Australia Government to Set Carbon Price from Mid-2012

(Reuters) – Australia‘s government launched a third attempt on Thursday to make carbon polluters pay for their emissions, unveiling plans for a fixed-price scheme from 2012 and vowing not to surrender this time in the face of fierce opposition.

Prime Minister Julia Gillard, whose predecessor was dumped last year after two failed attempts to address climate change, said polluters would pay a yet-to-be-determined fixed price from July 2012, then move to a market-based system within five years.

“This is an essential economic reform, and it is the right thing to do,” Gillard told a news conference, describing man-made climate as a national threat — just weeks after the country endured record floods and a massive cyclone.

“Can I make it very clear that in the debate that will ensue, I am not intending to take a backwards step,” she added.

The ruling Labor party came to power in 2007 vowing to cut carbon emissions, but its efforts foundered in parliament where it lacked sufficient support in the upper house Senate, leading last year to the dumping of then prime minister Kevin Rudd.

Gillard may yet succeed where Rudd failed. Thursday’s framework deal already has the support of her minority government’s political partners, including the Greens party which opposed the previous schemes for being too weak.

But crucial details, such as the actual starting price and the level of compensation to be paid to affected industries or households, have yet to be agreed with the Greens. Gillard said no decision had yet been made on any of these issues.

Some Australian electricity prices jumped after the announcement, but most futures contracts for 2012 were untraded, reflecting deep skepticism within the industry, which accounts for almost 40 percent of national emissions.

“This represents progress but there’s disagreement in parliament about the level of ambition for the carbon price and that translates into uncertainty,” said Deutsche Bank carbon analyst Tim Jordan.

“For any investor looking to take a long view on the carbon price, they need absolute clarity on the rules for the transition.”

Australia, the world’s biggest exporter of coal, is one of the highest per-capita carbon emitters in the rich world due to a reliance on coal for 80 percent of electricity generation.

Opposition urges “People’s Revolt”

The plan still faces strong political hostility from the conservative opposition parties, who describe any move to price carbon as a “great big new tax.”

“We will fight this tax every second of every minute of every day of every week of every month,” opposition leader Tony Abbott. “I think there will be a people’s revolt against this carbon tax. I don’t believe it will ever happen.”

But the new deal has sufficient support to pass the lower house of parliament and should find an easier passage through the Senate, where the Greens will also be influential.

The government and Greens will have the numbers to pass laws through the Senate from July 1, 2011, when new senators elected in a ballot held last August will take up their seats.

The real battle is likely to happen in parliamentary back rooms, between Gillard and her minor partners: the Greens and three independent MPs whose support she needs to stay in power.

The Greens will push the government to set stronger emissions targets than its existing promise to cut emissions by five percent below 2000 levels by 2020. They also want a strong carbon price and a limit on compensation for coal mines and coal-fired generators.

Key lower house independent Tony Windsor said he backed the idea of moving from a fixed price to an emissions trading scheme, but needed to see the detail before pledging his vote.

“This is very much the start of the process in my view,” Windsor told reporters. “There’s a lot of discussion to take place on this issue. What we’ve established today is a framework to attempt to work within. That doesn’t mean the game is over.”

Uncertainty Continues

Outside Canberra, polluters have become frustrated by the continuing uncertainty, which in some cases is impinging on their talks with borrowers. Many of them realize a carbon price is inevitable and are calling for a clear, workable plan.

Origin Energy, one of the country’s biggest retailers and investors in renewable energy, said a carbon price should be set at $25 a metric ton or above to make any difference.

In the world’s largest carbon market, the European Union emissions trading scheme, pollution permits ended on Wednesday at 15.29 euros ($21). Each represents a tonne of carbon emissions.

Another power retailer, TRUenergy, a unit of Hong Kong-listed CLP Holdings, also called for more clarity, though it preferred a market-based mechanism.

“That has not changed and we are still waiting to see the details of the framework,” said spokesman Carl Kitchen.

While some businesses favor market-based pricing, mining firms generally oppose carbon trading, saying it would lift costs and take projects offshore. Mining giant BHP Billiton recently came out in favor of a fixed price.

Article by James Grubel; Edited by Ed Davies and David Fogarty; Appearing courtesy Reuters.