Rick Morton Thursday 13 October 2011 10:00am

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Julia Gillard announces details of the carbon tax.

UPDATE: So it’s official. There’s going to be a price on carbon (colloquially known as a carbon tax). The Senate has to pass it still but that won’t be an issue with the new Greens senators in place. The package of bills, which includes assistance to the steel industry and low and middle income earners, will become law on July 1 2012. The bills passed in a narrow vote 74-72.

Protestors called the passing a ‘sad day for democracy’ and Ms Gillard said Tony Abbott and the Opposition were on the ‘wrong side of history’.

We’ve got a cheat sheet we wrote at the time of the price announcement which should get you across the basics.

Here’s the original cheat sheet:

Carbon Sunday came and has almost gone and we’ll begin the week with all the details of the Gillard Government’s carbon tax, which they are calling a ‘price on pollution’.

We’ll recap the basics below so you know what’s what, but first let’s get some thoughts from the major players, starting with a concise Prime Minister herself.

Julia Gillard said: “The essence of this could not be simpler. We will require around 500 big polluters to pay a price for the carbon pollution they put into our atmosphere. At the moment they can do that for free.  Because something they used to do for free now costs them money they will innovate, they will change, they will find a way to reduce that bill and in doing so will reduce emissions. This plan has been modelled by the same people who modelled the GST. They were right then and they have done the modelling this time around.”

Tony Abbott said: “If this is such a good package, why won’t she [Gillard] take it to an election? Why won’t she take it to an election soon? It’s socialism masquerading as environmentalism. I think this package is going to compound the trust problem which has dogged the Prime Minister ever since she politically assassinated Kevin Rudd.”

Barnaby Joyce said: “The Greens run the Labor party now. This is some biodynamic sensitive new age policy written by a bunch of people who probably wear koala suits. Labor’s own plan says emissions will still go up and they will buy permits overseas. People are going to be poorer, it’s as simple as that.”

So, we announced a carbon tax. But what happened really?

This is the crux of it. Today the Prime Minister announced a price on carbon of $23 per tonne which would be charged on some of the biggest 500 polluters in the country, revised down from an earlier 1000. This price per tonne of carbon dioxide released into the atmosphere will increase by 2.5 per cent each year until the carbon tax becomes an emissions trading scheme on July 1, 2015. What this basically means is that for now, the Government sets a price on pollution. In three years, the market will decide what that price is worth and the Government will simply set a cap on how much pollution our economy is allowed to create.

What’s the aim here?

The carbon tax is supposed to – and only time will tell – cut emissions by 5 per cent by 2020 and by 20 per cent in 2050. It is hoped this will be achieved by the cost incentives to big industry, forcing them to get creative in ways to reduce their impact on emissions released in to the air. These targets are modest. Some would call them pretty small and weak. Many have called them ‘an important first step’ in transitioning to a low carbon economy. Basically, it’s not much but it’s a start.

The scheme will apparently reduce carbon emissions in the air by about 159 million tonnes by 2020. That’s the equivalent of taking 45 million cars off the road, the Government says.

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So will everybody be paying a lot more money now?

According to Treasury modelling, not really. The average household costs rise will be about $9.90 per week according to the Government, but the average compensation directed back to those households in the form of tax cuts and other benefits will be worth $10.10. That means households will, on average, be 20 cents better off per week than before the carbon tax started. The Prime Minister says more than 50 per cent of the money raised from the tax will go back to households in the form of compensation.

Independent Senator Nick Xenophon said this was ‘incredibly inefficient’ and the Government was effectively ‘robbing Peter to pay Peter’.

What kind of compensation will there be?

About $15 billion in tax cuts for low and middle income earners.

Let’s list:

The tax free threshold will be tripled to $18,200 in 2012. This is pretty sneaky (but welcomed by many) welfare to work reform, separate from the issue of carbon but designed to help relieve cost pressure. This will rise to more than $19,000 later.

1.7% increase to the pension and family assistance benefits and payments.

• Up to $110 per child for a family that receives Family Tax Benefit Part A.
• Up to $69 extra for families that receive Family Tax Benefit Part B.
• Up to $218 extra per year for single income support recipients and $390 per year for couples combined for people on allowances.
• Up to $234 per year for single parents in addition to the increased family payments they receive.

Tax cuts for workers earning up to $80,000 a year worth up to $300.

$300 annual low income supplement.

Some 8 million households will receive  some form of assistance, and for 6 million this will mean they are able to meet cost rises. Another 4 million will be better off. So that’s 9 out of 10 homes that will get some assistance.

The Government has made this assistance calculator available so you can test your own carbon tax exposure, or lack thereof.

What does the tax cover?

The tax covers about 60 per cent of polluting industries but will not cover agriculture or petrol/light on road vehicles. Farmers won’t have to pay it, but they will receive incentives for every tonne of carbon they save from entering the atmosphere.

What help is there for industry?

About $9.2 billion is being made available to ‘emissions intensive, trade exposed’ industries such as coal and steel to help them make changes with out losing their competitive advantage.

A $10 billion Clean Energy Finance Corporation to fund new clean energy technology has also been set up.

Will it work?

This is the kicker. The debate today was not about whether climate change was real or not – the Opposition also concedes it is – but whether the carbon tax is the right way to go about addressing the human induced elements of it. Or whether it’s a harebrained scheme that won’t even work.

The jury appears to be out.

The real question as to whether it works or not is: is there any incentive to change? If the cost pressures are calibrated just right between pinching big polluters but not knocking them out of business altogether, then the catalyst for greener change might kick in.

Conversely, if the compensation is too high there will be no incentive for change at all.

What do you think? Did the Government hit the nail on the head or is the price on carbon a big swing and a miss? What would you have them do instead? And are you happy with the tax breaks?

Want a quicker rundown by video? This GetUp video will help get your head around it: