Australia Closes In on National Carbon Trading Deal

CANBERRA—Australia’s government, fighting a slump in popularity over plans to price carbon, said on Thursday it was determined to start emissions trading as soon as possible after reports it had agreed on a 2015 deadline to switch from a carbon tax.

Prime Minister Julia Gillard, whose support is at record lows due to opposition to a carbon price and voter concern about rising living costs, said she was determined to make as short as possible a shift to a carbon market.

“An emissions trading scheme is the best way of cutting carbon pollution and making sure that we tackle climate change. It is the cheapest way,” Gillard told reporters, promising to overcome opposition to one of the most controversial reforms of the A$1.3 trillion economy in decades.

Gillard’s minority Labor government wants to impose a tax on carbon emissions from mid-2012 before transitioning to a carbon-trading system, under which the nation’s 1,000 biggest polluters will need to buy carbon permits on an open market.

If agreed by parliament later this year, the emissions market would be only the second national scheme outside Europe, following the lead of neighboring New Zealand.

The government has been negotiating with Greens and independent lawmakers to pass a revised scheme after a plan to cut carbon emissions foundered in 2009 in the face of Senate opposition from the Greens, who argued a targeted cut in emissions of 5 percent by 2020 from 2000 levels was too weak.

After months of secret negotiations, a deal was now close and likely to be announced in the next two weeks, the Sydney Morning Herald newspaper said on Tuesday, without naming sources.

And with the Greens about to hold the balance of power from July 1 in the Senate, all sides had now agreed to include a firm guarantee the carbon tax would switch to an emissions trade scheme in 2015, to calm business uncertainty.

Climate Panel

While the talks had yet to yield agreement on a starting price, expected to be around A$20 a ton, the government would take advice from a UK-style independent climate advisory group on what Australia’s 2020 emissions reduction target should be, the Herald said.

Uncertainty over the fate of the policy, which would tax carbon emissions from next year, has begun to frustrate investment decisions, particularly in the coal-fired power industry and in renewable energy and plantation forestry.

Energy Minister Martin Ferguson, speaking at a conference in Melbourne, said the indecision was already driving up power costs for consumers in a country reliant for electricity on aging coal-fired power stations in need of replacement.

“Already, investment in baseload generation has stalled,” Ferguson said, warning up to A$240 billion of investment in electricity and gas generation was needed over the next two decades.

“Once we resolve a carbon price, we all — including investors and financiers — have a role to play in delivering energy security and making the significant investments required to transition our energy sector over time,” he said.

The multi-party committee negotiating a carbon price scheme had overcome one of the most divisive issues by agreeing to compensate the powerful coal industry and power generators, The Age newspaper said separately.

While the Greens and the government’s main climate adviser were against compensating most coal miners and coal-powered electricity generators, all sides had now agreed to buffer both sectors, the paper said.

Assistance for coal-fired electricity generators was expected to include a power plant buyout, but over an extended transitional period. Direct compensation for generators over the transitional period was also likely.

One large power generator said the negotiations with the multi-party committee were still on-going and didn’t want to be identified given the sensitivity of the discussions. Another generator also declined to comment publicly.

A package of compensation for coal miners would also be included under a yet-to-be-finalized carbon price, but would differ from a A$1.5 billion offer outlined by the government under the former emissions scheme rejected by parliament.

The coal-fired power industry has warned that a poorly designed and executed policy could lead to more than $10 billion in industry writedowns, the possible closure of several power stations and the risk of chaos in the electricity market.

Treasurer Wayne Swan said new economic modeling would show that putting a price on carbon pollution would reform the economy at a modest cost, despite Australia being one of the world’s biggest per-capita greenhouse emitters.

The government is aiming to bring legislation for the scheme into the lower House of Representatives in August, with a vote in the Senate expected around October or November.

(Additional reporting by Sonali Paul in MELBOURNE and James Grubel in CANBERRA; Editing by David Fogarty)