Landmark Carbon Tax Passed by Australian Senate

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Researched by Industrial Info Resources Australia (Perth, Australia)--The landmark Australian Carbon Tax is on track as planned after the Senate passed the Clean Energy Bill earlier this week.

The final vote rang in at 36 in favour to 32 against. Both the Labour and Liberal parties have approved the Clean Energy Plan, which aims to decrease carbon pollution by 160 million tons per year or more by 2020. Beginning July 1, 2012, a $23-per-ton price on emissions will apply to about 500 of Australia's biggest polluters. The $23 price will remain fixed for three years, after which, the price will be subject to the market environment, with a floor price of $15 per ton.

Australia is especially vulnerable to climate change due to its position on the globe. It is one of the highest carbon polluters in the developed world. The Australian government, whilst highly reluctant to commit, has followed Europe's lead and imposed the carbon tax. Though not an innovator in the global fight to combat climate change, having been overtaken by little brother New Zealand, Australia aims to set the bar for lesser developed nations like India and China with a push for a high price on carbon to produce a greater effect.

Australia's Prime Minister Julia Gillard spoke about the Carbon Tax at the CarbonExpo Australia, held in Melbourne on November 9, about the long-term vision held by her. Ms Gillard highlighted concern that Australia has now committed to paying a variably high price on carbon, whilst Europe is experiencing a plunge in the price of carbon permits. "I know there has been a lot of speculation about pricing and where Europe is on pricing. Everything in Europe is volatile ... It shouldn't be any surprise that the carbon market is volatile." Ms Gillard then recognised that although it seems like a high price to pay now, a forward view will see the Australian industrial sector on a par with their international competitors.

The primary goal of the carbon tax is to change behaviour of the top polluters and encourage companies to work toward a cleaner, more sustainable future. Dylan Byrne, BDO Australia Sustainability Group Advisor and Carbon Tax Specialist, is not entirely convinced that the carbon tax will ensure a positive change for the environment. He believes that the companies impacted by the tax will choose one of the following options: to pay the price and continue to emit at the same level; reduce operations; relocate to a country that has not implemented a carbon tax; or alter their business operations to lower the emissions in order to avoid paying the carbon tax. Australian industry will be affected differently, and whilst the natural gas industry will be affected to a lesser degree than high polluters such as steel and aluminium production and coal fired power generation, gas companies in Australia are currently analysing best possible practices for operating efficiently under the tax.

The liquefied natural gas (LNG) and natural gas sector of Australia will embark on challenges that can been be seen as positive and negative for the industry in comparison to other Australian industries affected by the carbon tax. Despite natural gas producers being high carbon emitters, the macro view is that the decline in coal-fired power will increase the demand for gas for power generation. This market demand for the 'cleaner burning energy,' both domestically and internationally (particularly China, Korea and Japan) will outweigh the higher costs that will need to be paid as a carbon tax. Furthermore, levying by gas companies has achieved a 50% protection for emissions for LNG exports. This will allow the many high-cost LNG production projects currently in development and construction to see projects through to planned production and supply to the international market. There are complexities of the carbon tax on the natural gas industry that will affect some gas companies more than others.

Santos Limited (ASX:STO) (Adelaide, Australia) has invested heavily in coal seam gas projects in Australia, a sector of the gas industry that will require emissions-intensive beneficiation before product sale, eventuating in a high-carbon tax. Santos has a great deal of interest in conventional gas extraction and production, and the company's largest natural gas mining operation is in the Cooper Basin, a gasfield that unfortunately for Santos, has higher-than-average carbon intensity. The company is also a major supplier to the domestic market and in completion with companies that supply the majority of produced LNG to the international market, gaining advantage of the emissions protection for exporters. All of these complexities coalesce to impact negatively on the corporation's business and result in an obstacle to competition.

Santos' situation in relation to the impending carbon tax is just one example of the difficulties companies in the resource sector will face in dealing with the strain of running their businesses effectively whilst paying the carbon tax. The impending tax on Australia's biggest polluters is now confirmed as going forward; time will tell how businesses operating in Australia learn to deal with the tax and on the level of success we will see it produce in combating climate change.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.