Australia: radical carbon tax plan


Richard Moore

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Australian government unveils radical carbon tax plan

Australia’s PM Julia Gillard faces tough fight to convince public before parliamentary vote

Coal-fired power station near Sydney, Australia

Australia is the worst per-capita greenhouse gas emitter in the developed world, because of its reliance on coal for power generation. Photograph: Daniel Munoz/Reuters

Australia has unveiled its most sweeping economic reform in decades, including a plan to tax carbon emissions from the country’s worst polluters. As the largest emissions trading scheme outside Europe, it revives hopes of stronger global climate action.

The country’s prime minister, Julia Gillard, said 500 companies, including steel and aluminium manufacturers, would pay a A$23 (£15.40) per tonne carbon tax from next year, rising by 2.5% a year and moving to a market-based trading scheme in 2015.

“It’s time to get on with this, we are going to get this done,” Gillard said after a tough battle to win political support for a scheme that has polarised voters and business. A parliamentary vote on the scheme is expected before the end of the year.

Australia is the developed world’s worst per-capita greenhouse gas emitter because of its heavy reliance on cheap coal for power generation. Emissions are likely to rise in the booming economy without a carbon tax, the government says.

The stakes are high for Gillard’s Labor party, which relies on the support of Greens and independents for a one-seat lower house majority. Her popularity has slumped to record lows over the scheme.

Gillard will now try to convince voters opposed to the plan before the parliamentary vote, and try to deflect a campaign against it by the hardest-hit businesses. “It is absolutely critical that the government sells this very effectively,” said Tony Wood, director of the energy programme at the Grattan Institute policy thinktank.

Australian retail and clean energy stocks were expected to be among the plan’s winners, and airlines and miners among the losers, but analysts said financial markets overall were likely to take the policy in their stride.

The scheme aims to cut national emissions by 5% of 2000 levels by 2020, which would mean a cut of about 160m tonnes. The package already has the broad support of the Greens and independents, although crossbenchers said they had yet to support extra measures to protect jobs in the steel and coal industries.

Parliament has rejected two previous attempts to tax carbon emissions in 2009 and any fresh rebuff in the next vote, expected around October, would seriously threaten Gillard’s government. A vigorous campaign by the conservative opposition and business groups could erode public support and frighten political backers before elections due by 2013.

“This tax is going to go up and up and up as time goes by. I think this package is going to compound the trust problem that has dogged the prime minister. This package certainly sets up the next election to be a referendum on the carbon tax,” said the conservative opposition leader, Tony Abbott.

Abbott has seized upon voter fears of a new tax and higher costs from a scheme that aims to transform how the nation generates and uses energy across the economy.

To neutralise opposition, Gillard said more than A$24bn to be raised from pollution permit sales over the next three years would go to households through generous tax cuts worth more than A$15bn.

Australia’s scheme will cover 60% of carbon pollution apart from exempted agricultural and light vehicle emissions, with treasury models showing it would boost the consumer price index by 0.7% in its first year.

It could also aid global efforts to fight carbon pollution, which have largely stalled since the US president, Barack Obama, last year ruled out a federal climate bill in his present term. Outside the EU, only New Zealand has a national carbon scheme.

“Other countries will look at one of the most carbon polluting economies on the planet that has made one huge stride forward towards putting a price on carbon,” said John Connor, chief executive of The Climate Institute.

Australia said it hoped to link its scheme, which would cost A$4.4bn to implement after household and industry compensation, to other international carbon markets and land abatement schemes when its emissions market was running.

Europe’s system, which covers the 27 EU member states plus Norway, Iceland and Liechtenstein, has forced power producers to pay for carbon emissions, driving cuts where power plants were forced to switch to cleaner natural gas or biomass.