Australia’s carbon tax is set to become law after legislation passed parliament on the 8th of November, to establish the world’s most broadly based carbon pricing scheme.

The tax is aimed at putting a price on pollution to encourage businesses to lessen their impact on the environment and climate change. Below are some key details of the scheme and what impact’s you can expect it to have.

What is the carbon tax?

The carbon tax is a fixed price tax where the 500 businesses in Australia that release the most pollutants into the environment are taxed at a fixed price. The package allows Australia to take advantage of the economic and job opportunities that will come as the world tackles climate change and shifts to a clean energy future.  Below is a diagram of how the carbon scheme works:

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How much will the carbon price be?

For the first three years the carbon price will be fixed like a tax, before moving on to an emissions trading scheme in 2015. In the fixed price stage , which runs from 1 July 2012 to 30 June 2015, the carbon start at $23 per tonne of carbon dioxide and rise by 2.5 per cent a year in real terms each year for the 2 years after its’ introduction.  ($24.15 per tonne from 1 July 2013, $25.40 from 1 July 2014). From 1 July 2015 onwards the price will be set by the market and the number of permits issued by the Government each year will be capped.

Who will pay the carbon price?

Under the legislation, about 500 of the biggest carbon-emitting companies in Australia will pay a price for each tonne of carbon. Most of the biggest emitters are electricity generating firms, mining companies and heavy industry manufactures.  However, those businesses will likely pass on the extra costs of the tax to all consumers.  The Australian Government estimates that the carbon tax will raise approximately $24.5 billion from 2012 to 2015.

What will happen to the extra money raised through the carbon tax?

Approximately $15.3 billion will be used to fund tax cuts to Australian households, household energy efficiency measures, and boost pension payments and other welfare benefits.  The remainder of the funds will be used for job support and to assist industry transition, as well as offering various lump sum payments and go toward building our new clean energy future.

When will the carbon tax start?

The carbon tax will commence on 1 July 2012.

What is the Emissions Trading Scheme?

The Emissions Trading Scheme (ETS) is planned to be introduced from 1 July 2015.  It is different to the carbon tax.  The ETS is where the Government sets a limit on the amount of pollution that can be released each year.  Businesses who emit pollution will need to compete for permits, and clean energy producers can trade permits. Some of the carbon permits issued each year will be sold by the Government at auction. Others will be allocated to businesses without charge to support jobs and competitiveness, and help strongly affected industries make the transition a clean energy future.

How will the cost of living change in Australia because of the carbon tax ?

The Government estimates that prices will rise by 0.7% across the economy, with the average cost of living for Australian households increasing by $9.90 per week ($514.80 per year), including $3.30 on electricity.  The Government’s extra benefits and tax breaks will provide compensation (estimated to be $10.10 per week) to most Australian households with 4 million being better off. The tax cuts will start from July 1 next year while most welfare recipients will receive a lump sum advance payment in May / June next year and higher regular payments from July 1.

What about the tax cuts and welfare payments?

The government isn’t so much cutting the tax rates as tweaking the lower end of the tax scales to deliver the biggest tax cuts to lower earners. Australians on low or middle incomes will receive tax cuts as well as increases to pensions and welfare payments to compensate for the price rises associated with the introduction of the carbon tax.

What will the new tax rates and welfare payments be?

From 1 July 2012, the current tax free threshold of $6,000 will rise to $18,200, and $19,401 from 1 July 2015.  However the two lower end tax rates are being increased. The current 15 per cent rate will be lifted to 19 per cent from 2013 and the 30 per cent rate will rise to 32.5 percent from 2013 and 33 per cent from 1 July 2015. The government is also cutting the low-income tax offset from $1500 to $445 and reducing the withdrawal rate (the rate at which you lose the offset once your income exceeds $30,000) from 4 per cent to 1.5 per cent. From July 1 next year, the income at which the offset starts to phase out will also be lifted from $30,000 to $37,000.

There will be a 1.7 per cent increase in pensions, allowances and family benefits. So if you’re eligible for the age or a veteran’s pension, family tax benefit, or some form of income support, you will receive a lump-sum advance next year then increased payments.

How will the carbon tax reduce pollution?

Currently, releasing carbon pollution is free despite the fact that it is harming our environment. A carbon price changes this. It puts a price on the carbon pollution that Australia’s largest polluters produce. This creates a powerful incentive for all businesses to cut their pollution, by investing in clean technology or finding more efficient ways of operating.

If businesses can lower their pollution, the price they pay will be less. This is how the carbon price drives innovation and energy efficiency. It encourages businesses across all industries to find the cheapest and most effective way of reducing carbon pollution, rather than relying on more costly approaches such as government regulation and direct action.

The Government estimates that the carbon tax will cut around 159 million tonnes of pollution from the atmosphere by 2020.

Opposition Leader Tony Abbot has vowed to repeal the legislation if he becomes Prime Minister, though the government has insisted he will not be able to manage that.

You can get more information, including an estimate of your own compensation, at

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