Australian PM Rudd ditches carbon tax and fast-tracks ETS

Australia’s new Prime Minister Kevin Rudd has announced he will launch the country’s emission trading scheme a year earlier than planned.

He said yesterday that he would scrap an existing and unpopular carbon tax – implemented by his predecessor Julia Gillard – and set up a European-style ETS, which would kick in on July 1 2014, a year ahead of proposals.

Rudd (pictured) ousted Gillard from leadership of the country’s Labour Party last month, but his plans to ditch the carbon tax and introduce an ETS depend on victory in upcoming elections, due between September and November.

Rudd’s policy change is believed to be designed to win over voters concerned about the rising cost of their energy bills, but is has already proved unpopular with some business organisations, chiefly the Australian Chamber of Commerce and Industry.

Its chief economist Greg Evans said: “An ETS will still be a multi-billion dollar unilateral cost most of our competitors don’t have to pay and this will be negative for the economy and jobs. 

He said the government had “recognised the economic dislocation caused by a unilateral carbon price, but this is a short term fix, whereas it’s clear the carbon price impost should not have been introduced and should now be eliminated in full. Small business remain uncompensated and the economy trade exposed.” 

He added: “Australian industry was built on the bedrock of affordable and accessible energy. Carbon pricing including the latest ETS plan remain harmful to the domestic economy and futile for the global climate in the absence of internationally agreed mitigation measures.”

According to analysis by consultancy Thomson Reuters Point Carbon, the early switch to a cap-and-trade scheme “will drastically lower the price of carbon”, with Australian Carbon Units expected to start trading at A$9 per tonne, a decrease of 65 per cent compared to the fixed price of A$25 per tonne in July 2014.

Thomson Reuters Point Carbon analyst Emil Dimantchev said: “Rudd’s decision reflects the new government’s preference for a lower, floating carbon price, following a period of turbulence in Australian parliament.”

Cecile Langevin, senior analyst at Thomson Reuters Point Carbon, added that “if Rudd makes the switch to an ETS the top priority of his term, legislative changes could occur relatively quickly despite the tight time frame”, although she stressed that “this is contingent on the next election date which has yet to be set”.

“If the Labour party wins the next election and Rudd remains in power, it is likely that, assuming the support of the Greens, the early move to an ETS would be passed into law late 2013 or early 2014.”

Thomson Reuters Point Carbon said the early start date for an ETS “will likely incentivise power producers to start purchasing compliance units to cover their emissions in the following years, in line with hedging strategies common in carbon markets”.

Dimantchev said: “This hedging will concentrate power sector demand in the first year of the ETS, shortening the market in the first few years of the scheme.”