UPDATE 3-Australia's carbon tax plan passes biggest hurdle

Wed Oct 12, 2011 12:07am EDT

* Carbon tax vote major victory for PM Gillard

* Opposition says will repeal carbon tax if elected

* Initial carbon price set at A$23 a tonne

By James Grubel

CANBERRA, Oct 12 (Reuters) - Australia's plan for a national carbon price passed its biggest political hurdle on Wednesday when the lower house of parliament voted in favour of the scheme -- a major victory for beleaguered Prime Minister Julia Gillard.

Gillard, who is staring at electoral defeat according to opinion polls, has staked her minority government's future on the sweeping economic reform that will impose a carbon tax on around 500 of the country's biggest polluters from July 2012, before moving to a carbon trade scheme in 2015.

"Today is a significant day for Australians and the Australians of the future who want to see a better environment," Gillard said before the bills passed by 74 votes to 72 in the House of Representatives.

Australia, the world's biggest coal exporting nation, accounts for only around 1.5 percent of global emissions, but is the developed world's highest per capita polluter due to a reliance on coal for 80 percent of its electricity generation.

The carbon legislation, and a bill for A$300 million ($298.7 million) in assistance for the steel industry, must still pass the upper house Senate in a vote due in mid-November, but the government and Green senators have the numbers to ensure the bills will become law.

The carbon plan, if passed by the Senate, would see Australia join the European Union and New Zealand with national emissions trading schemes, while the United States and Japan have smaller regional schemes.

The government and the Greens hope the carbon tax will reignite momentum for a global emissions reduction agreement at climate talks in Durban, South Africa, in December.

GOVERNMENT CELEBRATES CARBON VOTE

Government lawmakers applauded when the lower house vote was taken, while Gillard and her ministers hugged each other and waved to supporters . However anti carbon-tax protesters later disrupted parliament by shouting at the prime minister from the public galleries.

Two previous attempts to pass laws for a carbon price failed in 2009, and were partly responsible for the ruling Labor Party's decision to dump then Prime Minister Kevin Rudd in favour of Gillard in June 2010.

The carbon price is the central plank in the government's plan to cut carbon emissions, blamed for global warming, by 5 percent of 2000 levels by 2020.

The conservative opposition, which opinion polls put on track to win an election in two years, said it would dismantle the tax if victorious and replace it with an alternative that did not explicitly price carbon.

"We can repeal the tax, we will repeal the tax, we must repeal the tax. This is a pledge in blood. This tax will go," opposition leader Tony Abbott said.

Business and mining groups vigorously oppose the carbon scheme, arguing it will close coal mines, cost thousands of jobs, hike power bills and damage Australia's international competitiveness.

"The carbon tax will undermine the competitiveness of Australian coal mines with no reduction in the amount of global greenhouse gas emissions from coal mining," Australian Coal Association chairman John Pegler said.

The Minerals Council, which represents big mining companies such as BHP Billiton and Rio Tinto , said the vote was a retrograde step which would undermine export competitiveness and cost the mining sector A$25 billion by 2020.

But environment groups welcomed the parliamentary vote and urged the Senate to deal with the bills as soon as possible.

"Today's vote is historic for the millions of Australians who, in the face of well-funded scare campaigns, have tirelessly urged successive Australian governments to take action on climate change," Australian Conservation Foundation chief executive Don Henry told reporters.

INITIAL A$23 A TONNE CARBON PRICE

The bills set an initial carbon price of A$23 a tonne, and guarantees billions of dollars of compensation for big business and households, which will face higher electricity prices.

Export-exposed industries such as aluminium smelters and steel makers will receive up to 94.5 percent of carbon permits for free, while liquefied natural gas projects will receive effective assistance for 50 percent of emissions.

The scheme sets up a A$10 billion clean energy finance fund to leverage private investment in renewable energy. Legislation for the fund will be introduced in early 2012. The scheme also sets aside A$1.3 billion to help coal mines reduce emissions.

The plan also includes an extra A$300 million to help the steel industry, which is struggling with a high Australian dollar and higher costs for raw materials.

The scheme will also allow the government to buy-back up to 2,000 megawatts of electricity from Australia's dirtiest coal-fired power stations by 2020, encouraging new investment in renewable energy and gas-fired power plants.

Agriculture is exempt from the carbon price, although farmers will be able to cash in on the market for carbon offsets.

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