Australia unveiled its most sweeping economic reform in decades on Sunday with a plan to tax carbon emissions from the nation's worst polluters, reviving hopes of stronger global climate action with the largest emissions trade scheme outside Europe.
Prime Minister Julia Gillard said 500 companies including steel and aluminium manufacturers would pay a A$23 ($24.70) per tonne carbon tax from next year, rising by 2.5 percent a year, moving to a market-based trading scheme in 2015.
"It's time to get on with this, we are going to get this done," said Gillard after a bruising battle to win political support for the scheme, which has polarised voters and business. A parliamentary vote on the scheme is expected before year-end.
Australia is the developed world's worst per-capita greenhouse gas emitter because of its heavy reliance on cheap coal for power generation. Emissions are set to rise in the booming economy without a carbon cost, the government says.
The stakes are high for Gillard's Labour party, which relies on the support of Greens and independents for a one-seat lower house majority. Her popularity has slumped to record lows over the scheme. With the details now finally released after months of waiting, Gillard will now try to convince voters opposed to the plan ahead of a parliamentary vote, trying to deflect a campaign against it by the hardest hit businesses .
"It is absolutely critical that the government sells this very effectively," said Tony Wood, director of the energy programme at the Grattan Institute, a policy think tank.
Australian retail and clean-energy stocks were expected to be among the winners, and airlines and miners among the plan's losers, but analysts said financial markets overall were tipped to take the policy in their stride.
The scheme aims to cut national emissions by 5 percent of 2000 levels by 2020, which would mean a cut of about 160 million tonnes. The package already has the broad support of the Greens and independents, although crossbenchers said they had yet to support extra measures to protect steelmakers and jobs in the vital coal industry.
Parliament twice rejected previous attempts to price carbon in 2009 and any fresh rebuff in a vote expected around October would seriously threaten Gillard's government.
The danger is that a vigorous campaign by the conservative opposition and business groups opposed to the tax, could erode public support and frighten political backers ahead of elections due by 2013.
"This tax is going to go up and up and up as time goes by. I think this package is going to compound the trust problem that has dogged the prime minister. This package certainly sets up the next election to be a referendum on the carbon tax," said conservative opposition leader Tony Abbott. Abbott has seized upon voter fears of a new tax and higher costs from a scheme that aims to transform how the nation generates and uses energy across the economy.
To neutralise opposition, Gillard said more than A$24 billion to be raised from pollution permit sales over the next three years would go to households through generous tax cuts worth more than A$15 billion.
Australia's scheme will cover 60 percent of carbon pollution apart from exempted agricultural and light vehicle emissions, with Treasury models showing it would boost the consumer price index by 0.7 percent in its first year, in 2012-13 (July-June).
It could also aid global efforts to fight carbon pollution, which have largely stalled since US President Barack Obama last year ruled out a federal climate bill his present term. Outside the EU, only New Zealand has a national carbon scheme.
"Other countries will look at one of the most carbon polluting economies on the planet that has made one huge stride forward towards putting a price on carbon," said John Connor, chief executive of The Climate Institute.
Australia said it hoped to link its scheme, which would cost A$4.4 billion to implement after household and industry compensation, to other international carbon markets and land abatement schemes when its emissions market was running.
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