Rudd Seeks to Ditch Carbon Tax With Eye on Election Campaign

Photographer: Mark Graham/Bloomberg

Australian Prime Minister Kevin Rudd gestures as he speaks at the National Press Club in Canberra, Australia, on July 11, 2013. Close

Australian Prime Minister Kevin Rudd gestures as he speaks at the National Press Club... Read More

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Photographer: Mark Graham/Bloomberg

Australian Prime Minister Kevin Rudd gestures as he speaks at the National Press Club in Canberra, Australia, on July 11, 2013.

Prime Minister Kevin Rudd plans to accelerate Australia’s move to emissions trading, scrapping predecessor Julia Gillard’s clean-energy policy that’s left the nation with the world’s highest carbon price.

Rudd seeks to bring forward by a year to 2014 the move to a floating price on carbon, Treasurer Chris Bowen said yesterday in an interview with Channel Ten’s “Meet The Press.” Australia’s fixed carbon price is four times higher than Europe’s. The move came as the ruling Labor party drew even with the coalition in an opinion poll after Rudd ousted Gillard as leader last month.

“The government is moving in this direction because a floating price takes cost-of-living pressures off Australian families and still protects the environment and acts on climate change,” Rudd told reporters yesterday in Cairns, Queensland. “We have still got a fair bit of budget work to do, as this has to be a budget neutral undertaking.”

In overturning a key policy of Gillard and stressing a potential benefit for voters in lower energy costs, Rudd is aiming to bolster support for his Labor government ahead of an election that must be held by the end of November. He’s also seeking to counter attacks from opposition Liberal-National leader Tony Abbott, who has pledged to ditch the carbon price system if he wins office, calling it a toxic tax.

Australia’s carbon pricing began at A$23 ($20.81) a ton in July 2012, rose this month to $24.15 and is scheduled to increase to A$25.40 in July 2014. European prices fell 1.2 percent to 4.04 euros ($5.28) on the ICE Futures Europe exchange July 12 in London.

Aid Businesses

Rudd’s planned change would aid businesses grappling with “high energy prices and lost competitiveness,” Innes Willox, chief executive officer of the Australian Industry Group, a business lobby representing about 60,000 companies, said yesterday in an e-mailed statement. The group had previously called for the fixed price to be replaced with emissions trading immediately after Australia’s election.

“Energy prices would be lowered both for businesses and for households,” Willox said. “This would help stimulate the economy at a time when it is struggling to transition from the slowdown in mining investment.”

‘Moral Challenge’

Backing for Rudd during his first spell as Australia’s leader waned after he postponed the introduction of a carbon-trading plan to limit climate change, a phenomenon he’d described as the “greatest moral and economic challenge of our time.”

Gillard, who ousted Rudd in a party coup three years ago, won approval in 2011 for a Clean Energy Act, striking a compromise under which she agreed to set a fixed rate for three years before starting market-based pricing in July 2015.

The tax on emissions for about 300 of Australia’s largest polluters was planned by Gillard as the main method of reducing the country’s reliance on coal and meeting its target for a 5 percent cut in greenhouse gas emissions from 2000 levels by 2020.

“The decision to scrap the fixed carbon price is cowardly,” Greens leader Christine Milne said in an e-mailed statement. “If you believed that climate change was the greatest moral challenge of our time, and it is, you would not now be moving to have the big polluters pay less.” Australia is ranked as the world’s biggest emitter per capita among industrialized nations.

The planned change would need new legislation, though Rudd’s office said it couldn’t provide more detail on how the proposal would be implemented ahead of an announcement scheduled in the coming days.

‘Still a Tax’

“Rudd can change the name but whether it is fixed or floating, it is still a carbon tax,” Abbott said in an e-mailed statement.

Announcing the move is a part of “developing the new Kevin persona, distinguishing it from the old Kevin who was undermined by the carbon tax in the first place,” said Stephen Stockwell, a political analyst and Griffith University professor of journalism and communications in Brisbane.

“He’s had three years to think about how he could have done things better,” Stockwell said. “What we are seeing now is a lot of that come out.”

The decision will have an impact of “several billion dollars” on Australia’s federal budget, meaning the change will be accompanied by spending cuts to ensure revenue rates are maintained, Bowen said. Rudd’s government will continue to seek a budget surplus after the 2015-2016 financial year, he said in the television interview.

EU Link

Australia is slated to link its carbon market in 2015 with the European Union, the world’s largest emissions-trading program, and will probably also attempt to bring forward that plan, said Kobad Bhavnagri, a Sydney-based analyst at Bloomberg New Energy Finance.

If Australia can’t link the carbon price to the EU in 2014, its floating price would be driven by domestic demand and supply including the number of excess permits, Martijn Wilder, head of global environmental markets with Baker & McKenzie International in Sydney, said by phone.

“It will be quite interesting to see where the price goes,” Wilder said. “I don’t think anyone really knows that at the moment.”

Australia’s government in May halved its projection for carbon prices starting July 2015 to A$12.10 a metric ton as the EU struggles with low prices. The revision was calculated at the time to cut the value of permits by about A$6 billion through June 2016, or a net cost to government of A$2.1 billion.

Vote Winner

While the proposal will require decisions on spending cuts to make up for lost revenue, Rudd calculated that ditching the carbon tax is a probable vote winner, Bhavnagri said.

Since he returned to office, Rudd’s Labor has risen to its highest level on a two-party preferred basis in almost nine months, according to a Newspoll survey published July 9 in The Australian that showed it was tied on 50 percent with the Liberal-National coalition.

That result was mirrored in a Fairfax-Nielsen poll published in the Sydney Morning Herald newspaper today, which also showed an even split in the two-party preferred measure, designed to gauge which party is most likely to form government under Australia’s preferential voting system.

Labor’s primary vote surged 10 percentage points to 39 percent in the poll taken July 11-13, while the coalition fell three points to 44 percent from the previous survey conducted a month earlier. Rudd leads Abbott as preferred prime minister, 55 percent to 41 percent. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

“This is essentially a political move,” Bhavnagri said. “It’s designed to neutralize public angst about the carbon tax, to try to remove the word tax from public debate and to appease the business community who are concerned they are paying much more than in the EU.”

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

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