Australia Plans to Set a Price on Carbon

In July 2011 Australian Prime Minister Julia Gillard announced plans to impose a carbon tax of A$23 per ton of carbon dioxide emissions to take effect on July 1, 2012. As reported by Reuters, the tax would increase 2.5% per year until 2015 when it is planned to convert to a cap and trade system similar to that in the European Union. Australia's carbon emissions trade scheme would be the largest outside Europe.

Australia intends to cut about160 million tons of CO2 by 2020 which means reducing emissions by 5% compared to 2000 levels. Australia is the largest per capita carbon emitter in the developed world since the country relies on coal for 80% of its energy generation and is a major exporter of coal.

According to the BBC, the carbon tax would apply to any company that produces at least 25,000 tons of carbon dioxide per year and would affect about 500 companies including steel and aluminum manufacturers. Agriculture, forestry and land would be excluded from the tax. Motorists, except for heavy trucks would also be excluded. But according to the BBC article, consumer prices could rise by nearly 1% and polls show that roughly 60% of voters are against the policy.

Madeleine Coorey, reporting for AFP, indicates that in the emissions trading scheme to take effect in 2015, a floating price would be set by the market. The government would set a floor price and an upper limit. The revenue generated by the carbon tax for the first three years would be used in large part to make higher family payments, boost pensions, and provide tax cuts to offset the increased cost of living.

According to the AFP article, the Australian government would set up a $10 billion Clean Energy Finance Corporation to fund renewable energy projects. The coal industry would receive $1.3 billion to protect jobs and compensate for the tax.

Bloomberg Businessweek reports that the Australian government would provide $A9.2 billion in the form of free carbon permits over three years to help businesses such as aluminum smelting, steel making and pulp manufacturing. And A$300 million would be allocated to steelmakers to invest in innovation. According to the report the government has also indicated that it would provide loan support to electricity suppliers and payment for the closure of coal-fired plants to remove up to 2,000 megawatts of their capacity by 2020.

Kane Thornton, director of strategy at the Clean Energy Council is quoted in the Bloomberg Businessweek article as indicating that a carbon price could trigger about A$20 billion in renewable energy investments by 2020. Sajal Kishore of Fitch Ratings pointed out that investments in new gas-fired plants could reach A$14.7 billion through 2016. And AGL Energy Ltd., an Australian energy company building an A$1 billion wind farm in Victoria state, indicated that the company supports the establishment of a carbon price to provide investment certainty.

According to Reuters, the Australian Parliament has previously rejected attempts to impose a carbon tax. Prime Minister Gillard is counting on the support of Greens and independents for a one seat majority vote in the lower house of Parliament in the face of strong opposition from business groups and the conservative party.

Sources:

Australia plans to impose carbon tax on worst polluters, BBC

James Paton, Gillard sets A$23 Carbon Tax to Cut Australia Coal Reliance, Bloomberg Businessweek

Madeleine Coorey, Australia sets carbon tax to fight climate change, AFP