World’s Highest Carbon Price Bedevils Australia’s New Leader

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Kevin Rudd, sworn in yesterday for his second stint as Australia’s prime minister, may seek to amend his predecessor’s flagship clean-energy policy that’s left the nation with the world’s highest carbon price, analysts say.

Bloomberg New Energy Finance joined RepuTex in Melbourne and Climate Mundial in London in predicting Rudd will try to deflect attacks on Australia’s fixed carbon price, set to rise next month to almost four times the European rate, by pledging to speed up the shift to a market-based trading system.

Rudd ousted Julia Gillard after winning a ballot for the leadership of the governing Labor party on June 26. He will need to craft a policy platform as he seeks to close the gap with the opposition before elections currently due Sept. 14. Opposition leader Tony Abbott has vowed to scrap the carbon price system introduced by Gillard should he win, calling it a toxic tax.

“The carbon tax has been very politically damaging for the Gillard government, so it is likely that Kevin Rudd will look to neutralize the anti-carbon tax sentiment by moving the scheme to an emissions-trading phase, letting the market determine the price as soon as possible,” Kobad Bhavnagri, head of carbon analysis in Sydney for New Energy Finance, said yesterday in an interview. “We think it is likely that this change will be part of Rudd’s re-election platform.”

Rudd said in February 2012 he supported “the earliest possible transition to emissions trading and a floating price.” He declined to detail any policy plans yesterday in parliament, saying only he was “committed to a carbon price.”

World’s Biggest Emitter

The new Cabinet will next week discuss policy, including the timing for the move to market-based pricing, Minister for Mental Health and Ageing Mark Butler told Australian Broadcasting Corp. radio today.

Gillard won approval in 2011 for a Clean Energy Act that set a price for the first time on greenhouse gases in Australia, ranked as the world’s biggest emitter per capita among industrialized nations. As part of a compromise to win the support of Australia’s Green party, Gillard agreed to set a fixed rate for three years before starting market-based pricing in 2015. Australia started at A$23 ($21.40) a ton in July 2012 and is scheduled to raise the price next month to $24.15 and A$25.40 in July 2014.

European prices, by comparison, fell 5 percent today to 4.21 euros ($5.60) on the ICE Futures Europe exchange in London. While Australia and Europe are slated to link their emissions markets in 2015, some industry groups are calling for a faster transition from fixed to market-based prices.

Industry Demands

The Australian Industry Group, a business lobby representing about 60,000 companies, this week called on the nation to abolish the fixed price and replace it with emissions trading immediately after Australia’s election. A survey of its members indicated that Australia’s “unnecessarily high levy” on carbon is hurting the country’s competitiveness, the group said in a June 25 statement.

“With Australian businesses about to begin two more years with a fixed-price carbon tax, the survey adds to the mounting case for an immediate switch to an emissions-trading scheme,” Innes Willox, the group’s chief executive, said in the statement. “Replacing it with an internationally linked emissions trading scheme needs to be at the top of the post-election agenda. This would immediately cut carbon costs by two thirds and boost business competitiveness.”

The resignation this week of Greg Combet, Australia’s minister for climate change, will give Rudd the opportunity to reset the government’s carbon policy, said Hugh Grossman, executive director of research company RepuTex in Melbourne.

Fresh Face

“A fresh face in the climate portfolio should be viewed by the market as a precursor to a likely policy change,” he said.

Rudd is likely to move forward the plan to link the European and Australian carbon markets, Daniel Rossetto, managing director of Climate Mundial in London, said June 26 in an e-mail. “Rudd is unlikely to aggressively defend retention of the fixed-price period,” Rossetto said.

An accelerated shift to market pricing would further decrease Australia’s revenue from selling carbon permits, New Energy Finance said. The nation cut its estimate for future carbon prices in May because of lower EU prices to A$12.10 a metric ton from A$29 before. The revision cuts the value of permits by about A$6 billion through June 2016, or a net cost to government of A$2.1 billion after accounting for industry aid, Combet said May 14.

Political Benefits

Even so, the political benefits of lower carbon prices exceed the costs, according to Bhavnagri of New Energy Finance.

“Although it would likely result in less revenue to government, from a political perspective it is an easy win, pleasing both the business community and soothing voter anxiety about the carbon tax,” he said.

Any amendment to the Clean Energy Act, or a bid by Abbott to scrap it, would require legislation in parliament. Rudd, after winning the general election in 2007, tried twice to pass an emissions-trading plan called the Carbon Pollution Reduction Scheme, or CPRS. He previously criticized the three-year fix price passed by Gillard while maintaining his support for emissions trading, New Energy Finance said.

While Rudd is expected to campaign on the issue of accelerating carbon trading to start as early as July 2014, he is unlikely to try to amend the law before this year’s general election, New Energy Finance said. Even if he loses, the likelihood that Abbott will be able to repeal carbon pricing in Australia has fallen from 44 percent under Gillard’s leadership to 34 percent under Rudd, New Energy Finance estimates.

The change in Labor leadership will minimize the chances of the Coalition gaining enough seats in the upper house Senate to overturn the law, according to RepuTex.

Tighter Contest

“The tighter contest should therefore provide a degree of insulation for the Clean Energy Act in the Senate, regardless of which party ultimately forms government,” Grossman said.

Rudd’s return would lift Labor by 11 percentage points in the primary vote to 40 percent, compared with the coalition’s 42 percent, according to a Nielsen survey published in Fairfax newspapers June 17.

Gavin Wendt, founder of Mine Life Pty, a mining and resources researcher in Sydney, said he doubted Rudd would seek to amend the Clean Energy Act before the election, and would probably lose office to Abbott.

Wendt said Labor is unlikely to have the support it needs to change carbon legislation before the election.

“With Julia Gillard as leader, all the polls showed that Labor were going to suffer a complete wipeout and were going to lose a whole lot of seats,” he said. “The polls showed that with Kevin Rudd as leader, they’ll lose but won’t lose as many seats. So it was more about minimizing their losses at election, rather than a chance at winning.”

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