Australian Senate passes carbon tax

Australia’s parliament has passed landmark laws to impose a price on carbon emissions in one of the biggest economic reforms in a decade, giving fresh impetus to December’s global climate talks in South Africa.

The scheme’s impact will be felt right across the economy, from miners to LNG producers, airlines and steel-makers and is aimed at making firms more energy-efficient and push power generation towards gas and renewables.

Australia accounts for just 1.5% of global emissions, but is the developed world’s highest emitter per capita due to a reliance on coal to generate electricity.

The vote is a major victory for the embattled prime minister, Julia Gillard, who staked her government’s future on what will be the most comprehensive carbon price scheme outside Europe despite deep hostility from voters and the opposition.

The scheme is a central plank in the government’s fight against climate change and aims to halt the growth of the country’s growing greenhouse gas emissions from a resources-led boom and age-old reliance on coal-fired power stations.

It sets a fixed carbon tax of A$23 ($23.78) a tonne on the top 500 polluters from July 2012, then moves to an emissions trading scheme from July 2015. Companies involved will need a permit for every tonne of carbon they emit.

“Today marks the beginning of Australia’s clean energy future. This is an historic moment, this is an historic reform, a reform that is long overdue,” Australia’s finance minister, Penny Wong, told the upper house Senate as she wrapped up the marathon debate.

Australia has been debating a carbon price scheme for a decade and through 37 parliamentary inquiries, with the legislation instrumental in the 2007 fall of former conservative prime minister John Howard and Labor’s Kevin Rudd in 2010.

The laws will see Australia join the European Union and New Zealand with national emissions trading schemes. California’s starts in 2013, while China and South Korea are working on carbon trading programmes. India has a coal tax, while South Africa plans to place carbon caps on its top polluters.

“This is a very positive step for the global effort on climate change. It shows that the world’s most emissions-intensive advanced economy is prepared to use a market mechanism to cut carbon emissions in a low-cost way,” said Deutsche Bank carbon analyst Tim Jordan.

The government hopes securing the carbon price laws will help reignite the push for a global agreement to curb emissions and fight global warming ahead of international talks in Durban in December.

The carbon price will impose a cost on every tonne of carbon emitted, giving companies a financial incentive to curb pollution, and will help Australia reach its goal to cut emissions by 5% of 2000 levels by 2020.

Farmers will be exempt from the scheme, but will be able to cash in by selling carbon offsets under separate laws for a carbon farming initiative.

The package of 18 laws sets up the carbon price as well as billions in compensation for export-exposed industries and local steel-makers, as well as personal tax cuts for 90% of workers, worth an average A$300 a year.

Emissions-intensive trade exposed industries such as aluminium, zinc refiners and steel makers, will receive 94.5% of carbon permits for free for the first three years of the scheme.

The passing of the bill was greeted with applause from the public galleries, with Green leader Bob Brown – a major proponent of the scheme – shaking hands with government senators.

Attendees at a carbon expo conference in Melbourne were ecstatic with the result.

“The atmosphere is electric. This is fantastic,” said Nick Armstrong of emissions trading firm COzero.

The government expects the scheme to spur a multibillion-dollar investment rush in cleaner energy sources including natural gas and renewable power stations to replace Australia’s ageing coal-fired plants.

Canberra has committed more than A$13bn for renewable and low emissions projects, including a A$10bn independent Clean Energy Finance Corporation, with around A$100bn in renewables sector investment expected by 2050.

However, full introduction of the Australian scheme remains uncertain, with conservative opposition leader Tony Abbott promising to scrap the carbon price if he wins power and with Gillard’s minority government holding power by only one seat.

The next election is not due until late 2013, but opinion polls show Gillard’s government would be easily swept from office, and Abbott could potentially take power at any time in the event of a byelection in a government-held seat.

Abbott, who has campaigned tirelessly against the new laws, was overseas for Tuesday’s vote, but he issued a statement to reaffirm his promise to repeal the laws if he takes power.

“The longer this tax is in place, the worse the consequences for the economy, jobs and families. It will drive up the cost of living, threaten jobs and do nothing for the environment,” Abbott said.

A poll on Tuesday showed the conservatives leading ruling Labor by 53 to 47%, although the government’s popularity had improved slightly as voters warmed to Gillard’s handling of economic and industrial relations problems.

The carbon price is one of the three key policies Gillard promised to finalise when she became prime minister, alongside a planned 30% tax on iron ore and coal mines and new measures to deter asylum seekers.

But dead-heat elections last August forced Gillard to negotiate details of the carbon price with the Greens and three independent lawmakers.

The climate minister, Greg Combet, said the government would stick to its A$23 a tonne price, despite it being almost double the European cost of between $8.70 and $12.60 a tonne, which is a four-year low on the back of global economic uncertainty.

“I’d certainly hope and anticipate that in the course of the next three-and-a-half years, the crisis in Europe is overcome, markets will stabilise and recover and our carbon price will mesh well,” he said.