The landmark law, passed in the Senate today, makes Australia the first major economy to put a tax on carbon. The lower house passed the law in mid-October.
Taxing carbon will greatly increase energy efficiency and provide incentives for polluters to shift to renewable energy and replace outdated technology. It will provide the certainty corporations need to make serious changes and investments, while helping Australia meet its goal of reducing carbon emissons 5% below 2000 levels by 2020 and 80% by 2050.
“Today Australia has a price on carbon as the law of our land. This comes after a quarter of a century of scientific warnings, 37 parliamentary inquiries, and years of bitter debate and division,” says Prime Minister Julia Gillard in a press conference.
The tax, which affects the country’s 500 biggest polluters, starts in July 2012 at $25 per ton. It will be followed by a carbon trading program in 2015, when polluters can buy carbon offsets from projects overseas, such as the Mexico efficient light bulb project we wrote about yesterday.
The carbon market in Australia is projected to reach $15.5 billion by 2015, after which carbon permit sales could raise $27 billion in the first four years.
Details on Carbon Tax Program
Initially, the biggest polluters would be taxed at A$23 (US$25) per ton, but many wouldn’t actually pay that. Aluminum and steel manufacturers and other exporters that have intensive emissions would get almost all carbon permits for free for three years.
The coal industry would get an injection of A$1.3 billion
to help it reduce emissions and the steel industry would get A$300 million. And there’s billions of dollars in compensation for business and households in the event that electricity prices rise (expected to rise less than 1%). 90% of workers will get a tax cut, worth an average A$300 a year.
The legislation allows companies to offset a percentage of emissions by purchasing carbon credits under the Carbon Farming Initiative, which rewards farmers for generating tradeable carbon offsets from agricultural projects.
Through actions like planting trees, reducing fertilizer use and cutting methane emissions from livestock, farmers would receive carbon credits to sell into the nation’s carbon trading platform. Land use in Australia accounts for roughly 23% of the country’s greenhouse gas emissions.
The bill also creates an A$10 billion independent Clean Energy Finance Corporation (CEFC) to encourage private investment in renewable energy, and a A$3.2 billion Australian Renewable Energy Agency.
CEFC will run for 5 years beginning in 2013. Half the money is allocated for energy efficiency and to support commercialization of low carbon technologies, and half goes to renewable energy.
The Australian Renewable Energy Agency will give grants for research and development for promising clean energy technologies, and to help them reach commercial scale.
Major companies across many industries pledged their support for a carbon tax, including GE, Fujitsu, IKEA, Alstom and Pacific Hydro:
“As major Australian and international corporations and representative associations operating across the Australian economy we strongly support the introduction of a well designed carbon price to support the transition to a low-carbon economy.
EU’s market, which accounts for 97% of carbon trades, has been struggling this year as austerity has greatly reduced the price of carbon. Still, the global carbon market is estimated at $142 billion in 2010, according to the World Bank.
New Zealand has a similar, much smaller program, and Europe has a cap-and-trade program. India has a tax on coal. China, South Korea and South Africa are planning programs that cap carbon, and California is leading the US with a cap-and-trade program that begins in 2013.
Australia is one of the highest greenhouse gas emitters in the world and relies on coal for 80% of electricity. The country is the largest coal exporter in the world.
“We cannot be stranded with a high-pollution economy as the world changes,” says Prime Minister Gillard. Putting a price on carbon is “the cheapest, fairest way to cut pollution and build a clean energy economy,” says a spokespersn from the prime minister’s office.
The carbon tax is widely expected to spur multi-billion dollar investments in renewable energy and to lead to the phase-out of aging coal plants.