Australia Repeals Carbon Tax

17 July 2014

Canberra succeeded in repealing the country’s divisive carbon tax on Thursday, following years of bitter political debate on the topic, and two failed attempts in recent months.  

Prime Minister Tony Abbott made the repeal a flagship feature of his election campaign last year and a priority of his Liberal-National Coalition government since taking office in September.

A repeal bill axing the carbon tax and a planned emissions trading scheme (ETS) passed the Australian Senate on Thursday by 39 votes to 32 after the Abbott government secured the support of minor political parties.

“Today the tax that you voted to get rid of is finally gone, a useless destructive tax which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment is finally gone,” Abbott told reporters at a press conference after the Senate decision.

After failing to abolish the carbon tax in March following opposition in the Senate from Labor and Green representatives, the Abbott government had re-introduced repeal legislation into the new incoming Australian Senate in early July.

Shortly after the vote some observers suggested that the move could jeopardise Australia’s ability to comply with its international climate pledges, particularly as climate legislation to replace the tax has not yet been finalised. Under the Kyoto Protocol – the current international climate regime – the world’s 12th largest economy has pledged a five percent reduction in greenhouse gas emissions by 2020.

Palmer support key

The government’s hopes for a quick repeal second-time round received an initial setback last week, however, when mining magnate Clive Palmer’s Palmer United Party (PUP) withdrew their support for the legislation.

At the time, Palmer, whose three senators hold the balance of power in the upper house, said that an amendment his party had submitted as a condition for supporting the legislation had not been fully incorporated. This would see a requirement in the new law for companies to pass on any savings gained from the carbon tax repeal to customers – or face a fine.

In June, Palmer had also said that his party would only support the repeal if the country’s 20 percent renewable energy target was kept, a low-carbon lender known as the Clean Energy Finance Corporation (CEFC) retained, and a roadmap for a fair, global emissions trading scheme set up. (See BioRes, 26 June 2014)

“We remain calmly, methodically, determined to continue to proceed until the carbon tax is repealed,” Greg Hunt, environment minister had warned after last week’s Senate upset.  

After a weekend of talks, Palmer again switched his position on Monday to support the carbon tax repeal, saying the formerly problematic amendment was now satisfactory.

While the third attempt to axe the carbon price passed the House of Representatives on Monday, the legislation had struggled to gain traction in the Senate, with the Australian upper house extending its hours on Tuesday due to fierce debate. Green and Labor representatives on Wednesday fired questions at the Abbott government scrutinising the repeal and the amendments. 

Greens leader Christine Milne said that the government did not have a full understanding of its own legislation while Sam Dastyari, a Labor Senator said there was a “real concern” that customers would not benefit from the repeal.

A controversial tax

The carbon tax was originally introduced by then-Prime Minister Julia Gillard in 2011 and entered into force in July 2012. Targeting the country’s top polluters, levies were imposed at A$23 (US$23.67) per tonne of carbon emitted, with annual increases set at a rate of 2.5 percent. The tax was then scheduled to move to a floating price emissions trading scheme next year, at which point it would have been linked to the EU’s own cap-and-trade system. (See BioRes, 4 July 2012)

Proponents of the tax have long argued that it will help Australia – one of the world’s largest per capita emitters – tackle domestic greenhouse gas (GHG) emissions and transition to newer, cleaner sources of energy. Opponents say that the tax will cripple the country’s key mining and coal export industries, potentially leading to job losses and poor economic growth.

Abbott’s government has proposed setting up an Emissions Reduction Fund (ERF) as the centrepiece of its Direct Action plan. Through the ERF, the government will purchase emissions reductions from pre-approved projects on the basis of price per tonne of carbon dioxide, following an auction process. (See BioRes, 15 May 2014)

Critics of Abbott’s Direct Action have slammed the alternative climate legislation as drastically underfunded and poorly planned.

Decarbonisation possible

The Abbott government move came shortly after UN research indicated that Australia could move to a low-carbon economy without crippling its growth.

Economic models in the report suggest that the country could cut its emissions to zero by 2050 while still achieving an average growth of 2.4 percent a year over the same period. This transition would involve significant structural changes, however, such as investment in renewables and other clean energy technology. The report also notes the potential for gains from improved energy efficiency, as well as carbon capture and storage.

The findings are part of a report that aims to identify actions that could be taken by the world’s leading emitters to decrease carbon emissions and move towards economies that support an international agreed target of limiting a global temperature rise to below 2 degrees Celsius.

“This report is all about the practicalities. Success will be tough – the needed transformation is enormous – but is feasible and is needed to keep the world safe for future generations,” said Jeffrey Sachs, a leading international economist who headed the coalition of researchers that produced the report.

“One key message is to invest in developing the low-carbon technologies that can make a difference,” Sachs continued.

The report is geared towards supporting discussion at the upcoming UN Climate Summit, due to be held on 23 September. That event, convened by Secretary-General Ban Ki-moon, is designed to ramp up high-level political engagement in the UN climate talks.

Countries have set themselves until the end of next year to negotiate a binding global climate deal under the UN Framework Convention on Climate Change (UNFCCC) that will enter into force from 2020. At the latest round of talks in June, discussion moved to consider some of the more substantive details of the eventual agreement. (See BioRes, 17 June 2014)

The co-chairs of the group steering these talks released in early July materials for the next round of negotiations scheduled for October in Bonn, Germany. This includes a draft decision on the information that should be provided in countries’ national contributions, slated as the building blocks of the eventual agreement.

ICTSD reporting; “Australia Repeals Carbon Tax” THE WALL STREET JOURNAL, 17 July 2014; “Abbott blow as Senate votes to delay carbon tax axe,” RTCC, 10 July 2014; “Carbon tax likely to survive another day as Senate debate continues,” BRISBANE TIMES, 16 July 2014; “Carbon tax repeal: Clive Palmer confirms PUP support as bills to scrap tax pass Lower House,” ABC NEWS, 14 July 2014; “Australia can cut carbon emission to zero and still grow, says report,” THE SYDNEY MORNING HERALD, 9 July 2014.

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