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An end to the carbon tax

World Coal,

Coal industry companies in Australia are set to benefit as Australia’s senate votes to repeal the carbon tax laws introduced by the previous Labor government.

Prime Minister Tony Abbott has made good on his promise to “take an axe to the carbon tax”, which his liberal party claims penalises legitimate businesses.

The repeal will cost the Australian budget around AU$ 7 billion over the next four years as around 350 businesses, mainly electricity generators and big manufacturers, no longer have to pay the tax.

Energy provider, AGL Energy Ltd, said initially, the repeal could hurt its earnings – as transitional payments to help it cope with the impact of the tax cease. The end of these payments will knock AU$ 186 million off its earnings before tax. However, the company said that in the long term, the repeal would have a “materially positive impact”.

Australia, the world’s 12th largest economy, is one of the world’s largest per capita greenhouse gas emitters, due to a heavy reliance on coal-fired power plants – the operators of which have campaigned against the tax.

The former Labor government introduced the tax to help curb emissions, and promised voters billions of dollars in compensation through tax breaks. However, following the global financial crisis in 2008 and the end of a decade long mining boom in 2012, public opinion turned against the climate laws.

The repeal of the carbon tax marks the end of what the International Energy Agency (IEA) called “model legislation for developed countries”.

Controversial repeal

The repeal was passed in the senate by a majority of 39 to 32, after independent senators sided with his conservatives.

Following the senate vote, a jubilant Mr Abbott told voters that the tax “didn’t actually help the environment” and that it was “useless, destructive [and] damaged jobs”.

Abbott has previously described climate change as “unimportant”, explaining that there were “more important problems” faced by the world. 

Labor senator, Lisa Singh, delivered an impassioned speech after the vote, calling the decision “a fundamental moment” and warning voters that the decision would “devastate the future” of Australia.

The controversial decision has split opinion among commentators. Australian political analyst, Lenore Taylor, called the repeal “a complete and catastrophic failure of the political system”, while Kristen Gelineau in the Associated Press said the carbon tax was “much maligned” and that there was public support for the carbon repeal, which Abbott has said will reduce consumer bills.

The impact of regulation

The carbon tax has affected industries ranging from mining and energy to aviation, and was widely opposed by manufacturers and a majority of business representative groups including the country's main chamber of commerce.

The World Economic Forum recently put Australia 129th out of 148 for government regulations – 25 places lower than India. According to Reuters, Australian mining companies are sitting on 100 million tpa of potential coal production but are increasingly frustrated by a permitting system that can take years to work through. “My expectation is that if Australia is going to stay competitive, they’ll have no choice but to streamline the approval process”, said Paul Mulder, managing director of GVK Hancock Coal

David Byers, chief executive of the Australian Petroleum Production & Exploration Association, an industry group, said: "Today's repeal of the carbon pricing mechanism is significant as it removes a cost facing Australian LNG (liquefied natural gas) exporters competing in global markets; one that does not exist for our international competitors."

BHP Billiton, the world’s largest miner, said that there should be a price signal on carbon, and that emissions needed to be reduced and targets met. However, the company said that the current system wasn’t competitive internationally.

"We have been very clear that we are strong supporters of both the repeal of the carbon tax and the mining tax," BHP Billiton Ltd. Chief Executive, Andrew Mackenzie, said.

JP Morgan said last year that the removal of the carbon tax and the repeal of the mining levy could boost the value of companies such as BHP and Rio Tinto by as much as 6%.

How to tackle emissions

The Australian Federal Treasury has said a market mechanism, such as a tax, is the most efficient way to reduce emissions and help combat global warming. In a treasury “blue book” report, the authors describe a carbon-pricing mechanism as “the only realistic way of achieving the deep cuts in emissions that are required".

''A market mechanism can achieve the necessary abatement at a cost per tonne of emissions that is far lower than alternative direct-action policies,” the report continues. “Moreover, many direct action measures cannot be scaled up, and, for those that can, the cost per tonne of abatement would rise rapidly, imposing further costs on taxpayers and consumers. All of this serves to underscore the conclusion that the sooner an emissions trading scheme can be implemented: the better.”

“Too much time has already been wasted, for which the Australian community will necessarily pay a high price," the treasury report adds.

A number of analysts have pointed to repeals of climate policies in Japan and Canada – for reasons that such policies hurt fossil fuel industries vital to their respective economies – as evidence that climate policy adopted by single nations run the risk of putting their industries at a competitive disadvantage with those countries that had not imposed such rules. John Connor, chief executive of Australia's Climate Institute think tank said, "There is no question there is fragile trust and ambition around the world. At international climate talks last year in Warsaw Japan, Canada and Australia were standouts in going backward, and so steps like this do matter."

What next for Australian climate change policy?

Australia has promised to reduce its emissions levels by 5% on 2000 levels by 2020.

Abbott’s government still hopes to tackle emissions, although the prime minister has pledged not to spend any further money on achieving this target through his Direct Action plan.

The Australian Department of Industry is expected to publish an Energy White Paper in September. As part of an energy review, the Australian government is likely to propose a mechanism for streamlining environmental approvals at the federal and state level. The MCA is hopeful that this proposal will address the problem of delays in obtaining environmental approvals – a problem which increases the costs for coal in Australia.

Written by Sam Dodson

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