Government officials for the world's biggest producer of greenhouse gases and its biggest exporter of coal are pledging to combat climate change by acting boldly in China and Australia.

"Australia and China are in this for the long haul," Australian Climate Change Minister Greg Combet said Tuesday after meetings with Xie Zhenhua, vice chairman of China's National Development and Reform Commission, in Australia's capital city of Canberra.

Julia Gillard, Australia's prime minister. Photo courtesy of Flickr.

"Addressing these challenges requires political courage and conviction," Combet told his audience. "And it requires a level of international trust that is rare, in fact -- in fact, unprecedented global cooperation."

But opposition leaders in recent weeks have tested the political resolve of Combet and his boss, Prime Minister Julia Gillard. Conservative coalition leader, Tony Abbott, has thrown virtually everything in the political playbook at Gillard's proposal to put a price tag on carbon dioxide emissions from power plants and industrial sources.

Abbott has fired up some business-sector opponents of climate action, flirted with climate skeptics and has tried to stir up opposition in what he calls "middle Australia." Abbott last week offered little apology after giving a speech about the climate plan in front of a banner that called Gillard a "bitch." He has since kept up the personal attacks on Gillard while ripping the plan for its potential impact on power prices.

Australia is among the highest greenhouse gas emitters in the world on a per capita basis, with about 80 percent of its electricity the result of burning domestic coal. Under the plan rolled out in February, the government would impose a fixed carbon price starting in July 2012 if Parliament passes legislation in 2011. The carbon tax would last for a three- to five-year initial phase, during which the Australian economy would prepare for an emissions trading program.

Selling cap and trade

The requirement to cut emissions would reach electric utilities, the transportation sector, factories and fugitive mining emissions. The Labor-led government promised to assist households as power prices rise, and Gillard is reaching out to the nation's influential energy sector for support.

Some of the nation's largest producers of coal, gas, iron ore, aluminum and electricity, BHP Billiton, Rio Tinto, Woodside, Xstrata, Shell, Origin Energy and Loy Yang Power, which operates one the nation's dirtiest lignite coal-burning power plants, have seats on a business working group announced last week.

While politicians in the United States still avoid, at all costs, the term "cap and trade," Combet has done countless interviews in Australia in recent weeks to make the case that relying on long-term direct subsidies for clean energy won't do the trick.

"We've had the benefit of access to cheap coal resources and relatively cheap, by international standards, electricity as a result. We have industrialized on that basis," Combet told one interviewer. "We have to have a carbon price mechanism which is sensitive to our economy, and that's precisely what the government put forward."

China's chief climate negotiator, Xie, visited Canberra this week to talk climate and energy policy and roll out bilateral projects. The nations agreed to cooperate on the development of "low-carbon cities." In doing so, they will work on projects designed to usher in carbon trading and other investment-oriented programs to China.

Xie told students at Australian National University yesterday that non-fossil fuels, including nuclear power and hydropower, face major challenges. In the wake of Japan's nuclear disaster, he said China will continue developing up to 40 gigawatts' worth of new nuclear capacity. He also said China's central government has to tackle concerns about safety.

"To develop nuclear energy, we are facing the challenge of safety," he said. "We have to insure 100 percent of these nuclear power plants, and to develop wind energy and solar energy we also face the high-cost issue."

Still, on a larger economic scale, Australia's coal and iron ore, commodity-driven export economy is where China comes in. Most of Australia's cheap coal goes overseas.

China and Japan shop for more coal

Australia is the largest exporter of coal for steel-making and among the largest exporters of thermal coal for use at power plants, and China is now turning to international coal markets for part of its supply.

China, which has the largest coal reserve in the world, today imports coal because of bottlenecks in its coal transport system and ever-increasing energy demand. Coal producers and rail lines in Australia are spending billions to expand their infrastructure with the Chinese market in mind, and as the world's biggest coal exporter, Australia is balancing China's needs with coal demand throughout Asia.

Top coal exporters, BHP Billiton and St. Louis-based Peabody Energy, in recent weeks have talked up to investors the potential for long-term export growth out of their expanding mines in Australia.

Coal demand in China, India, Japan and Korea is tracking up 7 to 10 percent in the first three months of 2011, according to Peabody.

Japan and Asian steel mills will run harder to rebuild infrastructure lost in the Japan earthquake and tsunami, Peabody executives told investors Monday at the Howard Weil energy conference. "Global nuclear questions represent growth potential for coal-fueled power," said the presentation.

Further, while Japanese coal buyers are trying to renegotiate contracts to lower prices, Peabody said prices for Australia steel-making coal continue to increase. Customers are signing six-month and quarterly contracts at $315 and $330 a metric ton.

Prices reach new highs

In addition, Peabody told investors that thermal coal prices shipped out of Australia's Newcastle export terminal are reaching new highs.

A report out this week by Bart Lucarelli, a consulting research associate at the Program on Energy and Sustainable Development at Stanford University, said the flooding in the state of Queensland at the end of 2010 and in January caused coal prices to increase by at least $30 a metric ton. Still, Lucarelli says enough mine and rail projects are in the works to handle rising demand in China, Japan and India.

"In the medium and longer-term," says the report, "implementation of new mine projects and expansions of the coal transport systems in Australia and Indonesia, if they occur according to plan, are expected to alleviate the short-term capacity constraints that are still being experienced throughout Asia."

Coal exports aside, Lucarelli suggested the political picture in Australia does not bode well for climate legislation. Even if the Gillard government can pass a law, the opposition is determined to ultimately quash it.

"Given all of this political and regulatory uncertainty," Lucarelli wrote, "it is hardly any wonder that major investment decisions to open new mines and to construct new rail and power infrastructure in Queensland and [New South Wales] are constantly being second-guessed by private investors and state governments."