Abbott May Fail to Scrap Australian Carbon Price, BNEF Says

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Australian opposition leader Tony Abbott, favored to win the Sept. 14 election, is unlikely to fulfill his pledge of scrapping the nation’s carbon price, according to Bloomberg New Energy Finance.

While Abbott’s Liberal-National coalition is leading in opinion polls and likely to win office, it probably won’t secure enough seats in parliament’s upper house Senate to repeal Prime Minister Julia Gillard’s Clean Energy Act, Seb Henbest, a Sydney-based carbon analyst for BNEF, wrote in a report published today.

“We estimate that there is about a one-in-three chance of repeal,” Henbest wrote. “The most likely result is a new coalition government which finds a way to live with the carbon price.”

Abbott has given voters a “pledge in blood” that he will scrap the levy for about 300 of the nation’s largest polluters, calling it a wrecking ball for Australia’s A$1.45 trillion ($1.48 trillion) economy. Political uncertainty about the Carbon Price Mechanism is likely to continue until at least the second half of next year, according to BNEF.

“The judgments in the report couldn’t be more inaccurate,” Shadow Climate Minister Greg Hunt said in a phone interview from Sydney today. “The next election will be a referendum on the carbon tax. We expect that if the Labor party is defeated it would not oppose repeal of the carbon tax.”

Greenhouse Gases

The carbon price is the government’s main tool for reducing the country’s reliance on coal and meeting its target for a 5 percent cut in greenhouse gases from 2000 levels by 2020. The legislation was passed by Parliament in November 2011 and came into effect on July 1 as a fixed price of A$23 per ton of emissions for the first year of the program.

Fixed emission costs for the first three years are set to be replaced in 2015 by a cap-and-trade system in which market forces help determine the price of pollution permits.

The government amended its carbon legislation in August 2012, linking Australia’s emissions market to the world’s largest cap-and-trade system in the European Union. The revisions enabled emitters to begin immediately buying EU permits for compliance in Australia, helping to alleviate their reluctance to buy domestic allowances that might become worthless under a new government.

Australia’s Climate Change Authority said Feb. 18 it’s proceeding with plans to recommend a target for 2020 emissions and review annual limits under the Carbon Price Mechanism for the four years starting in 2015.

The earliest Abbott could repeal the carbon price legislation is after July 2014 if the coalition gains control of the upper house, according to the report.

Double Dissolution

Without a majority in the upper chamber, Abbott would have to dissolve both houses in a so-called double dissolution election to have a chance of gaining the Senate control needed to scrap the legislation. That would extend the first opportunity to repeal the carbon price to about the first half of 2015, Bloomberg New Energy Finance said.

“While business must comply with current obligations under the carbon price mechanism, it must also manage the ongoing political uncertainty,” Henbest wrote. “Some firms are actively looking to acquire EU allowances while prices languish in record-low territory, while others appear to be waiting for a definitive political signal they are hopeful will come in September.”

EU emission allowances for December delivery fell to record low of 2.81 euros ($3.70) last month amid speculation that officials will fail to resolve an oversupply of permits. While the contract rebounded to trade above 5 euros this week, it will probably decline again if the European Parliament fails to promptly address the glut, according to BNEF.

‘Abbott-Proof Fence’

It may prove difficult for Abbott to “re-engineer” the Carbon Price Mechanism to undermine its economic impact without repealing the legislation, according to the report. Creating an oversupply of carbon allowances to push the price to zero, for example, would require regulation that could be vetoed by a hostile Senate, BNEF said.

“Commentators have coined the term ‘Abbott-Proof Fence,’ named after the 3,253 kilometer rabbit-proof fence that was constructed in Western Australia between 1901 and 1907, to describe the impenetrability of the Clean Energy Act and its supporting legislation,” it said.

Abbott is leading in opinion polls, with support for the coalition at 55 percent on a two-party preferred basis, compared to 45 percent for Gillard’s Labor, according to a Newspoll survey published in the Australian newspaper yesterday.

Slowing Growth

While Abbott’s “wrecking ball” forecast hasn’t eventuated, there are signs economic expansion is slowing. The Reserve Bank of Australia lowered its 2013 growth forecast to about 2.5 percent on Feb. 8, from about 2.75 percent forecast in November, citing weak investment outside the mining industry and a stronger-than-expected currency.

Bloomberg New Energy Finance said it analyzed opinion polls, voting preferences and market odds from online betting companies to quantify the probability of the coalition winning the election and gaining a majority in the Senate. BNEF also analyzed the likelihood of Abbott calling and winning a double dissolution election by reviewing the outcomes of six previous instances in Australian history, the most recent in 1987.

Election Mandate

Labor considered the carbon price a “major economic reform” and would be unlikely to view a coalition victory in the election as a mandate for Abbott to scrap the mechanism, Henbest wrote.

That view is disputed by the opposition’s Hunt.

“The primary assumption on which the Bloomberg New Energy Finance report is based is an incorrect reading of Australian politics,” Hunt said. “Our analysis is that the Australian Labor Party is overwhelmingly likely, despite what they say now, to step aside and not oppose the repeal of the carbon tax. If they do, we have said we will go straight to a double dissolution election.”

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