Australia's New Carbon Tax Goes Into Effect

Along with Japan’s feed-in tariff going into effect, there was another big milestone July 1 – Australia’s carbon tax is now in force.

Although it only affects Australia’s largest polluters, such as coal-fired plants and smelters, the bill is extremely controversial and could end up costing Prime Minister Julia Gillard her job.

Recently, the number of companies affected was reduced from 500 to 294 to calm down fierce opposition. The final group accounts for about 60% of the carbon emitted in Australia each year – roughly 550 million tons. They are power plants, steel manufacturers and mining companies.

The price for emitting a ton of carbon starts low at $23 and escalates over time until carbon trading starts in July 2015, when companies can also buy offsets and trade with those in other countries with cap-and-trade programs.

Although the law contains sweeteners for every stakeholder from big emitters to individuals, and creates an A$10 billion clean energy finance fund, Australia’s conservative opposition party promises to repeal it in a year when Gillard faces a very tough reelection campaign.

A poll by Australia’s Lowy Institute in June found that 63% of Australians oppose the legislation, and 33% believe it doesn’t go far enough.

Gillard is conducting an "election-style campaign" to educate Australians on the importance of the measure, even as her approval ratings are at near-record lows.

Australia is the world’s top greenhouse gas (GHG) emitter per capita (the US is #2) because it relies on coal for 80% of its electricity. The country’s committment is to cut GHG emissions 5% below 2000 levels by 2020 and 80% by 2050.

The US-based Brookings Institute praises Australia’s plan, and is calling for similar action here, noting it would be more effective than the regulatory approach being used in the US. Because of lack of Congressional action to pass comprehensive energy legislation, the US is cutting GHG emissions through EPA regulations on power plant carbon emissions, vehicle fuel efficiency standards and energy efficiency efforts.

Brookings says:

"Australia’s climate change leadership and particularly its carbon pricing should be of deep interest for the U.S. … because Australia and the U.S. share enough similarities when it comes to addressing climate change that Australia should, in many respects, be seen as an important laboratory and learning opportunity for those in the U.S. thinking about climate change and energy policy.

Brookings points to the similarities between the two countries, which are about the same size:

"The space and size of Australia and the U.S. have underpinned the need for long roads, large cars, and allowed for living in houses in extended suburbs," writes the Brooking Institute in an opinion piece about Australia’s new tax. "Australia and the U.S. have been built for this lifestyle – the infrastructure, systems of government and businesses are geared to servicing, providing for and maintaining this scheme. As a result, Australia and the U.S. will face similar costs in reaching the ambitious GHG mitigation targets set for 2050 not only in economic terms, but also in terms of lifestyle and ultimately national outlook as increased urban density and use of public transport become necessary."

The two countries are also similar in GHG emissions by industry, and both rely heavily on coal for electricity, and have little appetite for nuclear.

"The key lesson from Australia’s political battles over carbon pricing are that a strategy that seeks to reach agreement amongst key stakeholders only – what in Washington would be considered an inside-the-Beltway strategy – will likely fail," says Brookings.

Read the Brookings Institute blog post: