Australia launches carbon tax

Australian Prime Minister Julia Gillard.
Australian Prime Minister Julia Gillard.

Australian Prime Minister Julia Gillard has dug in on her prediction that Tony Abbott will not repeal the carbon price as promised, as Australians woke up to day one of the country's most profound economic reform in more than a decade.

Australia today joins a growing number of nations to impose a price on carbon emissions across its A$1.4 trillion (NZ$1.78t) economy in a bitterly contested reform that offers trading opportunities for banks and polluters but may cost the prime minister her job.

Gillard told the ABC's Insiders programme Abbott was bluffing when he repeatedly swore over recent days to make it his first priority on day one of a Coalition government, to begin the process of dismantling the carbon price.

"Even if Mr Abbott ever becomes prime minister in this country, he won't take carbon pricing away. He'll engage in a little fiddle, a little fudge, to kind of pretend, but carbon pricing will still be here," she said.

The A$23-a-tonne carbon price (NZ$29), to be paid by about 300 heavy carbon emitters - mostly companies and councils - comes into effect today. Its introduction comes after years of debate over carbon pricing as a solution to climate change, and also kicks off a fortnight of busy campaigning by the major parties.

The Gillard government believes that once the carbon price comes into effect, Australians will realise it has only a modest effect on their daily lives and the acrimony towards the policy will subside.

Abbott, appearing in Melbourne, repeated his vows to scrap the carbon price.

"The message that I can give to the Australian people right now, is that if they elect a Coalition government, there will be no carbon tax.

"Day one of a new government, the instruction will go to the public service to start preparing the legislation. On day one of the parliament, the carbon tax legislation will be introduced. That is my pledge to the people of Australia."

Gillard refused to directly answer questions on whether a Labor opposition would vote against Abbott's repeal. If Abbott wins government but not control of the Senate, Labor would need to decide whether to stick by the carbon price. If they do, Abbott would need to take the country to a double dissolution election.

But Gillard said: "As a Labor party, as a Labor government, we haven't done all this for no reason. We've done it because we believe it's pivotal to Australia's future, so of course we will seek to protect it."

Polls indicate that the carbon price has caused deep concern among voters. The government's own modelling suggests electricity prices will rise about 10 per cent because of the carbon price - a sensitive issue after the steady hikes in power bills of recent years.

But the government's modelling also shows the overall rise in the cost of living because of the carbon price will be just 0.7 per cent.

Gillard, her poll ratings near record lows and her Labor party heading for a heavy election defeat, hopes the campaign against the tax will quickly run out of steam once the scheme starts.

"Cats will still purr, dogs will still bark," Gillard said after Opposition leader Tony Abbott's visit to an animal shelter to warn of higher electricity prices on charities. "The leader of the opposition's fear campaign will collide with the truth."

Greg Evans, director of economics and industry policy for the Australian Chamber of Commerce and Industry, rejected suggestions that once the carbon price was in, the business community's concerns would be better met by adjusting the scheme rather than scrapping it.

"There is no room for compromise on these issues. We need to get that monkey off our back," he said. "We don't believe it should be modified. It should be abolished."

He said the overwhelming message from the 350,000 businesses the ACCI represents was that they would rather see greenhouse emissions reduced through energy efficiency and technology rather than a carbon price.

Australian Conservation Foundation chief executive Don Henry said carbon emissions carried a cost but until today, the big emitters had been pumping out carbon for free.

"From today, Australia is finally putting its money where its mouth is on climate change  it is no longer free for big companies to pollute our shared atmosphere," he said.


But voters remain angry that Gillard broke a 2010 election promise not to introduce a carbon tax and many observers think government hopes of a resurgence after July 1 are unlikely.

"The damage is already done," political analyst Nick Economou at Monash University said.

"What will be interesting is whether Labor takes the lemming option and follows her over the cliff, or whether it decides that she is the cause of their problems and has to go."

A poll by the respected Lowy Institute think-tank found 63 per cent of voters oppose the carbon scheme.

Many big polluters, such as miners, also remain vehemently opposed and uncertainty over its future is crimping investment in the power sector.

UBS has cut its earnings estimates for global mining houses BHP Billiton and Rio Tinto by between 3 and 4 per cent ahead of the carbon tax and another tax on mining profits also due to start.

The Australian carbon scheme is the product of years of fierce bargaining with business and political parties.

It will initially cover just under 300 companies and councils that comprise about 60 per cent of the nation's roughly 550 million tonnes of CO2.

For the first three years, polluters will pay a fixed price for CO2 emissions, reaching A$25.40 a tonne in the final year.

From July 2015, emissions trading with regular auctioning of pollution permits will start, along with rules that allow polluters to buy overseas emission reduction offsets, such as Certified Emission Reductions (CERs), part of the United Nation's Kyoto Protocol climate pact.

A floor of A$15 a tonne and a cap of A$20 above the expected international price will run till 2018.


Despite the scheme's soft start and openness to international markets, bankers and big polluters remain cautious, with opposition leader Abbott's "blood oath" to repeal the scheme stirring deep unease.

Traders are also awaiting final rules on implementing the floor price on international units.

Morgan Stanley says it is likely there will be very limited trade in international units until there is certainty on the repeal risk, plus clarity on the 2015-18 floor price and whether Australia agrees to a second commitment period under Kyoto.

"Since a domestic unit auction will most likely not occur until after the next election in late 2013, if the Opposition is still talking about rescission and repeal, it is unlikely that a forward market will develop in these units," Emile Abdurahman, executive director of Morgan Stanley Commodities in Sydney, said in emailed comments.

For now, repeal remains a real possibility because of the way it has polarised the country, Australian National University climate policy analyst Frank Jotzo wrote in a recent commentary.

"Australia's carbon pricing mechanism might enter history as one of the best-designed yet shortest-lived policies for climate change mitigation."

- Sydney Morning Herald and Reuters