Analysis: "Blood oath" on CO2 laws to haunt Australia's
SINGAPORE/CANBERRA (Reuters) - Australia's Senate is set to pass laws on Tuesday putting a national price on carbon emissions, one of the country's most sweeping and divisive economic reforms that have been a decade in the making.
Opposition leader Tony Abbott has run a two-year campaign to wreck the scheme, seizing on voter fears of higher costs and job losses and driving support for Prime Minister Julia Gillard to all-time lows. Upping the ante further, he made a "blood oath" last month to repeal the laws if he wins power in 2013.
It's a vow he could regret.
A combination of pressure from business demanding certainty for investment, voter fatigue and the constitutionally tortuous process of repealing laws will likely force Abbott to back down, analysts say. If an Abbott-led government presses ahead with the repeal threat, it risks damage to the economy, legal action and high costs for industries, they say.
The scheme begins in July and businesses from liquefied natural gas (LNG) producers to power generators simply want to move on and comply. The government and Greens have a majority in the upper house Senate, ensuring it will pass.
"He's said it's written in blood, but you can promise to defy gravity and you're not going to do it," said Norman Abjorensen, a political analyst at the Australian National University.
Voters and business may well find the scheme is not as costly as portrayed by Abbott. A government compensation package will defray the cost for more than 90 percent of households, while some industries will get substantial sweeteners.
"I think when the positive side starts to kick in, and the huge relief package, and people see the dollars on the other side of it, it will dissipate the anger," Abjorensen told Reuters.
Internationally, there is much focus on what Australia is doing as part of the fight against climate change.
Competitors such as China and South Korea are already working on emissions trading schemes, California's starts in 2013, while Europe and New Zealand already have trading programmes.
Australia's scheme covers the top 500 carbon polluters. It imposes a cost on every tonne of emissions from power stations, steel mills, LNG producers, coal miners and cement plants, will affect power and fuel prices and help drive investment toward less polluting gas-fired power plants.
Without the programme and a goal to cut emissions by 5 percent below 2000 levels by 2020, the government says Australia's emissions will soar over the coming decade, driven by a resources boom and population growth.
Australia is the developed world's top per-capita carbon emitter, in large part because about 75 percent of power is generated from coal.
The programme starts with a three-year fixed price phase beginning at A$23 per tonne in July before switching to emissions trading in mid-2015, with the aim to link to carbon markets overseas.
Abbott's attempts to sow more political uncertainty in the coming months could well backfire.
"It's hard to see business would be prepared to put up with another 5-year period of significant uncertainty, almost no matter what their persuasion," said Lane Crockett, general manager, Australia, for Pacific Hydro, a large wind farm and hydro power developer.
For Australia's rapidly growing LNG sector, which fought the scheme saying cleaner gas shouldn't be taxed, it was time to move on.
"I'm not sure that anyone would waste too much time trying to change people's minds on something that's already gone through the House of Representatives (parliament's lower house) ... (it's) not a live issue," said Michael Bradley of the Australian Petroleum Production and Exploration Association.
Power generators, clamoring for investment certainty, want clarity on long-term carbon pricing after more than a decade of work by various Australian governments on designing a scheme.
Abbott's threat means that generators and large electricity users wanting to lock in forward carbon prices will pay more to achieve certainty, pushing up their costs, said Tim Jordan, carbon analyst at Deutsche Bank in Sydney.
"It also means that the market will make sub-optimal choices about what generation plant to build, which leads directly to higher electricity prices," he said.
Generators such as Origin Energy and TRUenergy, a wholly owned subsidiary of Hong Kong's CLP Holdings, will need long-term certainty on carbon and gas prices before opting to build more expensive, and less polluting, combined-cycle gas turbine power plants.
Abbott's repeal campaign would also prompt demands for more clarity on his party's plans to cut carbon emissions.
"If the opposition continues to talk about repealing it, there will be far more focus then on what they are going to do in its place and they will come under more pressure to explain what their alternative policies are," said Martijn Wilder, global head of Baker & McKenzie's environmental markets and climate change practice.
The complex and politically risky process of repealing laws may also force Abbott to row back.
The Greens, who support Gillard's Labor Party, hold the balance of power in the Senate and polls suggest the Greens could pick up more seats in the next election.
A future Labor opposition and Greens bloc in the Senate would not agree to abolish a carbon tax for which they have fought so hard for more than a decade, even if the conservatives claimed a public mandate from an election win.
That means Abbott could need to resort to a so-called double dissolution election, which would take place after two successive Senate rejections of repeal laws three months apart.
"This process cannot be rushed. The High Court has said that the Senate is entitled 'to have a proper opportunity for debate'. A determined Senate could string this out for many months and it might take Abbott a year or more to secure a double dissolution trigger," said constitutional law expert George Williams.
Williams, writing on the National Times website (www.nationaltimes.com.au), said it would likely be mid-2015 before Abbott could hold a double dissolution election, and then months more before a joint sitting of the parliament could be arranged to repeal the tax.
"By this time, the carbon scheme will have operated for more than three years. Ending it will impose enormous compliance costs on business and destabilize several industries and markets," he said.
Major legal obstacles could render Abbott's already Herculean task impossible to fulfill, Williams said.
Stephen Bartos, an expert on Australian public sector governance and risk from the consulting firm Sapere Research Group, said Abbott's repeal promise could also hit the national budget hard, hobbling another Abbott promise to manage the A$1.3 trillion economy better than Gillard's Labor.
"If a future government faced a risk, even a small risk, of needing to pay compensation of the size implied by the carbon tax costs, it would need to make provision for that," he said.