What carbon price is right to bite into, not bark at, climate change?

The carbon price represents the value that, we as a society, place on averting the worst climate damages. A $21 price [per tonne of carbon dioxide] says that we are not too concerned about it; the problem seems fairly small and most of its costs will be borne by future generations…

A $200 or higher carbon price sends a very different message and would result in a very different outcome… If applied world-wide in every economic sector, a $200-$500 per tonne carbon price would provide enough incentive to bring emissions down to levels consistent with a 50/50 chance of keeping long-term temperatures under 2⁰ C…

Dr Elizabeth Stanton, 2011

The carbon price has been introduced as a central element of the Federal's Government's plan to move Australia to a clean energy future. A focus for action for climate change is a new carbon-trading system that uses a two-stage pathway for pricing carbon.

The carbon-trading system was introduced against a background of continuing polarisation of public opinion against the need for any action for climate change. Also, there had been little public debate on alternative actions for climate change, other than the Federal Coalition's "Direct Action Plan" policy.

The first stage of the pathway for the carbon-trading system will be the three-year period, commencing 1 July 2012, when the price of carbon will be fixed like a "carbon tax". The carbon tax will be applied to 500 companies that account for around 60% of Australia's carbon dioxide emissions.

From 1 July 2012, the price of carbon will be $23 for each tonne of carbon dioxide. The price of carbon will then rise by 2.5 per cent each year; at the end of the three-year period the price of carbon will be around $25 per tonne.

A carbon price of $23 per tonne of carbon dioxide is higher than the prices paid in the EU over the past few years: the average price for each tonne of carbon dioxide in recent EU-ETS auctions (September-November 2011) was €11.20 ($AU14 approx.).

For the second stage of the pathway, the carbon tax pricing mechanism will transition to an emissions trading scheme where the carbon price will be determined by the market.

Emission targets, for reducing carbon dioxide emissions over time, have also been set by the Federal government.

By 2020, the goal of the Federal Government's clean energy plan is to reduce carbon dioxide emissions by at least 5 per cent compared with 2000 levels.

The Federal Government also has a new long-term target: to reduce carbon dioxide emissions by 80 per cent below 2000 levels by 2050. However, no details for the projected carbon price for each tonne of carbon dioxide for achieving this target have been given.

This gap in information is significant as it creates uncertainty whether Australia's carbon-trading system will effectively tackle climate change when considered against the social cost of carbon.