Australian climate plan revives 'carbon tax' idea

Australia's Labor-led government is moving ahead with plans to price carbon emissions into the economy, and is being hammered for it by opponents accusing Prime Minister Julia Gillard of reneging on election-year promises not to impose a "carbon tax."

Australia is among the highest greenhouse gas emitters in the world, given its relatively small population and massive reliance on coal to fuel its economy. About 80 percent of its electricity comes from burning domestic coal, and Australia is the largest exporter of coal on the planet, with increasing amounts going to China and India.

"We cannot be stranded with a high-pollution economy as the world changes," Gillard told reporters on Friday.

If the plan rolled out by Gillard and a group of Green Party senators and independent members of Parliament holds together, the carbon tax -- rejected by the United States and some other industrial governments -- could still see its day in the sun.

To many economists, the idea is seen as a no-frills, efficient method of incentivizing power plants and factories to shift to energy alternatives and replace old burners with cleaner technology. But in democracies grappling with climate change, the idea of taxing emissions is derided as a political non-starter.


"This would be a new beachhead in establishing a carbon tax on a national level in a major country, and in one that's not a bit player," said Charles Komanoff, an energy analyst and director of the Carbon Tax Center, based in New York City.

Under the plan, the government would impose a fixed carbon price starting in July 2012, as long as Parliament passes legislation this year. After a three- to five-year initial phase, during which the carbon price increases annually, the nation would transition to an emissions trading program. The government would have the option to defer the emissions trading program depending on the state of global carbon markets and the potential impact on the Australian economy.

Sweeping proposal heads into political gunfire

Gillard's proposal is sweeping. It folds in electric utilities, the transportation sector, industrial factories and fugitive emissions from coal and metals mining and oil and gas production. The Labor-led coalition also promised to include assistance for households as they face rising power prices. Power prices have already been on the rise, as the utilities replace aging infrastructure.

The prime minister's office characterized the price on carbon as "the cheapest and fairest way to cut pollution and build a clean energy economy."

But Gillard is the head of a fragile political coalition. Since the rollout Thursday, the proposal has faced withering attacks from a loquacious opposition leader, Tony Abbott, whose conservative coalition lost a close election in 2010.

On Friday, as political opponents assaulted the plan, Gillard and her top adviser, Climate Change Minister Greg Combet, defended the pricing mechanism. They acknowledged the initial pricing stage acts as a tax, but argued that businesses need the certainty of a flat carbon price during the early stages. From their perspective, it's a way to transition the economy to a cap-and-trade system that sets hard emissions limits and establishes a flexible emissions trading program that ties into global carbon markets.

Gillard on Friday also made a full-throated appeal to voters who in recent national and state elections have started drifting away from her ruling Labor Party.

"We went to the last election saying to the Australian people that climate change was real, that it was caused by human activity, that we needed to cut carbon pollution," Gillard said. "To do that efficiently, we needed to price carbon, and we needed to do it through a market-based mechanism."

Jake Schmidt, international climate policy director of the Natural Resources Defense Council, said Gillard's decision to bring a flat carbon price to the table underscores the idea that nations are coming at the emissions problem from different directions.

"She's trying to cobble together a price on carbon that can satisfy the different interests," Schmidt said. "The most interesting thing, consistently, is that Australia keeps moving forward. Given all the political shifting around, they keep coming back to reducing their emissions."

About four-fifths of Australians live along the coasts, as the rest swelter in the vast and arid middle of the country. With the Great Barrier Reef off its northeastern coast, Australia's ecosystem is among the most fragile. The country endured a decadelong drought that endangered its inland freshwater system, and in the past three months, the state of Queensland and the city of Brisbane suffered a catastrophic flood.

Some U.S. sympathy

Labor and conservative governments in power over the past five years have repeatedly failed to reach consensus on a climate policy, attracting harsh criticism from voters eager for a political solution. At the same time, Australia's huge mining sector is expanding rapidly, as multinational coal companies see a lucrative long-lasting export business shipping coal to China and India.

"Does this mean that they're going to shut off the spigot of coal to China? Probably not," Schmidt said. "But renewable development in Australia is going to compete with coal."

Gillard responded to a cudgel critics used in the morning papers on Thursday and Friday. They accused the Gillard government of proposing a plan that would increase electricity prices beyond the reach of regular households and cripple the economy.

"Let me say to Australians those figures are pure speculation," she said, noting that the specific carbon price and household assistance package hadn't been worked out. "There is no factual base to the figures that are appearing in today's newspapers."

