Gloom gathers around divisive Australia CO2 laws

CANBERRA/SINGAPORE (Reuters) - Reviled by conservatives and rejected by swing voting senators, Australia's plan for the world's most comprehensive emissions scheme appears dead in 2010, hurting investment plans for businesses wanting carbon clarity.

Investors and carbon traders say they face another year of uncertainty after political opponents last year twice blocked the laws in the Senate.

A disappointing outcome from the Copenhagen climate talks and a stalled climate bill in the U.S. Senate have further dampened hopes of a breakthrough this year, they say.

On Tuesday, the Australian government, facing re-election this year, will re-introduce its amended package of carbon trading laws into the upper house for a third go at passage.

"Everybody in this country knows that there isn't a cost-free way to tackle climate change," said Climate Change Minister Penny Wong on Monday, ahead of last ditch negotiations with Green senators aimed at keeping the scheme alive.

But with Prime Minister Kevin Rudd's government seven seats short in the hostile Senate and opponents showing no sign of a New Year change of heart, the prospects seem bleak.

"It's not looking great for carbon coming in," said Connell Burke, head of Australian power trading at Westpac, adding electricity contract futures for the second half of next year were only pricing in a 10 to 20 percent chance of a carbon price.

The uncertainty creates a lot of issues for electricity trading and in general for businesses wanting to do planning, Burke said. "Business is grinding to a standstill and everyone is spending their time lobbying," he said.

A resurgent opposition led by pugnacious new leader Tony Abbott has an election year message that threatens Rudd's stratospheric popularity, calling the emissions laws "a great big new tax on everything, masquerading as an environment policy."

The Greens, who say the government's Carbon Pollution Reduction Scheme (CPRS) is too soft, last month announced a scheme based on a two-year carbon price of around A$20 a metric ton from July this year to try to get the ball rolling.

PLAYING POLITICS

The government has made emissions trading a central plank of its pledge to fight climate change, which scientists say threatens to cause more intense droughts and bushfires and declining rainfall in parts of Australia.

But the scheme, which aims to put a price on every metric ton of planet-warming carbon dioxide emissions from 1,000 of the nation's top polluters, has proved deeply divisive, despite several revisions last year to ease the costs to business.

"There is no prospect the CPRS will pass in its current form. None at all. It's gone," Greens adviser Tim Hollo told Reuters.

Some analysts say Prime Minister Kevin Rudd is now more focused on trying to notch up wins on tax reform and a A$43 billion national broadband network ahead of an election around November.

"Rudd is going to bring it back to parliament purely for political reasons," said political analyst Norman Abjorensen, adding Rudd and Wong had lost interest in genuine negotiations on the laws.

Polls show the majority of Australians want action on climate change and Rudd is seen by some as having fought the good fight on global warming last year. His government has repeatedly called Abbott's team "climate change skeptics" and attacked the opposition for forcing change to climate policies.

"Rudd has probably already drawn the political point that makes a fairly sharp distinction between where his government is coming from on climate change and where the opposition is," said Abjorensen, from the Australian National University.

Much hinges on the viability of an alternative plan being put together by Abbott, which will focus on tree planting and soil carbon capture and storage initiatives, but which promises no new taxes.

"If he can come up with an alternative policy that is credible then he might be able to garner some support for his position to oppose the CPRS," said Rupert Posner, Australia director for The Climate Group thinktank.

The uncertainty, though, is weighing heavily on business investment plans, particularly big emitters such as power stations that need to be able to price electricity contracts.

Coal is used to generate about 80 percent of Australia's power and the country is the world's top coal exporter.

Origin Energy, a leading power provider, told shareholders late last year the firm backed the CPRS and that business needed regulatory certainty to invest at scale.

"We missed a lot of chances in 2009 and we have fewer chances this year. It's a loss of momentum internationally as well," said a senior emissions trader who asked not to be named because of political sensitivities surrounding carbon pricing in Australia.

(Additional reporting by Bruce Hextall in Sydney; Editing by Michael Urquhart)