Australian Government Announces Carbon Tax of $23 Per Tonne

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Researched by Industrial Info Resources (Perth, Australia)--Australia is set to become the first country in the world to place an economy-wide price on carbon after the current Labour Government, led by Julia Gillard, finally released the details of the tax on Sunday, ending months of speculation. The $23-per-tonne tax, which will be introduced from July 1, 2012, and rise 2.5% per year from then on, is being introduced as a leading element in the adoption of an Emissions Trading Scheme from July 1, 2015.

Australia is currently one of the largest polluters per capita in the developed world, producing about 550 million to 580 million tonnes of carbon dioxide per year. With the introduction of this tax, the government is attempting to reduce Australia's total emissions by 160 million tonnes per year by 2020. Compare this to the estimated 9 billion tonnes produced by China each year and the approximately 7 billion tonnes produced by the United States, and the 160 million-tonne-per-year savings may seem somewhat insignificant.

The tax will be levied on about 500 of the nation's biggest polluters, which include power stations, steel manufacturers and cement producers. The affected industries will obviously pass the tax on to consumers in the form of higher prices. To compensate for this, the Gillard government will introduce a series of tax cuts, as well as increases in allowances, payments and benefits to affected Australians. According to the Australian Treasury's estimates, the cost of the tax to average Australians will be about $9.90 per week, with the average compensation provided equalling $10.10 per week. On the surface, it seems that the taxpayer will not be any worse off, but many people, especially industry representatives, believe that the estimates could end up being far off the mark.

Some of the most highly exposed industries, such as steel, aluminium, and pulp and paper, will also be given free permits that will cover about 94.5% of the expected costs. For the steel industry alone, $300 million will be set aside. In total, $9.2 billion will be allocated to the affected industries over the next three years to assist with the transfer to a clean-energy future.

When the carbon tax was initially announced, it was designed to include about 1,000 of the nation's biggest polluters, but after a massive backlash from the Australian population, which saw Julia Gillard's approval rating plummet and her government become the most unpopular government in the past 40 years, many industries have now been excluded from the tax. Agriculture will not be included, and transport fuel will also be excluded, although the heavy transport industry will begin paying the carbon tax from 2014.

The one industrial sector that will obviously be celebrating the news is the renewable energy sector, which will see a large increase in funding due to the tax. A $10 billion Clean Energy Finance Corporation will be created to invest in new renewable technology and $3.2 billion will also be allocated to the Australian Renewable Energy Agency. There will also be small grants made available to community-based energy-efficiency programs.

Exactly how this tax will affect the Australian economy as a whole is yet to be seen. The government believes that the tax will increase the Australian Consumer Price Index (CPI) by 0.7% in its first year, but the exact ramifications of an economy-wide tax and the complexity of the compensation packages will make it virtually impossible to know exactly what effect will be felt until the tax begins next year. One thing is certain, the proposal is not up for negotiation: Julia Gillard has just enough numbers in the parliament, with support from the Green Party and the independent ministers, to push this through without assistance from the opposition. Gillard said: "This will be the package that comes to parliament, and this will be the package that goes through the parliament."

With many current opinion polls showing that only about 40% of Australians actually support the introduction of a carbon tax, Gillard may be pinning her entire political future on this single policy. The government will be spending about $12 million on an advertising campaign in an attempt to convince the public of the benefits of the tax.

The leader of the opposition party, Tony Abbott, along with many industry representatives, will be attempting to do the exact opposite. Even if the tax is brought into law, there is the possibility that it will be quickly rescinded if Julia Gillard fails to convince enough Australians of her plan and loses the next election.

The majority of Australians were hoping for the announcement on Sunday to finally bring clarity to the entire subject, but it seems that only more questions have been raised--questions that, if left unanswered, will only serve to diminish confidence in Australia as a stable, predicable, economy, much like the Resource Profits Super Tax of 2010.

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