A simple carbon tax is seen by some economists as the most efficient way to go from high emissions to low emissions. It forces companies to factor carbon into their balance sheets, where today companies can contribute to the carbon load in the atmosphere for free.

Exxon Mobil Corp., the largest publicly traded oil and natural gas producer, has said it supports the use of a carbon tax, as opposed to creating a "cap-and-trade" program that allows companies to buy and sell permits to pollute. Exxon executives have said that cap and trade opens the door to market manipulation.

Gilbert Metcalf, an energy economist at Tufts University, has urged the U.S. Congress to consider a carbon tax as one potential revenue stream to help bring the deficit down.

"The United States is also sitting on a lot of coal reserves," Metcalf said. "If another big coal-rich country is considering this, it suggests the obstacles to a carbon tax could be overcome in this country, as well."

But while economists tend to endorse the notion of a stripped-down price on carbon, it hasn't gained traction in the United States or as a serious alternative in the European Union. British Columbia has had a carbon tax in place since 2008, and some E.U. countries in the north have cobbled together taxes designed to cut transportation emissions and pollution in other segments of the economy. But French lawmakers killed a carbon tax proposal last year, and the European Union, in general, seems far more wedded to its emissions trading system, despite its shortcomings.

"I'm encouraged that Australia's doing this," Metcalf said. "It shows that the idea of a carbon tax, which is often dismissed as politically irrelevant, that that's just not the case."

Komanoff of the Carbon Tax Center, which advocates for the United States and other countries to adopt the policy approach, said Australia's consideration of a tax could help the idea gain considerable traction.

"It's good to see this," he said, referring to Gillard's appeal for the policy on economic grounds. "She has it exactly right, and it's good to see that messaging."

In early March, Gillard is scheduled to meet with President Obama in Washington and spend several days in New York drumming up support for U.S.-Australia economic ties. A spokesman for the Australian Embassy said it's unclear where Gillard's climate agenda at home might fit into her U.S. talks.

Prelude to a 'people's revolt'?

The opposition leader, Abbott, has attacked Gillard's Labor Party primarily for reneging on campaign promises not to impose a carbon tax. Abbott predicted a "people's revolt" and warned of skyrocketing energy bills, taking a far more negative tone toward a policy that puts a price on carbon than his predecessors.

Gillard's climate minister, Combet, answered Abbott during a television interview Thursday.

"Effectively that fixed price period does operate like a tax," he said, according to a transcript. "But it is important that we get started, that we start the process in our economy of cutting pollution and driving investment in clean energy and providing the business sector with the confidence to invest, especially in areas like energy generation."

A fixed carbon price would allow business to "start to make adjustments and smoothly transition to an emissions trading scheme."

Details matter. Analysts say it will matter whether the price starts at $25 a ton of carbon or $80 a ton of carbon. In general, the business community is fragmented, despite general support for pricing carbon into the economy. Last year, for example, the mining sector helped kill a proposal because of its treatment of mining emissions and a resource tax proposal that targeted coal producers.

But resource companies are increasingly concerned about Australia's economy remaining competitive. It's in the fastest-growing neighborhood in the world, with exports going to Asia's emerging economic giants.

Despite having a population of only 22 million people, Australia's currency runs almost even with the U.S. dollar. Its natural resource commodities are shipped throughout Asia. Multinational coal companies have a major stake in Australia's maintaining a healthy export economy that isn't eventually punished in the international markets for its carbon emissions.

Last fall, the chief executive of Australia's largest coal company, BHP Billiton, told the Australian-British Chamber of Commerce he believes an international climate framework will eventually be adopted. In the September speech, CEO Marius Kloppers urged Australian lawmakers to impose a high enough cost on carbon pollution to drive investment in energy alternatives and technology. "Failure to do so will place us at a competitive disadvantage in a future where carbon is priced globally," he said.

A rising natural gas sector in Australia also stands to benefit. Brisbane-based Origin Energy, for example, has a significant stake in a proposed gas export terminal and gas projects that could benefit from a carbon price. Gas is cleaner than coal in terms of carbon emissions. Origin has reportedly been supportive of the government's proposal.

The idea of transitioning into a trading program by starting out with a fixed price has been on the radar screen since Gillard took office last summer. Gillard replaced a prime minister of the same party, Kevin Rudd, who failed to garner enough support for an emissions trading program. Before that, former Prime Minister John Howard also had to back out of a scaled-down climate proposal.

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