Only a few years ago, two coal-rich countries, the United States and Australia, both stood accused of hampering global efforts to tackle climate change.

Now Australia is struggling to construct a carbon trading system to curb greenhouse gas emissions, and America may not be far behind. In a series of talks in the United States this week, Australian Climate Minister Penny Wong said her country has been hammering out tough decisions over how broad-based the scheme should be, how much of a financial break to give energy-intensive industries, and whether to impose import taxes against nations that don't place a price on carbon.

COUNTRY FOCUS: AUSTRALIA

An occasional series exploring how specific countries are facing climate change.

"It's really tough reform, but it's reform that is necessary," Wong said in an interview with E&E. "We're trying to transform the Australian economy so we can reduce emissions, and so we can develop those industries that can be more competitive in a low-carbon world."

The United States and Australia were the only major developed nations not to ratify the 1997 Kyoto Protocol requiring industrialized countries to shrink emissions. Last month, President Obama and Australian Prime Minister Kevin Rudd vowed at a summit in Washington, D.C., to both work toward fighting global warming.

Leading climate change experts say the two countries will have much to learn from one another in the coming months.

"Our economies are both heavily dependent on coal. Our industries are sensitive to the issue of international competitiveness," explained Eileen Claussen, the head of the Pew Center on Global Climate Change. "As a result, we often bring very similar perspectives to the international issue of climate negotiations."

The Australian government has pledged to reduce emissions 5 to 15 percent below 2000 levels by 2020, and 60 percent by midcentury. Leaders hope to pass a carbon pollution reduction scheme in Parliament in June and launch carbon trading by July 1. Under the proposal, the government will impose a cap on carbon output, and polluters will be granted permits for their emissions. Companies can then trade these permits to help bring down the costs of slashing greenhouse gas output.

Aussie leaders prepare to run the gauntlet of lobbyists

But the government must negotiate a gauntlet of fierce lobbying from both environmentalists and industry over the shape of the scheme. With no end in sight to the global economic crisis, powerful interests are pushing for a delay to the launch.

The plan is to cover about 75 percent of the country's emissions from the start. Wong said she believes that applying a broad carbon price will spark greater efficiency and allow the market to find the most cost-effective emission reductions.

Gavin Lovell and Richard Putnam survey a recent fire in Victoria state, Australia. Lovell, a wildland firefighter, was among 60 U.S. firefighters recently deployed to Australia to help battle an unusually severe outbreak of wildfires. Photo courtesy of the Bureau of Land Management.

The country rejected 100 percent auctioning of carbon credits, as Obama has urged for the United States' proposed scheme. Instead, Australia will give away 25 percent to emissions-intensive industries that Wong called "trade exposed," and another 6 percent will be given to the country's most emissions-intensive coal-fired generators. Those free allocations will stop flowing after five years.

The other 69 percent of carbon permits will be auctioned, with the revenues directed toward low-income households, she said.

Speaking at a forum organized by the Pew Center, Wong said Australia opted to grant free allowances rather than impose an import tariff on China, India and other countries that do not intend to place a price on carbon.

Much like in the United States, industry leaders throughout Australia are fearful that a cap on carbon will also reduce their competitive edge against countries that aren't bound by the same regulations. While American lawmakers appear to be leaning toward a so-called border adjustment tax to -- in the words of Energy Secretary Steven Chu -- "level the playing field," Wong said her government felt that route was "not in Australia's self-interest."

"I know it's a live political discussion here," Wong said. "Part of it is Australia's view. We're a small and open economy. We don't believe it's in our economic interest to argue for more and different types of protectionism."

Think tanks say the U.S. should study free allocation plan

Think tanks in the United States, including the Pew Center, are urging Congress to give a certain percentage of free allowances on a transitional basis to energy-intensive industries as a way of avoiding a sticky trade confrontation.

Jonathan Malsbury, research manager with New Carbon Finance, said that as U.S. House Democrats work to pass sweeping climate change legislation that would create a cap-and-trade system, they should keep in mind the advantages of free allocations. Giving them away to energy-intensive industries early on and over time reducing the free permits, he said, seems to be more politically popular than what he called the "cold shower route" of shoving industry into a new regulatory system.

"Europe is generally favoring free credits to industrials so there isn't a cost pressure to raise prices. Politically, it can help you get it through the door," Malsbury said. He noted that even though a border tax might protect threatened industries, it still hits companies with high costs to which they were not previously subject.

Other issues are far more contentious. Australia's Green Party objects to the government's plan to allow companies to buy carbon offsets from developing countries, calling the practice a form of "carbon imperialism." The leader of the National Party, meanwhile, charges that Australia's mining sector would shut down workplaces and hemorrhage jobs in the very first days of a trading scheme.

"The challenge is getting a majority," Marlsbury said. "The government needs all of the Greens and some of the opposition to get it passed."

In the meantime, Wong, whose other portfolio is water issues, said she remains deeply concerned about what climate change will mean for her hot, dry continent. Already, salinity in the Murray-Darling Basin in southeast Australia -- which provides 85 percent of the water used in the country for irrigation -- is increasing. The Intergovernmental Panel on Climate Change predicts that the annual water flow is likely to fall 10 to 25 percent by 2050.

"A couple of degrees makes a lot of difference to us," Wong said. "We will be hit hard and fast by climate change, and the signs are already emerging."