Carbon Tax Looms Large Over Northern Australia

13 July 2011 FDI Team

Background

The Federal Government has announced the details of the largest emissions trading scheme outside of Europe. The nation’s top 500 polluters will be taxed in an ambitious attempt to combat climate change and promote investment in renewable energy alternatives. The legislation will provide a mixture of opportunities and challenges for Northern Australia’s future development.   

Comment

The Federal Government last weekend announced the details of the long anticipated price on carbon, or so-called “carbon tax”. The government’s climate change policy will tax the 500 top polluters $23 per tonne of carbon emissions, before moving to a market-set price in 2015. Supporters of the scheme argue that the tax encourages greater business energy efficiency and investment in cleaner energy sources. The package is expected to pass both houses of Parliament and become legislation from 1 July 2012.      

The carbon tax represents something of a “mixed bag” for Northern Australia.

The agricultural, pastoral and fisheries industries will join households and the trade and small business sectors in exemption from a carbon price on fuel. Agricultural industry body, AgForce, cautiously welcomed the tax. It provides economic incentives for farmers, allowing them to create credits for each tonne of pollution stored or reduced, and a further $400 million for research and development on carbon mitigation. Refundable tax offsets will also be provided to encourage greener farming techniques and soil carbon sequestration. Agforce, however, voiced concerns about future changes to the tax and the impact the higher cost of electricity will have on farmers.

The tax will allow the formulation of a $1 billion “Biodiversity Fund”. Northern Australia’s unique environment is anticipated to be a significant beneficiary of both a $946 million allocation to protect biodiversity and a further $44 million set aside to create strategies to mitigate climate change.

Indigenous communities will benefit from the Remote Indigenous Energy Programme, designed to assist Aboriginal communities to ‘participate in Australia’s move to a clean energy future’. The $40 million programme will see a transition in remote communities from reliance on diesel generators to renewable energy systems. 

Oil and gas producers have warned that the levy will provide a competitive advantage for rival gas exporting states, including Qatar, Malaysia and Indonesia, due to increasing logistical costs. The Petroleum Production and Exploration Association CEO, Belinda Robinson, argues that, while the tax makes gas more competitive than coal and encourages a transition to gas-fired power stations domestically, it penalises natural gas exports.

These sentiments were supported by the Minerals Council of Australia, which argued that the coal and iron ore sectors, the basis of Australia’s buoyant economy, would suffer cost increases and an international loss of consumer confidence. Rio Tinto’s Managing Director, David Peever, said the ‘proposed scheme places an arbitrary cost on Australian exporters that is not aligned with the cost being borne by competitors. It is an unfair impost on Australian exporters, not just the minerals industry, but the whole Australian export sector.’ Some analysts, however, have questioned the industry’s pessimism, with investment bank CITI arguing that even a $50-a-tonne carbon tax would have minimal impact on the country's biggest miners.

It is likely that the service, property and tourism industries will be directly impacted by the carbon tax, and may be forced to pass on higher operating costs to regional consumers.

The Federal Government must develop a strategic policy complementary to the price on carbon, ensuring Northern Australia can capitalise on potential opportunities, while simultaneously having the capacity to meet economic challenges.

Liam McHugh

Strategic Analyst

FDI Northern Australia and Energy Security Research Programmes

[email protected]

 

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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