Carbon Plan Passed by Senate as Gillard Seeks Public Support

Australia’s upper house of parliament passed legislation to make polluters pay for their carbon emissions from next year as Prime Minister Julia Gillard battles to win public support for the new tax.

The legislation will see about 500 companies charged A$23 ($23.80) a ton for their emissions starting in July 2012, before a so-called cap-and-trade system is introduced three years later. The bill to introduce the world’s second-biggest emissions trading system was passed today with the backing of the Greens Party, which supported Gillard’s minority government on condition she moved to tackle climate change.

Gillard, the country’s first female prime minister, is struggling to sell the plan after pledging before last year’s election not to introduce a carbon tax. Opposition leader Tony Abbott is promising to scrap the program if he wins the next poll, arguing it will increase living costs and threaten jobs.

“The task of convincing the many voters who have turned sour on the Gillard government is ongoing,” said Haydon Manning, a professor of politics at Flinders University in Adelaide. “As laudable as it is, it may be politically deadly.”

Public opposition to the Clean Energy Future legislation rose to 59 percent from 53 percent three months ago, a Newspoll survey published Oct. 25 showed. Those in favor of the plan fell to 32 percent from 36 percent. The survey was based on 1,221 voters interviewed Oct. 21 to Oct. 23 and has a margin of error of plus or minus 3 percentage points.

The levy “is a blow to the future of Australian manufacturing and a new burden for families struggling under cost of living increases,” Abbott said in an e-mailed statement today.

‘Blood Oath’

The legislation, approved by the lower house on Oct. 12, will be “very difficult to challenge,” said Anthony Hobley, global head of climate change at law firm Norton Rose in Sydney. While Abbott has pledged a “blood oath” to dismantle the carbon price, that would require “primary legislative amendments” and the termination of tax cuts and government support for industry, he said.

A carbon price will drive the investment that’s needed in Australia’s manufacturing and heavy industry sectors to improve their energy efficiency, Climate Change Minister Greg Combet said in an interview with Bloomberg Television today.

“It’s very important for the long-term competitiveness of our economy,” Combet said.

Uncertain Price

Australia, which burns coal to produce about 80 percent of its electricity, plans to operate the world’s largest cap-and- trade system after Europe’s. The program will allow companies that create less emissions than their cap to sell unused permits to other polluters.

The nation faces an uncertain price for power starting in 2015, when the market rather than the government becomes the main driver, Tim Jordan, an analyst at Deutsche Bank AG, said by telephone from Sydney.

“The political risk will weigh on the minds of people who are liable under the scheme,” Jordan said.

Still, the program in Australia, the developed world’s biggest per-capita polluter, adds momentum to global efforts to curb emissions, Jordan said.

Today’s vote was “a big step” toward creating the long- term certainty that businesses need, said Markus Huewener, chief executive officer of First Climate AG in Frankfurt. “Australia is now leading the world” as nations prepare to meet in Durban, South Africa later this month to discuss climate protection rules beyond 2012, he said.

First Climate, which develops and trades emissions credits for global markets, has operated in Australia for the past two years, focusing mainly on the voluntary emissions market.

‘Retrograde Step’

The Minerals Council of Australia, which represents companies such as BHP Billiton Ltd. (BHP) and Rio Tinto Group, has called Gillard’s carbon legislation a “retrograde step” for the country. The mining industry faces carbon costs of at least A$25 billion by 2020, according to the group.

The Australian Industry Group, representing businesses from manufacturing to mining equipment, said in October that Australian carbon prices during the fixed-price phase would be higher than those in Europe.

Power generators facing losses in the value of their assets will receive assistance, loan support and payment for the closure of coal-fired plants under Gillard’s plan. The government will provide A$9.2 billion over three years to assist high-polluting businesses such as aluminum smelters, steelmakers and pulp manufacturers, Gillard said in July.

The legislation also calls for a A$10 billion Clean Energy Finance Corp., which will invest in businesses seeking funds to get projects off the ground, according to the government.

Origin Energy Ltd. (ORG) and AGL Energy Ltd. (AGK) are more likely to win than lose because of their natural gas and renewable energy expansion plans, Citigroup Inc. said in a July 5 report.

Public Support

In trying to win public support for the plan, Gillard faces the added hurdle of having promised during her election campaign last year not to implement a carbon tax. Her minority government won the backing of the Greens in exchange for establishing a committee to advise on the best way to charge polluters.

The carbon-trading plan has already claimed two political scalps in Australia. Former Prime Minister Kevin Rudd was ousted by Gillard as his poll ratings slumped amid a battle with miners over a tax on resource profits and after he shelved his strategy for curbing greenhouse gas pollution. Malcolm Turnbull, a former Goldman Sachs Group Inc. executive, was dropped as leader of the opposition Liberal Party, when his lawmakers rejected his support for Rudd’s climate plan.

“I understand that this has been a bitter debate and that there are Australians that still view carbon pricing with a great deal of anxiety,” Gillard told reporters in Canberra today. “This is the right carbon pricing package for our nation.”

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

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

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