To Tax, Or Not to Carbon Tax?
Image Credit: Lachlan Hardy

To Tax, Or Not to Carbon Tax?


Political coups, green bashing and business warfare: welcome to Australia’s high stakes global warming debate, 2011-style. After the issue claimed the scalp of one premier, threatened another and saw a number of false starts, Australian Prime Minister Julia Gillard declared victory on November 8 with the passage of the nation’s first carbon pricing laws.

While supported by environmentalists, the carbon tax battle has seen Gillard’s Labor Party sink in the polls amid fierce opposition from the mining and manufacturing industries along with the government’s political opponents, led by Liberal Party and Coalition leader Tony Abbott.

Yet even as the dust has barely settled in Australia, the seventh largest emitter among industrialized nations, current climate treaty talks in Durban, South Africa, are again attempting to find a global solution to the issue. Will the new Australian scheme inspire the world’s top emitters to do likewise, perhaps even creating an “Asia-Pacific” carbon trading regime? Or will Australia’s effort simply vanish into the thin air of international diplomacy, as the world’s leaders focus on rescuing the global economy?

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The Diplomat spoke to political, business and economic analysts on the implications of Australia’s new scheme. Unfortunately for the green visionaries, the most upbeat prognosis was: nice try, pity about the timing.

“There’s an argument that Australia can set an example and others will follow, but my experience of foreign policy is that what really drives national policy is self-interest,” says former Foreign Minister Alexander Downer.

“These days, the fashion in international dialogue is the problems of the global economy, not climate change,” he says. “As much as we may hope that what we do will influence other countries, it won’t encourage a greater sense of altruism in other countries, and to think so is just naïve.”

Downer’s hard-headed, Realpolitik assessment appeared well-founded, after U.S. President Barack Obama declared while visiting Australia that carbon trading was off the agenda in the United States for the foreseeable future.

And with the European Union’s carbon price in free fall, the accusation that Australia has given a free kick to trading competitors by levying a costly and high carbon price has gained weight.

Still, last month’s passage of the carbon pricing legislation marked a personal victory for Gillard, who ousted former Labor leader Kevin Rudd in June 2010 partly due to his failure to drive through parliament his proposed “Carbon Pollution Reduction Scheme,” or CPRS.

Aimed at achieving at least a 5 percent reduction in emissions compared with 2000 levels by 2020 – and potentially an 80 percent cut by 2050 – Gillard’s scheme has legislated for a A$23 a ton carbon price from July 1, 2012, rising 5 percent a year for three years.

By comparison, Europe’s carbon price has dropped more than 40 percent in the past four months to below A$12.30, its lowest level since the global financial crisis, according to the Australian Financial Review.

By mid-2015, assuming Abbott’s coalition hasn’t assumed power and abolished the scheme, Australia’s system is proposed to become a trading scheme linked to international carbon markets, although with a floor price of A$15 per ton.

But four years is a very long time in politics, judging by the troubled history of Australia’s proposed carbon pricing schemes.

On, off and on again

Australia’s first serious attempt at carbon pricing was in 2007, an election year in which both the challenger, Rudd, and the incumbent, then Prime Minister John Howard, pledged their own versions of the scheme. After winning office, Rudd announced plans for the CPRS, a cap and trade scheme aimed at slashing Australia’s emissions by 60 percent compared with 2000 levels by 2050.

Yet by late 2009, Rudd’s scheme was under attack from both environmentalists and business groups, with the government forced to concede ground in gaining support from the Malcolm Turnbull-led opposition. Turnbull’s leadership on the CPRS angered his party members, however, and on December 1 he lost a leadership ballot by just one vote to the anti-CPRS Abbott, who called it a “great big new tax.”

A day later, and the opposition-controlled Senate blocked the legislation, giving Rudd the trigger for a new election. Rudd failed to grasp the opportunity, though, and his decision in April 2010 to delay the scheme ultimately helped cost him the party leadership.

In another irony, Gillard had reportedly helped convince Rudd to scuttle the CPRS over fears of its electoral unpopularity. Abbott, for his part, would have been duty bound as a government minister to implement the Howard scheme had his party won the 2007 poll, and was even quoted in mid-2009 saying a carbon tax might be preferable to emissions trading schemes.

By June 2010, Rudd was badly trailing Abbott in the polls, and with an election looming, Gillard was installed as Labor leader in a bloodless coup. In her first speech as prime minister, Gillard pledged to “prosecute the case for a carbon price at home and abroad.”

Despite vowing that “there will be no carbon tax under the government I lead,” the cliffhanger August poll saw Labor lose its parliamentary majority, and Gillard was forced to implement a carbon pricing scheme as a condition of forming a minority government with the Greens and independents.

Consequently, in February 2011, Gillard proposed a fixed carbon price prior to a floating, market-set price in the Clean Energy Bill. Despite both major parties committing to emissions reductions of 5 percent below 2000 levels by 2020, a bitter debate followed, with the legislation passing through the lower house in October and the upper house a month later. Announcing his continued opposition, Abbott made a “blood pledge” to abolish the scheme after the next election, even if it required a double dissolution election. He has proposed a A$3.2 billion “direct action” plan involving tree planting, solar rebates and direct subsidies to emitters, although the government has claimed its actual cost would be A$62 per ton of carbon.

But for Gillard, the legislation’s passage was a moment of political history for her beleaguered government.

“Within the space of just 38 years…our nation will cut nine out of every 10 tons of the carbon pollution we would otherwise have released into our atmosphere,” Gillard was reported as saying.

The legislation’s passage through the Senate corresponded with a rise in Labor’s electoral support, with one lawmaker saying it made a move against Gillard less likely following speculation of a challenge from Rudd.

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