Australia is first nation to put a price on carbon

Australia's 500 biggest polluters will pay A$23 (US$24.6) per tonne of carbon emitted into the atmosphere from July next year.

The country has one of the highest rates of greenhouse gas emissions per head of population in the developed world. The population of 22.6 million is responsible for around 1.3 per cent of the world's carbon dioxide emissions.

By 2020, the new carbon tax plan should cut Australia's carbon emissions by 5 per cent, relative to 2000 levels. This adds up to around 159 million tonnes of carbon pollution – equivalent to removing 45 million cars from the road, according to the Australian government. And by 2050 the government is promising to reduce its carbon emissions by 80 per cent, relative to 2000 levels.

The scheme was announced by Australia's prime minister Julia Gilliard in an address to the nation on Sunday. "We are going to create a clean energy future," she said.

The price of carbon, initially fixed at A$23 per tonne, will rise by 2.5 per cent each year in real terms until July 2015. After that date an emissions trading scheme will be introduced.

A$10 billion of the expected revenue from the package will go towards funding low pollution measures, energy efficiency initiatives and renewable energy technologies including solar, wind and geothermal power. Other revenue will go towards improving energy efficiency in the manufacturing sector, training support to move people from jobs in polluting industries, and tax cuts so the cost of living doesn't rise for most Australians.

"The package is not perfect," says Don Henry, executive director of the Australian Conservation Foundation. The starting price of carbon is "less than ACF called for", he says, but it is a "foundation on which we can build a low-carbon economy".