Australia Unveils Carbon Tax

After more than six months of intense public debate and parliamentary maneuvering, the Australian government announced the introduction of a new carbon tax that will price the pollutant at nearly US$25 per ton by mid-2012. Then, in 2015, the tax will be replaced by an emissions trading system like the one found in Europe. While Australia’s prime minister, Julia Gillard, succeeded where her predecessor failed, she may pay a high political price for her bold environmental leadership and deft navigation of Australian party politics, which are dominated by the Green party. According to The Economist, her Labour party’s approval ratings now stand at a lowly 27 percent, in part because of public fears of the economic impact of the tax.

The new tax is expected to cover 500 of Australia’s top polluters and cut 5 percent of total emissions (160 million tons) by 2020. However, a number of sectors, including export-focused industries, steelmakers, coal mines, and electricity producers will receive assistance (up to 90 percent free credits), reports Reuters. Under the new policy, dirty local industries will receive significant support to switch to cleaner forms of energy. The program will also lead to the creation of a independent renewable energy agency, which will manage A$10 billion in renewable energy investments.

The Australian economy contributes 1.5 percent to global greenhouse gas emissions, largely because of its heavy reliance on coal. The Economist notes that Australian emissions are equal to those of South Korea, Britian, and France, which have 2-3 times Australia’s population of 22 million. Per capita, it’s the “biggest carbon emitter in the world.”

While government experts estimate that the tax will push up prices by around 1 percent, Gillard’s government isn’t relying on these estimates and seems to be planning for the worst on price impacts. Perhaps in an effort to win broad public support, the program’s designers insured that 40 percent of the tax revenues will be redistributed to compensate 90 percent of households for higher food and electricity prices. 

Given the amount of coverage on the tax in Australia, the debate will most likely continue. On one side, the main concern is that tax will have a negative economic impact. The other side questions whether the program is strong enough environmentally. The Green party, which holds power in the Australian Senate, has called for a carbon tax of A$45 to A$50 a ton but has OK-ed the lower price given the lack of international action on controlling emissions. The idea now is that if the world moves on carbon pricing, the taxes could be moved up in the future. Christine Milne, Green Deputy Party Leader, told Reuters: “We have a view about how quickly we’d like to be addressing climate change, but our focus in the climate negotiations has been to make sure that if the world does decide to become serious about climate change… there would be nothing in the scheme that prevents us making those adjustments.”

Read The Economist article and check out an interview with Milne on the new carbon tax.

Image credit: Prime Minister Julia Gillard. Cole Bennetts / Getty Images

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