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Fate of Australian ETS to be decided on 7 September

05 Aug 2013 17:18:35 | edcm

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Australian climate policy will live a crucial moment on 7 September, when the country goes to the polls for the general elections.

Incumbent Labor Prime Minister Kevin Rudd - who returned to power in June when he beat Julia Gillard in the party leadership contest - announced over the weekend that the elections will be held two months before the November deadline.

The election outcome will determine the fate of the country's carbon pricing mechanism, or emission trading system (ETS), which is strongly criticised by the opposition.

Some 372 Australian companies at the moment have to pay a fixed price - often referred to as a tax - of Australian dollar (A$) 24.15 (€16.88) for every tonne of CO2 equivalent (tCO2e) they emit.

One of Rudd's first moves since returning to the post of prime minister was to announce that Australia would bring forward by one year the switch to a floating carbon price to 1 July 2014. By doing so, the government explicitly aims to lower the CO2 costs it imposes on large businesses including Anglo Coal and BHP Billiton ahead of the elections. It estimates that bringing the ETS forward would slash CO2 costs to polluters by more than three-quarters. This would happen with the help of cheaper offsets credits and EU allowances (EUAs), as the government wants companies to access the EU ETS, where the price of carbon is only a fraction of that imposed by the Australia tax, from the start of the floating price stage (see EDCM 16 July 2013).

Germany-based consultancy Tschach Solutions - now part of ICIS - expects hedging demand from Australian companies in the EU ETS to be around 50m-70m tonnes.

CO2 price scrap priority for opposition

But even if it is amended, and thus the price of CO2 significantly reduced, the carbon pricing mechanism faces stiff opposition from the opposition leader Tony Abbott. He has made it clear that, if his party wins the election, his "first legislative priority" will be to scrap the carbon tax.

"[If the Coalition is elected], on day one, I will instruct the Department of Prime Minister and Cabinet to draft legislation that repeals the carbon tax and to have the legislation ready within one month," he said on Monday on his Liberal party website. His opposition to the system is based on it increasing costs for citizens and businesses.

As the first Australian financial year of enforcing the carbon pricing mechanism has recently ended, a number of company results are expected to reflect the additional cost - which the opposition could use to further its campaign.

On Monday, for instance, the airline Virgin Australia said in its 2013 guidance document that the pre-tax costs of the carbon pricing mechanism are estimated at A$45m-50m. It added that they were "unable to be recovered due to weak economic conditions and the competitive environment." The company cited the tax as one of the reasons why it expects a statutory loss after tax in the range of A$95m-110m.

Increased cap?

Elsewhere, the Australian Climate Change Authority told ICIS that it is still analysing in detail potential emissions caps and targets.

The body is required to send a report to the government by 28 February 2014 in which it will recommend a 2020 emissions reduction target and caps for the first five trading years of the carbon pricing mechanism.

Last week, media reports circulated that the body will recommend an increase in the country's emissions reduction target from 5% to 15% by 2020.

The CCA labelled these reports "incorrect", adding that "no decisions have been taken at this time" and that a draft report will be put under public consultation before finalising the recommendations.

Despite being unconfirmed, the reports have already triggered strong reactions by CO2-internsive industry. The Australian Coal Association said such a decision would suggest "disturbing ignorance of the damage this would cause to Australian industry and households." The lobby also called for the carbon pricing mechanism to be ended for the mining sector. Silvia Molteni

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