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Senate power struggle to decide future of Australia CO2 trade

10 Sep 2013 17:20:58 | edcm

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The new Australian government’s plans to scrap the country’s carbon pricing mechanism (CPM) will depend on a power struggle in the country’s senate, experts have said following the Liberal-National Coalition’s election victory. This makes it hard to determine what will happen to the planned link between the Australian and European carbon markets.

At the 7 September polls, the incumbent Labor government, led by Kevin Rudd, was defeated by the Liberal-National Coalition, led by Tony Abbott.

Abbott made clear that passing legislation to scrap the CPM would be a priority and labelled the election a referendum on the scheme. The coalition’s counterproposal for addressing climate change is called the Direct Action Plan. In the election night speech, Abbott said that “in three years’ time the carbon tax will be gone.”

But terminating the scheme would require the coalition to scrap the clean energy act underpinning the CPM via a separate piece of legislation that would have to be passed by both the house of representatives and the senate, equally powerful when it comes to lawmaking.

Power struggle

Abbott has gained a clear victory in the 150-seat house of representatives, with the coalition gaining a 31-seat majority over Labor. But control over the 76-seat senate – which will meet under the new formation in July 2014 – is still unclear, with final results expected soon.

The coalition is expected to have 33 senate seats, and Labor plus the Greens up to 35. This leaves the balance of power after July next year with the up to 8 seats expected to be awarded to independent senators and minor parties, taking over from the Greens.

According to legal firm Norton Rose Fulbright’s climate lawyers, Abbott’s lack of control over the senate means the government relies on support from Labor to pass the bill before July 2014.

“It remains uncertain whether Labor will agree that the new government has a mandate to repeal the CPM and therefore whether it will support the repeal bill,” the firm said on Monday in a note.

Before the election it appeared that Labor would not consider reversing its position, but this could change under a new Labor leader, according to Norton Rose Fulbright.

Carbon analytics firm Tschach Solutions, now part of ICIS, expects the coalition government to make a first unsuccessful attempt to repeal the clean energy act before July 2014. After then, the legislative path will depend on potential cross-bench support from minor parties and independents in the senate. “With cross-bench support, the Coalition would be able to repeal the Clean Energy Act after 1 July 2014. Without cross-bench support, the Coalition will either have to live with the CPM and negotiate the termination of the fixed price period with Labor, or alternatively push through a risky double dissolution to attempt to gain majority in the senate,” said the firm in a note on Monday.

To gain senate majority, the governor-general dissolves both houses of parliament and calls a new election, a manoeuvre that has been used only a few times in the history of Australian government.

Norton Rose Fulbright said the earliest the government could call for double dissolution is approximately nine months after the election and could take even longer. The law firm expects the second full year of the CPM to take place.

According to carbon research firm RepuTex, the coalition faces “an uphill battle” to repeal the carbon tax.

“Support to repeal the carbon tax in the new senate is very uncertain, with the low level of support for the Coalition’s Direct Action Plan likely to translate into a lot of horse-trading with a fairly eclectic group of individual interests,” said Hugh Grossman, executive director of carbon markets at RepuTex. “Given that industry supports the continuation of the carbon price, but at a lower level, a swift outcome to repeal the carbon tax in favour of emissions trading may look very appealing to the Coalition in comparison to 18 months of a high carbon price and potential deadlock with minor parties.”

Link to the EU ETS

The interim link to the EU emissions trading system (ETS), scheduled by Julia Gillard – Rudd’s predecessor – for 2015 would need the non-opposition of the parliament even if Abbott does not gain enough support to ditch the CPM. This means that it would need the government’s support.

A link would provide hedging demand from Australia of around 50m-70m tonnes of CO2 equivalent, according to Tschach Solutions estimates.

Under Gillard, who lost the Labor Party leadership to Rudd in June, Australia’s previous government implemented the CPM. Originally the scheme was set to start with a fixed carbon price phase – often referred to as a carbon tax – followed by a floating price phase in July 2015, when the EU ETS link would go live.

Rudd proposed legislation to bring the floating price phase and the EU ETS link forward to 1 July 2014. Silvia Molteni

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