Isra-Mart srl : The global front line of carbon tax

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Australia has become a battleground over taxing carbon, pitting conservatives against liberals in a fight over climate change.

This story was originally covered by PRI's The World. For more, listen to the audio above.

By Phil Mercer

Last August, Australia's new Labor party leader Julia Gillard ran for office promising that she had no intention of pursuing a carbon tax. But that was before she became Prime Minister, and before a multi-party government commission endorsed a carbon tax as part of a long-term plan to make markets account for the costs of climate pollution.

Gillard now says that if Australia's coal-dependent economy doesn't change, it will be left behind.

"We've got a big journey of transformation," Gillard said. "We need to start on that journey now. We cannot afford to wake up down the track with a high carbon pollution economy when the rest of the world has moved, and then try in some huge rush to transform our economy."

Gillard said putting a price on carbon is the most efficient way to start that transformation now. But her about face has led to angry exchanges in Parliament this month between members of the Labor government and its conservative opponents, known in Australia as the Liberals. And it's a reminder of how even as the ongoing nuclear disaster in Japan is calling into question the viability of nuclear power as a partial solution to climate change, many political responses to the climate challenge continue to have a tough time getting traction as well.

The government's carbon tax would likely be between 20 and 30 dollars per tonne of carbon pollution, and it would affect roughly 1,000 Australian companies, including coal producers, power plants and other big polluters.

In theory, the tax would encourage these firms to cut their emissions. But it would also push fossil fuel energy prices up, which is why the government would use revenue from the tax to lower income taxes and compensate energy users for their higher bills. It would also fund projects to develop Australia's abundant renewable energy resources and create employment.

Broken promises

But critics say it could be ruinous for the Australian economy and cause the country to bleed jobs. In Labor-controlled New South Wales, where there's a local election this month, the conservative opposition has targeted the carbon tax as part of a record of "broken promises" on the part of Labor. New South Wales is the country's most populous state, and the carbon tax plan has been a dominant issue in the campaign.

Federal conservative leader Tony Abbott says Prime Minister Gillard's proposal involves a "slush fund and a series of handouts" designed to buy the next national election. Abbott accuses the government of "trying to do the wrong thing by stealth."

But if the tax package is designed to attract voters, it's definitely not working. Polls show that support for the government has fallen sharply since the scheme's outlines were announced earlier this month.

If Labor loses in New South Wales, it won't be the first time that a shift in climate policy has shaken one of Australia's major parties. A botched effort to adopt a carbon emissions trading scheme led to former Labor Prime Minister Kevin Rudd being axed by his party. And former conservative leader Malcolm Turnbull lost his job after he tried to compromise with Labor on the issue.

Coal

The issue cuts to the heart of Australian politics and its economy. Coal, the dirtiest fossil fuel, generates more than 80 percent of the country's electricity and is a major export. Australia is also one of the world's biggest emitters of greenhouse gases. So the government risks not only the ire of a skeptical electorate, but the wrath of an immensely powerful resources sector.

That worries New South Wales Green party MP John Kaye. Kaye says Australia has an "appalling" track record on carbon pollution. But he says the country has a lot to gain by making a transition to a low-carbon economy.

"But that debate is yet to happen," Kaye said. "We are still stuck in a resource economy with resource thinking,"

The first indirect test of the carbon tax plan may come in this month's election in New South Wales. Meanwhile the government says the next six months will be crucial as it fights to adopt the scheme and get it up and running before the next national election, likely in 2013.