So how does a carbon tax work? 

Recently, the Government released details about the new Clean Energy Agreement that aims to reduce the country's emissions by 5% of 2000 levels by 2020.

This will be achieved by introducing a fixed price on carbon pollution on the 1st of July, 2012. The price will be AU$23 per tonne CO₂e  (rising at 2.5% per annum).

Preceding this, on 1st July 2015, an emissions trading scheme will be introduced meaning the price of carbon will be flexible and will be dertermined by the market.

There will be a price ceiling and floor that will apply for the first three years of the flexible price period. The price ceiling will be set at $20 above the expected international price and will rise by 5% each year. The price floor will be $15 rising annually by 4%.

Initially the carbon pollution tax will cover approximately 60% of Australia's emissions (360M t per annum) in the stationary energy sector, transport, industrial processes, non-legacy waste and fugitive emissions.

The Carbon Farming Initiative will play a major role in efforts to reduce Asutralia's emissions within a limited time. Companies are able to use Kyoto-compliant Australian Carbon Credit Units (ACCUs) created under the CFI to meet their obligations under the new plan.

For those who are still unsure about how exactly a price on carbon actually works, watch the video below for a simple explanation.

For anyone wanting to find out more about the Carbon Farming Initiative, feel free to drop us a line at anytime.

Cheers

Charlie