Heavy industry will be encouraged to reduce carbon

After several false starts, the Australian government has this week ratified the carbon tax that will force the worst carbon emitters to pay, in the nation’s biggest economic reform for decades.

Australia’s reliance on its old coal-fired power stations has promoted decisive action by the government, which this week introduced a carbon tax that would immediately hit 500 big manufacturing industries, plus a separate tax on aviation fuel.

Manufactuers who emit more than 25,000 tonnes of carbon a year will pay A$23 per tonne carbon tax from next year, rising by 2.5 percent annually and moving to a market-based trading scheme by 2015  - although there are some transitional measures to take the sting out of the initial years for the steel industry.

Australia’s prime minister, Julia Gillard, whose popularity is at an all-time low, said the plan would cut 159 million tonnes of carbon pollution in 2020, reducing emissions by 5 percent of 2000 levels.

This is the third time Gillard has tried to push the tax through parliament since 2009 and it was only saved this time with the backing of the Greens and Independents.

The government will start to set national emissions caps in 2014, stretching out five years, consistent with a minimum overall reduction target of 5 percent by 2020 –  if parliament does not agree to increase that target in the meantime.

But the airline industry, also caught by the tax by way of a rise in aviation fuel tax, says air fares will inevitably rise.

According to Australia’s national airline, Qantas, airline, the carbon tax will cost the Qantas Group around AU$110-115 million for the financial year ending 30 June 2013.

“We are disappointed that, unlike in New Zealand or the EU, there will be no phasing in period or transitional assistance for airlines and that the full price will apply immediately… the Qantas Group will be unable to absorb the additional costs associated with the carbon price and there will be a full pass-through to customers,” the Australian airline said in a statement.

Australia’s dependence carbon heavy industries has long prompted calls for a carbon reduction tax and this new scheme brings Australia into line with New Zealand, the only other country outside Europe to have introduced a similar  measure.