Australia May Introduce `Hybrid' Policy on Curbing Carbon, Citigroup Says

Australia is likely to impose a price on carbon emissions in the next three years, replacing a previous plan with a blend of initiatives, including a trading system or a tax as well as regulation, Citigroup Inc. said.

“It might be some sort of hybrid and perhaps more incremental than was being proposed previously,” while focusing initially on electricity generation, Elaine Prior, an analyst at Citigroup in Sydney, said in a phone interview today. Whether it’s a tax or trading, “the same issues would arise,” with debate about industries that should be included, compensation and allocation of free permits, she said.

Prime Minister Julia Gillard pledged to restart an effort to tackle climate change after replacing Kevin Rudd in June, seeking to build a consensus before taking action. As part of an accord with the Greens Party earlier this month, Gillard said she would set up a committee to form a carbon plan.

Origin Energy Ltd., AGL Energy Ltd. and Infigen Energy would be the main beneficiaries if a policy to reduce carbon emissions succeeds, Prior said.

“Carbon regulation may contribute to higher electricity prices, which would then improve the economics for renewables,” she said. “But it depends on the detail of the design.”

BHP Billiton Ltd. Chief Executive Officer Marius Kloppers last week urged lawmakers to combine a carbon tax, regulation and a market-based trading system restricted to power generation.

‘Top of Mind’

The Greens received a surge in voter support in Australia’s August election after the ruling Labor Party under Rudd deferred its carbon pollution reduction scheme, or CPRS, amid opposition from lawmakers. Gillard named Greg Combet, a former union leader and coal-mining engineer, as climate change minister. Combet replaced Penny Wong, who became finance minister.

“Despite the CPRS being rejected, it’s clear the topic is top of mind and it’s also clear that some business leaders would like to see more clarity,” Prior said. She said if a new plan “adds complexity, then it’s not good, and at the end of the day one would hope to get a market signal that’s broad-based and that encourages carbon reduction at the lowest cost.”

Resolving the policy details is unlikely to happen quickly or smoothly, Prior said.

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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