Australian Prime Minister Julia Gillard began an election-style campaign on Monday to promote a tax on carbon emissions, with her political survival hanging on a program highly unpopular with both industry and voters.
Gillard’s poll rating remains near record lows and some 2,000 protesters denounced the tax when they marched through Sydney on Sunday, the day the tax came into force.
The carbon price applies to nearly 300 companies and city councils. It is designed to fight global warming and help curb carbon emissions by five percent of 2000 levels by 2020.
The carbon price forces the biggest polluters, from coal-fired power stations to smelters, to pay A$23 ($23) per metric ton (1.1023 tons) of carbon dioxide emitted, more than twice the cost of carbon in the European Union, currently trading around 8.15 euros ($10) a metric ton.
Gillard embarked on a round of radio and television interviews and said voters would see a muted impact of the carbon price on the economy and they would realize opposition warnings of big job losses were wrong.
“People will have the opportunity to judge for themselves,” she told Australian television. “And what people are going to see is tax cuts.”
The tax is to be superseded in 2015 by a trading scheme with international links under which companies will be able to buy permits authorizing emissions or carbon “offsets” allowing for energy savings elsewhere.
Sweeteners and permits
For now, businesses will have the economic pain dulled by billions of dollars in sweeteners and free permits. Industries will get exemptions, especially those with large export volumes.
Voters have also been given tax cuts to compensate for the impact of the carbon tax on prices, such as higher electricity bills. The consumer price index is forecast to rise by an extra 0.7 percentage points in the coming year.
But a Nielsen poll in Fairfax newspapers on Monday found 62 percent of voters opposed the carbon price, and that Gillard’s minority government would be thrown out of office if an election were called now.
The conservative opposition has vowed to scrap the tax if it wins power at the next election, which is due in late 2013 but could be called at any time.
From 2015, polluters and investors will be able to buy carbon offsets overseas from projects that cut emissions, like wind farms. Ultimately, they may trade with schemes in Europe, New Zealand and possibly those planned in South Korea and China.
Australia has amongst the world’s highest per capita CO2 emissions due to its reliance on coal-fired power stations.
The companies covered, making up about 60 percent of Australia’s roughly 550 million metric tons of CO2 a year, will pay a fixed price for the first three years of CO2 emissions, reaching A$25.40 a metric ton in the final year.
Business groups and many big polluters, such as miners, remain vehemently opposed to the plan and uncertainty over its future is crimping investment in the power sector.
UBS has cut its earnings estimates for global mining companies BHP Billiton and Rio Tinto by between 3 and 4 percent ahead of the carbon tax and another tax on mining profits, which also began on Sunday.
Despite the scheme’s soft start and openness to international markets, bankers and big polluters are cautious, with opposition leader Tony Abbott’s “blood oath” to repeal the scheme stirring unease.
Traders are also awaiting final rules on how the government will set a floor price on permits to be purchased from 2015.
Morgan Stanley says international trade in credits and offsets is likely to be low until there is clarity on whether the measure could be repealed and on the level of a 2015-18 floor price. Also unclear is whether Australia will agree to a second commitment period under the Kyoto protocol of 1997.
“Since a domestic unit auction will most likely not occur until after the next election in late 2013, if the opposition is still talking about rescission and repeal, it is unlikely that a forward market will develop in these units,” Emile Abdurahman, executive director of Morgan Stanley Commodities in Sydney, said in emailed comments.
For now, repeal remains a real possibility because of the way it has polarized the country, Australian National University climate policy analyst Frank Jotzo wrote in a recent commentary.
“Australia’s carbon pricing mechanism might enter history as one of the best-designed yet shortest-lived policies for climate change mitigation.”
