The cap is designed to shield companies, including miners, affected by the Federal Government’s draft emissions-reduction policy from the risk of future cost increases.
Under the draft policy, from July 1 Australia’s largest polluting sites – including many mining operations – will be expected to cut their emissions intensity by 4.9 per cent a year until 2030.
The plan, which is designed to encourage cleaner practices rather than cut production, allows businesses to use carbon credits to meet the reduction targets; businesses that exceed their emission cap will need to purchase carbon credits.
Capping the price of the credits at $75 per tonne, according to Federal Climate Change and Energy Minister Chris Bowen, is designed as a “safeguard mechanism” to help emissions-intensive, trade-exposed (EITE) companies plan their future investments with more price certainty.
The current price of carbon is $34 per tonne in Australia, but as high as $130 per tonne in Europe. The Australian price could increase to around $100 per tonne by 2030, according to industry analysts.
Minerals Council of Australia chief executive Tania Constable has expressed concerns that the cost of meeting the new emissions requirements could impact the export competitiveness of mining companies, which represent close to half of the facilities covered by the new plan.
“We want to see an approach that puts Australia on a pathway to that 2030 target, but we need to keep our trade-exposed export industries strong and competitive,” Constable said.
In addition to the cap on credits, the Federal Government is also for the first time considering a tariff on imported products made with a large carbon footprint and which do not have a carbon price.
This type of tariff would be an “extra layer of protection” for Australian EITE companies, many of which are anxious that any local emissions cap would have a negative impact on their business.
Bowen said that while it is time for Australia to consider such a tariff – a Carbon Border Adjustment Scheme (CBAM) – any decision will not be immediate.
“That is a big decision, not one that will be ready by this July, but one that we will consult on going forward to provide Australian industry with that extra layer of protection,” he said.
“But we can now have at least the conversation and the consideration of Australia’s role in the carbon tariff and CBAM conversation.”