Australia passes carbon tax

Australian Prime Minister Julia Gillard scored a rare, and possibly pyrrhic, victory with the passage of her carbon tax and welfare package.

While this is a big deal Down Under and will occupy radio shock jocks and newspaper commentators for some time, it means very little to ameliorating the impact of climate change.

While Gillard's Labor Party and its allies the Australian Greens will tout the laws that impose a A$23 ($23) a tonne tax on carbon emissions as helping ensure a greener future for future generations, they are being wildly optimistic.

The carbon package is designed to reduce carbon emissions by 159 million tonnes in 2020, an absolutely pilfering amount that hardly qualifies as a spit in the bucket in global terms.

It represents just 0.5% of global emissions in 2009 and even if Australia achieves the target, the growth in emissions in bigger polluters will dwarf its savings.

China, the world's top emitter, pumped 7.7 billion tonnes of carbon dioxide into the atmosphere in 2009, an increase of around 900 million tonnes from the prior year.

This means Australia's planned saving is equivalent to just 18% of China's increase in emissions two years ago.

One of the arguments you will hear in support of the Australian scheme is that at least something is being done to combat climate change.

This is of course true, and it's easy to feel good that emissions will be reduced, albeit by a tiny amount.

The argument is also advanced that Australia is showing the rest of the world the way, by taking concrete steps to price carbon and lower the energy intensity of its economy.

I may be wrong on this, but I imagine any politician in the rest of the world will look at the vitriolic debate that has accompanied the carbon tax in Australia and conclude that staying away from such a divisive and electorally damaging issue is the safest course to steer.

Rather than prompting a flood of countries to follow Australia's example, the scheme may well be put forward by the climate sceptics as a reason to do nothing about what former Australian prime minister Kevin Rudd, who was ousted by Gillard in a party coup, called the "greatest moral challenge of our time".

Given that the carbon tax will do very little on the climate change front, will it at least make a difference to Australia, which is after all one of the highest polluters in the world on a per capita basis?

If the target is achieved, it will reduce emissions per capita from around 18 tonnes to just under 15 tonnes, which would still leave Australians at nearly double their counterparts in Britain and at least 2-1/2 times more than the Chinese.

So, a reduction to be sure, but not even that dramatic in per capita terms.

Perhaps the government should have been more ambitious in its targets and less generous in the compensation it is offering households and major polluters.

In terms of the package, Gillard promised that 90% of households won't be any worse off, as tax cuts will compensate for increased power bills.

Only the wealthiest consumers will pay more, a move that fits with Labor's ideology but one that hardly sends a price signal that people should reduce electricity use.

There is also a risk that some industries will suffer by losing competitiveness to companies in countries without a carbon tax, with steel often being cited.

It's probably more likely that the tax will merely accelerate the ongoing loss of competitiveness of these industries, which were already under threat by lower cost producers in the developing world.

Nonetheless, big business and the opposition Liberal Party are united in opposing the new tax on the basis of the threat to industry and international competitiveness.

Liberal leader Tony Abbott, whom opinion polls indicate would win an election if it were held tomorrow, has promised "in blood" to repeal the carbon tax.

This might well be one of the silliest promises made during the whole debate, as once the tax is in place, unwinding it will be costly and difficult, and add to the regulatory uncertainty already hampering utilities and other carbon-intensive industries.

While Abbott can afford to grandstand in opposition, he may have to break a promise, just as Gillard did in last year's election when she solemnly undertook not to introduce a carbon tax in the first place.

Dodgy politicians aside, Australia will almost certainly get a carbon tax, and the positive spin that can be put on this is that the currently imperfect package can be improved over time.