Australia’s plan to tax carbon emissions cleared its final political hurdle on Tuesday but industry groups remain critical of the scheme, arguing it’s too expensive and will deliver few benefits to the wider economy, or succeed in cutting pollution.
Prime Minister Julia Gillard described the legislation passed by Australia’s Senate as “historic” after years campaigning for what is hoped will create a new platform for companies to trade carbon credits and cut pollution. Australia is one of the biggest emitters of carbon per head globally due to its heavy use of coal-fired power generators, which account for about 75% of electricity output, and the new tax is intended to cut carbon pollution by 160 million tons a year by 2020.
The tax will be charged at a fixed price of 23 Australian dollars (US$23.50) per carbon ton from the country’s top 500 polluters starting from July 2012, increasing 2.5% annually until 2015 before changing to a floating-rate price with the government controlling the amount of tradable permits released annually and implementing a price floor and ceiling. At that point companies will be able to trade carbon credits and the scheme is expected to be linked with other systems in New Zealand and Europe.
Business groups have criticized the tax, which they say will add to company expenses and do little to cut global pollution because Australia exports much of its carbon in the form of coal, gas and minerals used for steel making.
“The passage of the climate change legislation with a high starting price and no flexibility to adjust the price in the initial years is deeply disappointing,” Heather Ridout, the chief executive of the Australian Industry Group, said. “This is especially so given the extremely uncertain and weak global economic conditions and the volatility of global carbon prices.”
In an effort to gain public support for the tax, the government has made weighty concessions on its original plan by offering private households generous tax breaks and pension increases to offset higher energy costs.
“The carbon price is expected to have a moderate negative (fiscal year 2013) earnings impact on some emissions-intensive companies,” Tim Jordan, a research analyst at Deutsche Bank AG said in a note to clients.
Australia wants to emulate the European Union’s emissions trading system, or ETS, set up to cut greenhouse gases that many scientists claim cause global warming. The scheme imposes pollution quotas on over 11,000 manufacturers and power companies, leading to a ceiling in 2020 that will be 21% below 2005 emission levels. The EU has lobbied hard to get a successor for the Kyoto treaty, the instrument that regulates carbon emissions internationally and expires next year.
In the U.S., the world’s largest economy, support for a federal climate policy has withered but California is planning to introduce a scheme at state level. California’s Global Warming Solutions Act of 2006 requires the state to cut greenhouse-gas emissions to 1990 levels by 2020.
The International Energy Agency warned in October that as the world increasingly relies on coal to meet growing energy demand, it is headed for a “dire future” where high energy prices drag on economic growth and global temperatures rise dangerously, unless significant innovations are made to lower the cost of clean energy and carbon-capture technology.
By Enda Curran and Ray Brindal
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