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Australia Prepares for Carbon Tax

  • Phil Mercer

Smoke bellows from a chimney stack at BlueScope Steel's steelworks at Port Kembla, south of Sydney, Australia, July 8, 2011 (file photo).

Smoke bellows from a chimney stack at BlueScope Steel's steelworks at Port Kembla, south of Sydney, Australia, July 8, 2011 (file photo).

SYDNEY - Australia is preparing to introduce a carbon tax July 1. The levy would force about 300 of the country's biggest polluters to pay roughly $23 for each ton of carbon dioxide they emit. The aim is to encourage heavy polluters to invest in cleaner technology to reduce their tax liability and help the environment.

Australia is the world's largest coal exporter and one of the biggest per capita greenhouse gas emitters.

"The question is how we can get dangerous pollution in Australia cut, at the same time as making sure that jobs continue to grow and the economy continues to grow," said Mark Dreyfus, the Australian government's parliament secretary for climate change. "And, the advice we have from expert economists, expert scientists is that the best way to do that is by putting a price on carbon."

There has been a vociferous campaign against the new levy by industry groups and conservative politicians. They argue it will push up costs for businesses, erode Australia's economic competitiveness and cost thousands of jobs, while pushing up food and electricity bills for households.

Last month, the loss of hundreds of jobs at an aluminum smelter in the New South Wales Hunter Valley prompted an attack on the government by the opposition leader Tony Abbott, who has promised to kill the levy if he wins the next election.

"Given that the carbon tax is already a wrecking ball swinging through the aluminum industry, the coal industry, the steel industry and the aviation industry, will the prime minister apologize to the 344 workers whose livelihoods are now imperiled by her broken promise never to have a carbon tax?" Abbott asked.

Prime Minister Julia Gillard says the carbon tax is the most important environmental and economic reform Australia has seen in a decade. She argues it will be the start of a new age for the economy, as it moves away from a reliance on cheap, domestic supplies of coal to renewable sources of energy, including, wind, solar and geothermal. The tax would then evolve into a market-based emissions trading scheme within three years.

Gillard has accused the opposition leader Abbott of misleading voters about the true impact that the carbon tax will have.

"[The] deputy speaker - he has even been out trying to scare cats and dogs about the impact of carbon pricing out at the RSPCA telling poor old Fido and Fluffy a fairy tale about how a cobra and python is coming to get them," Gillard said. "Well, I can assure the leader of the opposition on the First of July cats will still purr, dogs will still bark and the Australian economy will continue to get stronger."

Many analysts expect the carbon tax to have a "minimal" impact on the economy. Australia's central bank predicts that overall prices for goods and services will rise by less than one percent, although electricity bills are likely to increase by 10 percent.

Many companies will receive tax concessions, cash grants and free carbon permits as part of multi-billion dollar compensation schemes designed to soften the impact on businesses.

Geoff Rousel, an analyst with Australia's Westpac bank, says many firms are prepared for life under the new tax.

"We are definitely seeing a very significant change in behavior. And, that change is that we've moved from people working out from, 'Am I ready to deal with the compliance obligations, the legal obligations that I'll have under the scheme?' and now firmly focusing on competition; so competitively positioning themselves against their peers. And, of course, that's how a market-based mechanism is meant to work," said Rousel.

Although many Australian businesses complain that the carbon price of $23 is too high, the environmental lobby insists it should be higher to encourage polluters to clean up their act more quickly. Many conservation groups say the carbon tax will be a significant step towards reducing Australia's emissions of carbon dioxide, which they blame for rising temperatures.

Australia's experience is being closely watched by its Asian neighbors. India already has a similar scheme. South Korea has made sustainable, low carbon growth a national priority. Other nations including Thailand, Malaysia, Singapore and Vietnam are pursuing similar objectives.