Australia Scraps Carbon Price as Abbott Meets Election Vow

Jul 17, 2014 3:32 am ET

(Updates with closed stock index in seventh paragraph.)

July 17 (Bloomberg) -- Australia’s Senate voted to scrap the nation’s price on carbon, fulfilling a key election pledge by Prime Minister Tony Abbott and leaving the nation without an approved mechanism to tackle emissions.

The repeal bill was passed 39 votes to 32 in the 76-member upper house today, dismantling a law introduced by the previous Labor government that initially charged polluters A$23 ($21.50) per ton of greenhouse gases emitted.

Repealing the carbon price may put Australia, which is hosting the Group of 20 nations summit in November, at loggerheads with President Barack Obama, who is seeking to form a worldwide agreement to combat climate change. Australia, the world’s biggest emitter of fossil fuels per capita, hasn’t backed U.S. calls to add the issue to the G-20 agenda when leaders meet in Brisbane.

“Abbott campaigned so hard for so long to get rid of the carbon tax, which has been pretty unpopular with voters, that the repeal will be seen as a big victory domestically,” said Zareh Ghazarian, a Melbourne-based professor at the Monash University School of Political and Social Inquiry. “In international diplomatic circles, it’s a different matter. It may cause discomfort to the government during Obama’s visit later this year.”

Electricity Prices

The repeal will save the average family A$550 a year through lower electricity prices and make Australian companies more competitive, Abbott said in an e-mailed statement after the vote.

December electricity futures in New South Wales, Australia’s most populous state, dropped 0.8 percent to A$32 per megawatt hour, the lowest in a week.

The benchmark S&P/ASX 200 Index rose 0.1 percent.

The repeal was “widely anticipated” and “should be reasonably neutral” to the stock market, Matt Riordan, a Sydney-based portfolio manager who helps oversee about $7.5 billion at Paradice Investment Management Pty., said by phone.

Today’s vote to repeal the carbon price comes a week after the government’s second bid to abolish the mechanism was blocked in the upper house. Clive Palmer, the mining magnate whose party Abbott has to deal with in the Senate to pass legislation, on July 10 said his three Senators wouldn’t support it without amendments that force energy companies to pass on savings to consumers.

Carbon Policy

While repealing the carbon-price mechanism is a victory for Abbott’s Liberal-National coalition, his government may still struggle with other climate change measures in the Senate.

Palmer has said his Palmer United Party will vote against Abbott’s Direct Action Plan, which includes a A$2.55 billion Emissions Reduction Fund to encourage companies to cut greenhouse gases through taxpayer-funded grants.

Palmer has also said his three PUP senators will block plans to abolish the Clean Energy Finance Corp., which helps fund renewable energy projects, and the Climate Change Authority, which provides advice on the carbon price and emissions reduction targets.

“Australia now has no formal mechanism in place to reduce emissions,” Kobad Bhavnagri, the Sydney-based head of Australia research at Bloomberg New Energy Finance, said in a Bloomberg television interview today.

Market System

The carbon price came into force in July 2012. It was fixed at A$23 per ton of greenhouse gases emitted in its first year, rising every year until it was due to shift to a market-set mechanism from July 2015.

Labor and the Greens party, who held the balance of power in the upper house before new senators were sworn in this month, rejected the government’s first attempt to scrap the carbon price in March.

The opposition will campaign in the next election, due to be called by 2016, to reinstate an emissions-trading system, Labor leader Bill Shorten said today.

“Tony Abbott has made Australia the first country to reverse action on climate change,” Shorten said in an e-mailed statement. “History will judge Tony Abbott harshly for refusing to believe that action is needed on climate change.”

Australia, the world’s 12th-largest economy, will still be able to meet its promised 5 percent reduction in emissions by 2020, the government says.

Business Reaction

Business groups welcomed today’s repeal, with the Australian Petroleum Production & Exploration Association saying it would remove a cost for liquefied natural gas exporters that international competitors don’t face.

The Australian Retailers Association said it would “assist the sector to overcome pressures from excessive costs and be a boost to current low consumer confidence.”

AGL Energy Ltd. shares dropped 5.5 percent to A$14.91, the biggest one-day fall since January 2009. The Melbourne-based company said the repeal will reduce earnings before interest and tax by about A$186 million in the 2015 financial year as it loses government subsidies for its Loy Yang coal-fired power station and lower wholesale electricity prices crimp earnings from renewable energy and gas generation assets. The repeal would increase the plant’s long-term value, it said.

Obama discussed climate change with Abbott when they met in the White House on June 12 during the Australian prime minister’s first trip to the U.S. since winning the September election.

The president is seeking state-by-state limitations in the U.S. on carbon-dioxide emissions to limit the effects of man- made global warming and has proposed cutting power-plant emissions by 30 percent by 2030 from 2005 levels.

--With assistance from Ben Sharples in Melbourne, Sarah McDonald in Sydney and Anna Kitanaka in Tokyo.