Regulation & Environment: Australia’s carbon tax and the coming election

In this week’s Oilgram News column, Regulation & Environment, Christine Forster discusses the upcoming Australian election and the impact it may have on that country’s carbon tax. (Christine Forster is the sister of Australia’s federal Opposition Leader Tony Abbott. Forster has been covering the Asia Pacific oil and gas industry for Platts since 1992.)

 

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Whatever the outcome of the Australian federal election on September 7, the country’s fixed price carbon tax will be consigned to the dustbin ahead of time.

Prime Minister Kevin Rudd, who became the premier after challenging incumbent Julia Gillard for the Labor party leadership in late June, moved quickly to reshape what has been a politically controversial tax, prior to his August 4 calling of the election.

Opposition leader Tony Abbott, who heads the Liberal National Party Coalition, has vehemently opposed the carbon tax and vowed that repealing it would be the first act of his government, should it be elected.

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The fixed price on carbon by emitters of more than 25,000 mt/year was introduced under Gillard’s prime ministership and became effective at A$23 ($20.63)/mt on July 1, 2012. As originally conceived, the tax was scheduled to transition to an emissions trading system (ETS) on July 1, 2015.

The carbon tax for the current fiscal year, ending June 30, 2014, is A$24.15/mt. The levy was scheduled to rise again to A$25.40/mt from next July 1.

In a move widely seen as being designed to blunt Abbott’s position, Rudd July 16 announced he would terminate the carbon tax and bring forward the ETS by a year to July 1, 2014.

Rudd estimated the ETS’ floating price would be around A$6/mt, almost 75% lower than the fixed cost. Analysts agreed that the Australian price would quickly start reflecting the European ETS price, currently at the equivalent of about A$6.50/mt.

“Treasury modeling shows that moving to a floating rate a year ahead of schedule will ease the cost of living by A$7.20 a week per family,” Rudd claimed in July. “The impact will be greatest on electricity and gas bills.”

The Prime Minister said a large manufacturing business using 100 times the amount of energy of a typical household could see the carbon component of its electricity costs fall from A$15,000 to A$4000 annually.

Rudd’s announcement, however, came just days after the local upstream industry had slammed the impact of the carbon price on Australia’s burgeoning LNG industry.

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There are currently seven LNG export projects being developed around Australia, which will lift the nation’s LNG capacity from around 24 million mt/year to more than 80 million mt/year by 2017, potentially making it the world’s biggest producer ahead of Qatar.

“The expected move to a floating price under the carbon pricing mechanism still represents an addition to the cost structure of Australian LNG exporters competing in global markets,” the Australian Petroleum Production and Exploration Association said.

“It is important to recognize there is no international carbon price in operation,” APPEA Chief Executive David Byers added. “So while the move to a floating price may represent a short-term lowering of the price facing liable entities, Australia is still imposing a cost on its gas export industry that will not be borne by any of its LNG competitors. This will diminish its international competitive standing.”

The broader business community was equally unimpressed. “The government may have promised to lower the carbon price to the international level in July 2014, but more work needs to be done to address the high cost Australia is paying now to reduce its emissions,” Business Council of Australia Chief Executive Jennifer Westacott said in July.

Competitiveness is a big issue for Australia’s LNG industry. Local analysts estimate most of the country’s development projects have suffered budget blow-outs of between 15% and 50%, mostly due to high labor costs, productivity issues and the stronger Australian dollar.

Meanwhile, Rudd’s opponent wrote to Ian Watt, Secretary of the Department of Prime Minister and Cabinet, outlining his plans to ditch any price on carbon.

“As you are aware, as its first priority, a Coalition government has pledged to repeal the so-called Clean Energy Legislative Package,” Opposition Leader Abbott said in an August 5 letter, widely circulated through the media.

“This will have the effect of repealing the carbon tax, emissions trading scheme and associated measures, which have directly and indirectly increased the cost of living for households and increased the costs borne by businesses by unnecessarily raising electricity and gas prices…Therefore, I request that as a priority, arrangements are put in place to identify drafters who are expert in the legislative detail of this package.”

Clearly a poll victory for Abbott and the Liberal National Party Coalition would see Australia’s proposed ETS follow its fixed price forebear into the history books.Christine Forster in Sydney


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