit shortfall charge'. ÷ F

From 2012 to 2014, this charge is set at 130 per cent of the fixed price for the relevant financial year multiplied by the number of units is shortfall.

The unit shortfall charge creates an incentive to surrender units under the mechanism rather than pay the higher unit shortfall charge.

The carbon pricing mechanism includes systems for assessing liability for emissions, meeting liability for emissions through payment and surrender processes for eligible emissions units, and relinquishing units (in certain circumstances units are returned to the Commonwealth without them being surrendered).

How is liability decided?

An entity is liable if is is responsible for one or more facilities that emit covered scope 1 emissions of 25 000 tonnes of carbon dioxide equivalent (CO2-e) or more in an eligible financial year (i.e. in 2012-13 or 2013-14). An entity is also liable if it supplies natural gas, imports, manufactures or produces liquefied petroleum gas or liquefied natural gas for non-transport use in an eligible financial year, or if it is an OTN holder that has quoted its OTN in a way that gives rise to a liability. For more information, see what emissions types are in and out? From 1 July 2013 to 30 June 2014, eligible applicants of the liquid fuel opt-in scheme will also be liable.

Information collected through national greenhouse and energy reporting provides the basis for assessing liability under the carbon pricing mechanism. For more information, see the National Greenhouse and Energy Reporting (NGER) scheme.

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