Australia’s new prime minister can’t count on big polluters to support his plan to stop charging for greenhouse-gas emissions, according to the Carbon Market Institute.
While business groups such as the Minerals Council of Australia have criticized the carbon price as a “dead weight on the economy,” few individual companies have spoken up for Tony Abbott’s plan to scrap what he calls the carbon tax, said Peter Castellas, chief executive officer for the Melbourne-based institute. It surveyed about 200 of the country’s largest emitters before the Sept. 7 election and plans to publish a study later this year on the costs of repealing carbon trading in Australia.
“Those conversations are yet to be had by liable entities in Australia,” Castellas said yesterday at the Carbon Forum Asia in Bangkok. “Lots of money has already been invested. Those costs have already been sunk.”
The Carbon Price Mechanism passed by former Prime Minister Julia Gillard in 2011 requires more than 300 of Australia’s largest emitters to pay about $24.15 a metric ton for greenhouse gasses this year, the highest price in the world. EnergyAustralia, a unit of Hong Kong’s biggest electricity supplier, would have to write off investments if Abbott prevails with his repeal, said Kenneth Wong, manager of carbon credits at China Light & Power, EnergyAustralia’s parent company.
Electricity futures prices show the implied costs of emitting carbon in Australia plunged 18 percent in the two days following the election, bringing its monthly decline to 55 percent, according to data compiled by Bloomberg. At their lowest, prices indicated an 80 percent probability that Abbott will overturn the carbon price, according to Bloomberg New Energy Finance.
“No doubt there has been a shift in Australia’s climate policy,” said Martijn Wilder, the head of the climate-change practice at Baker & McKenzie Ltd. in Sydney. While Abbott is determined to keep his campaign promise to end carbon pricing, he is unlikely to prevail until the new Senate is seated in 2014, Wilder said. Even then, newly elected senators may try to win concessions before supporting repeal, Wilder said.
“The longer this uncertainty lasts, the bigger the problem for Australian companies,” said Ingo Tschach, head of market analysis for Tschach Solutions in Karlsruhe, Germany.
Repealing the carbon price will be difficult for Abbott, who is already coming up against opposition, according to Wilder and Castellas. Australia’s Climate Commission, axed earlier this month in one of Abbott’s first acts as prime minister, has been relaunched as the Australian Climate Council after a “groundswell” of private financing commitments to save the adviser of global warming, Tim Flannery, the former chief of the commission, said this week.
Abbott may also incorporate market-based measures in his proposal for limiting emissions, Wilder said. The prime minister has floated the idea of awarding credits to power generators that reduce emissions from the historical baselines, Wilder said. While emitters that exceed their base levels wouldn’t be penalized, those that discharge less may be eligible for government funding.
“Like it or not, we have the opportunity to work with the new prime minister to design and implement his goals,” said Castellas, who worked for Deloitte’s climate practice before joining the Carbon Market Institute.
The $1 billion that Abbott is proposing to spend to start his Direct Action policy “is not a small amount,” Castellas said. Abbott’s new environment minister, Greg Hunt, is genuinely interested in climate issues, even as he enforces Abbott’s desire to axe carbon trading, according to Castellas.