Australia CO2 scheme must be scrapped, opposition says

SINGAPORE Mon Oct 31, 2011 4:07am EDT

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SINGAPORE (Reuters) - Australia's main opposition party vowed on Monday to repeal a carbon pricing scheme expected to become law next month as a key plank for polls due by 2013, threatening to prolong uncertainty in energy investments.

"We will absolutely deliver on our mandate. So the first thing we'll do is we'll seek a mandate for repeal," Greg Hunt, opposition climate change minister, said in an interview.

Labor Party Prime Minister Julia Gillard, who lags the opposition Liberal Party in opinion polls, has staked her minority government's future on sweeping economic reform such as taxes on mining and carbon.

But voters have been concerned over industry fears the plan to tax carbon emissions will lead to higher costs and job losses, prompting Liberal Party leader Tony Abbott to announce a "blood oath" to repeal the scheme should his party and partners win the next election.

The government on Monday labeled the repeal pledge absurd, underscoring the divisive nature of plans to fight climate change by pricing carbon emissions in Australia, the United States and elsewhere.

"Of all the blatantly absurd claims we have heard from Abbott in recent months, this 'blood oath' on carbon pricing is the least credible and the most hysterical," Climate Change Minister Greg Combet wrote in a commentary in The Australian newspaper on Monday.

"The investment community knows that if Abbott's threat were ever realized it would increase sovereign risk. Consequently, Australia would suffer as an investment destination."

The program 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. It also includes more than A$13 billion in support for green energy investments, compensation for households against higher prices and firms that export goods to countries without carbon costs.

The Senate began discussing the package of bills on Monday. A vote is expected by late next week and the government, backed by the Greens, has a majority in the Senate.

PROFOUND CONCERN

Hunt said the opposition would fight on with their own scheme, despite failing to scuttle the government's program.

"I deal with Australian business each day and there is a huge body of deep profound concern about the impact of the tax, particularly since it is an electricity tax," Hunt said in a telephone interview from Canberra.

"It's not difficult to repeal. All that happens is that people stop paying the tax."

The opposition backs a scheme that rewards polluters for low-cost steps to cut emissions from business-as-usual levels but the government and some policy analysts say a national cost on carbon is needed to drive change in investment.

Combet labeled the opposition policy a fantasy but the ongoing bickering and uncertainty could delay investment decisions needed to achieve a 5 percent cut in emissions by 2020 from 2000 levels.

"Everyone is just keeping their options open while all this political uncertainty plays outs," said Tony Wood, leader of the energy program at the Grattan Institute in Melbourne, an independent think tank.

He said a stable outlook for carbon prices could trigger investment in high-efficiency gas power plants.

"In the absence of that, other things happen, which are almost certainly either higher costs or more of a threat to security to supply and I think it most likely to be a threat to cost," he told Reuters.

(Editing by Ed Lane)

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