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Analysis: Australia CO2 plan puts carbon pricing back on track
July 11, 2011 / 11:21 AM / in 6 years

Analysis: Australia CO2 plan puts carbon pricing back on track

SINGAPORE (Reuters) - Australia’s push to impose an economy-wide cost on carbon pollution gives global efforts to price emissions a boost and will help revive struggling U.N. talks on a tougher climate deal.

<p>Steam and other emissions rise from a coal-fired power station near Lithgow, 120 km (75 miles) west of Sydney, July 7, 2011. Australia is set to slap a carbon tax of A$23 a metric ton ($24.60) on its major emitters, newspapers said on Thursday, but it has halved the number of companies liable for the tax in a bid to overcome hostility to the policy. REUTERS/Daniel Munoz</p>

In Australia’s most sweeping economic reform in decades, the government will tax the nation’s top 500 polluters at A$23 per metric ton of carbon before moving to a market-based emissions trading scheme in 2015.

The proposal came after months of venomous political debate and the haunting failure of two previous attempts to price carbon in 2009.

Australia’s embrace of a carbon tax, despite fierce political and industry opposition, is a much needed sign of support for carbon pricing.

Lobbies pressing for similar moves in other countries will take heart that Australia -- as the developed world’s biggest greenhouse gas emitter on a per-capital basis -- has managed to push this far ahead.

“Other countries will look at one of the most carbon polluting economies on the planet that has made one huge stride forward toward putting a price on carbon,” said John Connor, CEO, of The Climate Institute think tank in Sydney.

“That should be a boost for those who are calling for this everywhere from Japan, South Korea, South Africa through to the United States,” he said.

The drama in Australia mirrors that in the United States, Japan and other nations where efforts to price carbon have proved polarizing, forcing governments to shelve plans.

If the Australian parliament gives its approval later this year -- assuming key government backers don’t defect -- it will usher in the second-largest carbon scheme outside Europe’s $120 billion a year program that began in 2005.

It will boost efforts by Australia’s trading partners in Asia as well as New Zealand, which already has an emissions trading scheme and is keen to link its program with its neighbor. California is aiming to roll out emissions trading from 2013.

“If you are looking for countries where it would have an influence it would be South Korea and Japan because they are both considering emissions trading scheme,” said Stephen Howes of the Australian National University in Canberra.

“So if we can influence them, they might then influence China,” said Howes of the Crawford School of Economics and Government. China is the world’s biggest polluter and its carbon emissions rose 10 percent in 2010.


South Africa has said it wants to impose a carbon tax by late 2012 but has faced criticism from industry fearing it will hit profits. The government is currently looking at different proposals that would not jeopardize growth.

South Korea wants to introduce emissions trading by 2015 and has already set emissions caps for its power and heavy industry sectors for the year 2020.

The government has muted some strong industry opposition by offering concessions. The scheme needs parliamentary approval but has won bipartisan support.

The government is also considering a carbon tax as a possible alternative.

“Australia can be a good example that shows the growing number of countries heading into the direction of the carbon tax,” Park Soon-chul, chief researcher at Korea Carbon Finance in Seoul, told Reuters.

Japan has shelved proposals for emissions trading laws and a climate bill as lawmakers seek revisions. But debate has also stalled because the weak government is struggling to guide energy policy and reconstruction after the March earthquake and nuclear crisis.

Many industries are fearful of higher power costs after the disaster. Parliament is trying to debate a subsidized tariff for green energy to drive renewable power investment.

Faced with a power crunch and massive rebuilding costs, Japan can not pay too much attention to what other countries are doing on climate policy, said Yasuhiko Tabaru, a senior consultant at the Mizuho Information and Research Institute.

“Another country’s climate policy doesn’t seem to have anything to do with us under the current political situation in Japan,” he said.

More broadly, though, Australia’s plan is a breath of fresh air for the market.

“From a global market perspective there is no doubt this will create a significant boost for the global carbon market,” said Martijn Wilder, global head Baker & McKenzie’s environmental markets practice in Sydney.

Key lures of the Australian measure are its size and international linkages.

The target is to cut emissions by 160 million metric tons by 2020 from 2000 levels. The scheme will tax the country’s top 500 polluters, who currently produce 60 percent of national emissions.

At nearly 600 million metric tons of emissions a year, Australia’s greenhouse gas pollution is similar in scale to South Korea‘s.

But with half the population, Australia’s $1.3 trillion economy is far dirtier per-capita because of its heavy reliance on coal for about 80 percent of electricity.

This compares with about 95 percent for South Africa, about 80 percent for China and 45 percent for the United States.


Mark C. Lewis, managing director of commodities research at Deutsche Bank in London, said he expected significant demand from Australia from 2015 for UN offsets called CERs.

That would be a much needed boost to building up the UN’s carbon market under the Kyoto Protocol because the market is essentially dominated for now by Europe.

Under Australia’s scheme, offsets equivalent to up to half the nation’s greenhouse gas emissions could be imported from 2015. Many of the credits are likely to come from clean-energy projects in poorer countries.

“Also, with California starting in 2013 and potentially South Korea in 2015, you now have a little bit of momentum again. California and Australia are very important regions -- particularly from a media point of view -- and will get the kind of attention that South Korea will not,” Lewis told Reuters.

China is closely watching how its neighbors tackle carbon policy, said Howes, who has just returned from a visit there.

China has pledged to cut the amount of CO2 produced per unit of GDP by 17 percent over 2011-2015, and is looking to launch a number of pilot “market mechanisms” in various cities and provinces over the next year to meet the target.

It is also looking at cap-and-trade mechanisms, the most commonly used system to control pollution, in sectors such as power and steel. However, it is unclear when Beijing might unveil a nationwide carbon-trading scheme.

U.N. climate talks are largely stalled over disagreement over the fate of the Kyoto Protocol and anger from poorer nations, which accuse rich nations of not doing enough to cut emissions.

Australian’s plan pledges to cut Australia’s emissions by 80 percent by 2050 from 2000 levels, up from an earlier goal of 60 percent.

“This should be a real boost for international climate negotiations,” said Christine Milne, the deputy leader of Australia’s Greens party.

Major U.N. climate talks are set for the South African city of Durban at the end of the year to try to break the deadlock. Strong individual steps by countries might improve the mood of the talks, which have been poisoned by years of mistrust.

“What we’ve seen globally is a move away from international agreement to countries who are the key players starting to adopt their own strategies. This is just part of that consistent trend,” Wilder said.

(Additional reporting by Ju-min Park in Seoul, David Stanway in Beijing, Stian Reklev of Point Carbon News in Beijing, Nina Chestney in London and Agnieszka Flak in Johannesburg)

Editing by Neil Fullick

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