Australia Kills Carbon Price, Faces Murky Carbon Future

Australia in July became the first nation to abolish a price on carbon, after the Senate passed the Abbott government’s repeal bills by a vote of 39–32. Yet the country’s carbon conundrum continues because Prime Minister Tony Abbott must still get his Direct Action Plan, a proposed replacement for the country’s emissions trading scheme, to pass the Senate.

Abbott, the Liberal Party’s leader, campaigned and won the September 2013 prime ministerial election on the platform that he would scrap the “punitive” carbon levy. But his victory this July didn’t come without a fight from the Labor and Greens parties in the Senate.

Opponents now argue that the coal-rich country is effectively in a “carbon coma.” It no longer has a hard cap on carbon emissions; it is no longer required to achieve its long-term emissions reduction target of 80% by 2050; and, more troubling according to some, is that the repeal bills also call for the abolition of the profit-making Clean Energy Finance Corporation as well as the Australian Renewable Energy Agency.

Abbott’s Direct Action Plan instead proposes to curb Australia’s carbon emissions by 5%, based on 2000 emissions, by 2020. As described in the government documents—which acknowledge “the science of climate change”—the centerpiece of that plan is the $2.5 billion Emissions Reduction Fund (ERF), a pool of capital to support “direct action” by industry to reduce emissions. According to a white paper setting out the final design of the ERF released on April 24, the government will use the fund to purchase lowest-cost abatement (in the form of Australian carbon credit units) from a wide range of sources across the economy. It will then provide incentives for carbon emitters to take action to reduce their emissions.

A bill to implement the ERF passed the House of Representative on June 25, but it now faces a standoff in the Senate, which is controlled by the Labor, Greens, independents, and several smaller parties. The carbon tax repeal only passed after the Abbott government spent two weeks wrangling with unpredictable “crossbenchers,” or independents. Bill Shorten, who has led the Labor Party as well as the opposition since October 2013, in July called the Direct Action Plan a “boondoggle, an inefficient mechanism where you pay wads of taxpayer money to big polluters for little likely result.”

But the Business Council of Australia, the Australian Industry Group, and the Minerals Council of Australia have backed Abbott’s plan, urging the Senate not to delay its passage.

Power generators, which had cited the carbon tax for past retail power price increases, neither publically hailed the carbon price’s repeal nor bemoaned it. Removal of the carbon price in wholesale markets would not be simple, announced the Energy Supply Association of Australia in July: “It will vary depending on the different types of financial contracts.” And it added: “How much a retailer changes its prices will be determined by its change in costs, as well as the competitive landscape. How fast it can change its prices depends on a number of factors.”

For an in-depth look at resource-rich Australia’s generation troubles in the context of its contentious carbon policy fight, see “Australia’s Carbon Policy Predicament,” in POWER’s April 2014 issue.

Sonal Patel is a POWER associate editor (@POWERmagazine, @sonalcpatel)