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About the mechanism

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11 May 2015
CPM

This page provides information about the former carbon pricing mechanism scheme that was administered by the Clean Energy Regulator from 2012 - 2015. 

What was it?

The carbon pricing mechanism was an emissions trading scheme that put 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).

Under the mechanism, liable entities had to pay a price for the carbon emissions they produced in the 2012-13 and 2013-14 financial  years. 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.

The carbon pricing mechanism was repealed, with effect from 1 July 2014.

How did it work?

Liable entities reported 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 financial year, liable entities were required to surrender one eligible emissions unit for every tonne of carbon dioxide equivalent (CO2-e)—that they produced.

In 2012–13, carbon units could be purchased from the Clean Energy Regulator for a fixed price of $23 per unit, and in 2013–14 carbon units could be purchased for $24.15 per unit. If a liable entity did not surrender any or enough units, it incurred a 'unit shortfall charge'.

From 2012 to 2014, this charge was 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 created an incentive to surrender units under the mechanism rather than pay the higher unit shortfall charge.

The carbon pricing mechanism included systems for assessing liability for emissions, issuing free units to energy intensive trade exposed industries, 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 was liability decided?

An entity was liable if it was responsible for one or more facilities that emitted 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 was also liable if it supplied natural gas, imported, manufactured or produced liquefied petroleum gas or liquefied natural gas for non-transport use in an eligible financial year, or if it was an OTN holder that quoted its OTN in a way that gaves rise to a liability.

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