The Hazelwood power station billows smoke from its exhaust stacks in the Latrobe Valley, 150km east of Melbourne, 13 Aug 2009
The Hazelwood power station billows smoke from its exhaust stacks in the Latrobe Valley, 150km east of Melbourne, 13 Aug 2009

Australia's parliament has rejected legislation to set up a carbon trading program, in part because of dissent from climate change skeptics. The decision lands a blow to a key policy of Prime Minister Kevin Rudd and could trigger an early election next year.

Australia's left-of-center Labor government says the country is being held hostage by "climate change extremists and deniers," after parliament rejected its carbon-trading legislation.

The program needed the support of conservatives in the upper house of parliament, the Senate, to proceed.

The legislation aims to make carbon-based energy, such as electricity produced from the country's plentiful supplies of coal, more expensive. That would create an incentive for consumers and businesses to switch to renewable sources.

A deal to ensure that the plan passed through the Senate disintegrated when the main conservative opposition, a coalition of Liberals and Nationals, elected a new leader, Tony Abbott. He is a fierce critic of the plan and thinks it will do irreparable damage to Australia's coal-powered economy. 

The Senate's rejection of the plan allows the government to call an early election if it chooses, although senior ministers have so far ruled that option out. Instead they plan to re-introduce the legislation to parliament in February to give the opposition one more chance to support it.

Acting Prime Minister Julia Gillard says decisive action to tackle global warming must be taken.

"My message is a simple one. This is a scheme that is in the national interest. We live on the hottest and driest continent on Earth. We're going to be hit by climate change hardest. That is why we designed the carbon pollution reduction scheme," she said.

It was not only Australia's conservatives who oppose the plan. The Greens do too. They say it does not set tough enough targets to reduce Australia's greenhouse gas emissions, which many scientists blame for warming temperatures.

Greens leader, Senator Bob Brown, says the government was wrong to seek a deal with the opposition.

"Effectively, the government decided it was going to court the coalition to come to an agreement in this parliament. It was a disastrous tactic as we are finding out now with a coalition that has been overtaken by the skeptics and which is going to renege on that agreement," he said.

Prime Minister Kevin Rudd had hoped to take his carbon trading plan to next week's climate talks in Copenhagen, where world leaders will seek a new agreement to curb greenhouse gas emissions.

Australia's program would have been the biggest of its kind outside Europe, covering 75 percent of Australian emissions. It was due to start in July 2011.

Opinion polls suggest most voters approve of Mr. Rudd's plan, although there is concern that household energy bills will rise significantly as a result.