No carbon copy

Prime Minister Julia Gillard launched her new fixed carbon pricing scheme to the Australian public with much media fanfare last Sunday.

The new levy is set to charge Australia's biggest carbon dioxide producers a flat fee of $23 Australian (17.43 euro) per ton of carbon they produce for the first three years of the scheme.

The move has been welcomed by European policy makers, who are all too aware of Australia's slow response on carbon dioxide regulation.

"It's promising that Australia is embarking on this route," says Professor Mikael Skou Andersen from the European Environment Agency.

"It should go some way to penalizing carbon-rich fuel usage but at the moment it's just a start."

The charge will apply to the country's 500 worst polluters, who produce over 25,000 tons of carbon dioxide, and will initially last for three years. It's hoped it will come into effect from July 2012.

Currently, Australia is one of the highest per capita producers of carbon dioxide and is lagging on its compliance with its emissions reduction as specified by the Kyoto protocol.

Still, the Australian model is being seen as a new approach, in a difficult area of regulation.

The tax that's not a tax

The Australian scheme will see a fixed price for carbon emission permits for the first three years, before moving to a flexible market-based system in 2015, similar to Europe's model. The term "tax" has been latched onto by the media.

"The opposition managed to get in first. They called it a tax, to create a bit more attention and the name has stuck," says Professor Ross Garnaut, an Australian Economics professor who was charged by the government with developing the new carbon pricing scheme.

"The reason we started the scheme with a fixed price for carbon, was to give industry a chance to get used to the new costs," said Garnaut in discussions with Deutsche Welle.

"It also reduces the chance of changing prices due to political conditions, like a new government for example."

When the EU proposed a carbon tax during the 1990s, the regulation failed to get approval due to industrial lobbying. That process is also underway in Australia.

Australians still reluctant

The backlash from some sectors of the community in Australia has been severe.

Representatives from mining and power industries have been outspoken in the nation's media. Consumer groups have argued that the carbon pricing scheme will make everyday goods more expensive.

Prime Minister Gillard's public appearances this week have been dogged by heated arguments on the issue with voters.

"Although the Australian system actually has a lot in common with Europe's, it is judged differently politically," says Anders Levermann from the Potsdam Institute for Climate Impact Research.

"There's a difference between when you say that you are going to introduce a trading system, to when you say you want to start a new tax."

Now it's up to Gillard to convince the public, at a time when consumer sentiment in Australia has taken an unexpected dip for the first time in a long while.

The fixed pricing scheme is expected to come into law at the latest by the end of the year, although it depends upon a slim majority in both houses of parliament.

"The only problem we could have is if one of the MPs dies," quips Garnaut.

The European approach

Under the European emissions trading scheme, known as the EU ETS, large emitters of carbon dioxide monitor and report their CO2 emissions themselves.

They then return an amount of emission allowances - known as certificates - to the government that is equivalent to their CO2 emissions in that year.

Certain high carbon producers receive free certificates from their governments, but those companies that produce more CO2 than expected are forced to buy extra permits on an international market.

Yet the price of carbon under the ETS has remained depressed – not least thanks to a glut of permits on the market during the global economic downturn.

The end result is not much of an actual reduction in carbon dioxide output, according to Dietrich Borst, the Vice President of the German Emissions Trading Association (BEVK).

Borst, who met with the Australian Environment Minister during a visit to Berlin last year to discuss carbon pricing, says that the limitations of the European scheme might be the reason why the Australians opted for a blanket tax instead.

"The price for carbon can vary considerably in Europe. And that makes it hard for businesses to plan their expenditure in the area of carbon mitigation," he says.

Just the start

Thomas Wyns, Senior Policy Officer at the European branch of Climate Action Network in Brussels says that the most important aspect of any system – be it a tax or trading scheme – is the implementation.

"It's no good developing a great system if the companies aren't forced to comply."

In Europe, an ongoing issue is the awarding of free carbon emissions certificates to certain carbon-rich industries, such as power producers.

Although European governments will stop giving away free emissions certificates to certain parts of industry in 2013, the practice will still continue.

The Australian system won't award any free permits to industry, though emitters will be compensated with nearly $10 Australian billion worth of rebates.

Whether the plan to move from fixed carbon pricing to a trading scheme in 2015 actually leads to the development of an international carbon trading market remains to be seen. Professor Garnaut says that this is the hope of the Australian government. European Environment Agency expert Andersen says that an international carbon trading scheme with centers around the world is unlikely.

Whatever the next step might be from the international community, the new regulation shouldn't be seen as groundbreaking though.

In talks with the Australian national broadcaster, ABC, German expert Dr Malte Meinshausen warned against over-excitement.

"The only way that Australia is leading the world in this area, is by being one of the largest carbon dioxide producers. Still, the new carbon pricing system does send a powerful message and could have a knock-on effect for the rest of the world."

Author: Andre Leslie
Editor: Nathan Witkop