The Australian government on Sunday will roll out a detailed plan to make the nation's heaviest polluters pay for their carbon emissions, as Prime Minister Julia Gillard looks to strike a deal with her toughest critics in the industrial sectors.
There has been significant buildup toward Sunday's release of the ruling Labor Party's proposal. In the past few days, Gillard and her ministers have leaked some details. Gillard has said an initial carbon tax would affect 500 of the largest polluters, and multiple Australian media reports are saying the carbon tax will start at about $24 a metric ton of emissions.
Politicians in Australia are bracing for another political battle after Gillard's critics have eroded public support going into the parliamentary debate.
Gillard came to power last summer after support for her predecessor, Kevin Rudd, collapsed in the Labor Party as a result of his failed attempt at selling a proposed climate policy to the public and to Parliament. Gillard promised to do a better job at the tough politics of pricing carbon emissions.
Yet close national elections last year forced Gillard to ease off her climate stance as the Labor Party struggled to stay in power. She returned to it at the start of this year, as the Green Party prepared to take the balance of power in the Senate this month and independent members of Parliament appeared open to negotiations on a climate policy.
In February, Gillard outlined her plan. The government would impose a fixed carbon price starting in July 2012 if Parliament passes legislation in 2011. The tax would last for a three- to five-year initial phase and then transition to an emissions trading program.
A test case for U.S. and China
Australia, with a population of about 22 million people, is tiny compared to the industrial behemoths on opposite sides of the Pacific Ocean, the United States and China. But Australia has the highest carbon emissions on a per capita basis among industrialized countries.
Nearly 80 percent of its electricity comes from burning coal, and its natural resource-rich economy relies heavily on exports of coal, iron ore, metals, gas and other commodities that require a lot of energy to mine and produce a lot of emissions.
Kath Rowley, a researcher at the Climate Policy Initiative in San Francisco and a former climate policy adviser in the Australian government, said a deal could hinge on the treatment of special interests tied to coal. The Gillard government could end up haggling with both industry and the Green Party about appropriate compensation for coal producers and consumers, she said.
Just under the surface is a fight likely to be waged by investors who bought significant stakes in coal-fired assets in the past decade. Business-sector critics of the prime minister's climate agenda contend the economy will take too big of a hit if coal-burning industrial assets are stripped of their value, and electricity rates will go up.
Gillard and economists inside and outside the government assert the economic doomsday scenarios are way overblown. Australia, under the leadership of different political parties, has targeted carbon emissions for a decade, and Australia is an active participant in global climate negotiations.
An $18 billion tax?
"They have been on clear notice for a long time," Rowley said, referring to investors in coal. "Those corporations had plenty of opportunity to diversify their assets. Why should the public compensate them?"
John Connor, CEO of the Sydney-based Climate Institute, said in an interview that some supporters of Gillard's efforts are concerned about there being enough in the legislation to incentivize investment in clean energy technology. Opposition out of the coal industry and among some manufacturers has been strong, and it's been backed up by a drumbeat of leaders in Parliament's conservative coalition.
In a speech on Wednesday, Ralph Hillman, head of the Australian Coal Association, cited the "radical restructuring" of the economy. "The coal industry is faced with an $18 billion tax over nine years under the government's current proposal," he asserted. "The tax will raise the cost of Australian coal mining vis-à-vis its overseas competitors and ultimately lead to premature mine closures and the loss of thousands of jobs."
Ministers in Gillard's government have argued that the impact on the broader Australian economy will be minimal compared to the long-term effect of letting the economy remain as carbon-intensive as it is today. Absent a price on carbon, according to the Treasury, Australia's pollution will grow rapidly, from about 580 million metric tons of carbon in 2010 to about 680 million metric tons by 2020.
"Here's the crux of the issue," explained Treasurer Wayne Swann during a June 30 speech, "do we really expect that we can continue to increase our pollution at this rate while the rest of the world moves to tackle climate change? Of course not."
"What the Treasury modeling will show is that by putting a price on carbon pollution, we can make this transition at a very modest cost," he said.