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Cover Stories Series 2011
UPDATED: August 15, 2011 NO. 33 AUGUST 18, 2011
Putting a Price on Carbon
The Australian government unveils its new climate change plan amid controversy

RAISING AWARENESS: British sculptor Mark Coreth carves a life-size melting ice sculpture of a polar bear in Sydney on June 3, to alert the public to the impact humans can have on the environment (XINHUA/AFP)

The new climate change plan is the first to combine the two main climate policy tools—carbon tax and carbon emissions trading. Currently, carbon taxes are collected in countries such as Finland, the Netherlands, Norway, Sweden, Denmark and Britain. They have also been adopted in some regions in the United States and Canada. Carbon emissions trading mainly takes place in the EU and New Zealand. Australia, however, is probably the only country that plans to introduce a carbon tax before the establishment of a carbon emissions trading system.

The Australian Government's high subsidy for middle- and low-income families is one of the most outstanding features of the new climate change plan, aiming at reducing people's concerns over rising living costs induced by the carbon tax. According to the plan, more than 50 percent of the carbon price revenue will be used to assist households, and approximately 90 percent of low-income households will receive assistance that exceeds their expected average price impact by around 20 percent. The government also plans to raise the income tax threshold, which will free over 1 million people from the tax system.

The Carbon Farming Initiative will enable farmers and landholders to get economic benefits through emission reductions. The government will help them learn how to generate carbon emission credits.

Points of contention

Since it was released in July, Australia's new climate change plan has been fiercely criticized by mining industry tycoons and the conservative Australian Liberal Party. The Australian Trade and Industry Alliance (ATIA) said it would pay at least AU$10 million to launch a publicity campaign against the plan. Opponents, broadly, have three major objections to the plan.

First, they claim the carbon tax program is not well designed and that it will be a great burden for Australian industry, reducing productivity and hindering the country's economic development. In its advertisement, the ATIA points out the EU raised only $4.9 billion from European companies during the first six years of the ETS, while Australian companies will bear a $71-billion burden in the first six years under the climate change plan. The Australian carbon price is 14 times higher than the EU carbon price, which the ATIA believes, will do severe damage to Australian exports.

Second, critics say the Australian Government has overestimated the progress and potential of global carbon emission reductions. Richard Blandy, an associate professor with the University of South Australia, wrote in The Australian that, the Treasury's carbon price modeling was based on an improbable assumption that global greenhouse gas emissions would be stabilized at 550 parts per million or 450 parts per million of carbon dioxide equivalent under a concerted worldwide effort. In reality, however, this target cannot be reached. According to estimates, Australia's carbon emissions will only be 2 percent less than they were in 2000. The government therefore will have to reach its 80-percent carbon emission reduction target mainly by purchasing carbon credits from abroad. The cost of purchasing that many credits would cripple Australia's economy.

Third, opponents argue the true purpose of the plan is to redistribute wealth instead of protecting the environment. Skeptics claim the government's carbon tax policy will over-compensate many Australians, as some families will receive a considerable subsidy from the program. Large-scale subsidies, they say, go beyond the scope of carbon taxation and emissions reductions.

Australian Prime Minister Julia Gillard and Minister for Climate Change and Energy Efficiency Greg Combet have vociferously responded to the objections of critics. Gillard has said contrary to the ATIA campaign, the climate change plan would not lead to shrinking employment, but offer 500,000 more jobs in the next two years. She also affirmed the carbon tax would not harm Australia's profitable coal industry, citing the recent bidding of two foreign corporations—U.S.-based Peabody Energy and Luxembourg-headquartered ArcelorMittal—for an Australian coal mine at a price of $5 billion as evidence. Regarding the concerns over Australia's fiscal status in the future, Combet said he did not anticipate any difficulties as Australia would be able to reach the 80-percent reduction target in 2050 mainly by cutting domestic emissions.

A recent survey indicated only about 30 percent of Australians support the new climate change plan. Since the Labor Party and the Greens constitute the majority in the Senate and occupy almost half of the seats in the House of Representatives, in theory, the new plan will be passed. But parliamentarians cannot afford to ignore voters' opinions.

If the Gillard administration wants the plan to be approved by the parliament by the end of this year, it will need to make more efforts to convince people of the plan's importance and feasibility.

The author is an assistant research fellow with the China Institute of International Studies

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