Australia's National Carbon Tax: An Example for Other Countries to Follow?

After announcing plans to introduce a nation-wide carbon tax scheme, Australia is set to take center stage internationally.

Prime Minister Julia Gillard recently announced an emissions trading program that will take the form of both a carbon tax and a cap-and-trade system.  The comprehensive plan, which has few carbon policy rivals, will set a price of A$23 for every ton of carbon starting in July 2012.  Prime Minister Gillard says the new policy will cut Australia's emissions by by 160 million tons by 2020.

Since announcing the program, the Prime Minister has been traveling the nation, selling Australians on the scheme, which her opponents have labeled as a redistribution of wealth that will not effect climate change. 

It appears to be a hard sell, as a recent Galaxy Poll for the Sydney Herald shows her popularity has dipped significantly since the carbon tax was announced.  Nevertheless, as Ms. Gillard has been espousing to the masses, her administration is putting deeds behind their words, and making a clean energy future a reality for Australia.  Through a coalition between the Prime Minister's Labour Party and the Greens Party, the carbon scheme is expected to pass through the legislature.

In its infancy, the carbon tax will focus on 500 major emitters; these chosen ones will have to pay $23 for every ton of carbon they produce.  The price of carbon will increase incrementally over the first three years of the plan.  After three years, the scheme will move toward a more traditional cap-and-trade program, where the market will set the price for carbon.  Some economists estimate, when opened up to the free market, the carbon price could rise as high as $50.

Emitters will push the new costs on consumers.  As a result electricity bills are expected to rise 10%, gas prices 9%, and food prices 0.5%.  To offset these costs the government will reimburse low-income and medium-income households as well as reduce income tax rates.

Major trade-exposed industries such as coal and steel will be compensated in order to ensure their competitiveness and allow for  them to transition toward lower-carbon production.  The government has set up a $10 billion compensation fund for these industries.  For example, the electricity industry will be given $5.5 billion over the first six years of the program.  Coal and steel will be given financial assistance outside of this funding.

In order to spur development of renewable energy and energy efficiency technologies to help meet the country's target of reducing its emissions by 80% of their 2000 levels by 2050, the government has created a $10 billion Clean Energy Finance Corporation, which will provide funding and support for these industries in conjunction with the Australian Renewable Energy Agency, which has $3.2 billion at its disposal.

With this policy, Australia is taking a leading role in energy politics.  Since 2005, the European Union has operated an emissions trading scheme.  Other countries have instituted policies on a state or provincial level.  Sitting way behind the curve is the United States, which saw its most progressive energy policy, one that included a cap-and-trade program, die in the legislature in 2009.  Currently, the world's second largest emitter has one regional area which has established a carbon trading scheme. 

The Regional Greenhouse Gas Initiative, currently comprised of ten states along the northeast coast, has set a cap on carbon emissions and established a regulatory body to enforce the scheme.  However, RGGI's existence sits in a tenuous spot, as several member states have considered leaving the initiative.  Meanwhile, New Jersey's legislature has successfully voted to remove the state from RGGI.

On the other side of the country, another regional carbon regulatory framework is trying to establish itself -- the Western Climate Initiative, which is comprised of several U.S. states along with Canadian provinces. 

The WCI has set a goal of reducing emissions 15% below 2005 levels by 2020.  A major part of achieving this reduction is by instituting a carbon trading scheme.  Although governors of these jurisdictions have pledged their support for the initiative, few have moved forward with passing the necessary legislation.  Earlier this week, Quebec announced its plans to implement a cap-and-trade program by 2013.  This will allow it to join California as the only WCI partners to pass the necessary cap-and-trade legislation.

The world's eyes, as well as those of RGGI and the WCI, will surely be focused on Australia's energy policy, as it will provide another litmus test for lawmakers.  Perhaps, it will be the example which leads the United States to move beyond regional carbon regulation schemes and, instead, toward a comprehensive national plan.