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Australia’s Carbon Price a Done-Deal, or Pie-in-the-Sky?

July 12, 2011

There is much excitement about the proposition that Australia will now have a price on carbon.  The Government announced the outcome of a deal with the independents and greens on Sunday, and is pulling out all stops to sell the package.  They have the numbers in both lower and upper houses.

But will it ever happen?

Australians are by now used to hearing that there is about to be carbon pricing. This is now the third time in eight years that a carbon price has seemed imminent:  once under Liberal Prime Minister John Howard, again under Kevin Rudd, and now under Julia Gillard.

There remain many factors weighing against the longevity of the current plan – and of the Government itself.

First:  It is hard to argue that there will not be job losses as a direct result of the planned measures.  Industry analysis shows that marginal coal mines will close, and new mines not come on-line, as a result.  These affected areas include electorally important areas of New South Wales including the Illawara and Hunter, and Queensland.  The powerful mining and processing industries will wage unrestricted warfare in the coming weeks and months.

Second:  Other companies, subject to the headwinds of Australia’s two-tier economy, will use the carbon price as an excuse to announce shut-downs or relocation.  In fact, the high Australian dollar, and rising input prices including labour and raw materials, are in many cases likely to be the determining factors.

Third:  Labour’s polling is now at a nadir, and the opposition leader is by now the preferred Prime Minister.  Can the parliamentary coalition hang together under such pressures?

Fourth:  Larger factors are at play in the global economy which will drag down Australia’s somewhat optimistic outlook should they play out.  These range from Greek and Italian debt and general OECD deleverage, to US brinkmanship on budgets and poor jobs data, and concerns about debt levels and a slowdown in China’s economy.

Implementing such a controversial structural change in the face of these obstacles will prove a mighty challenge.  There are many in Australia still sitting on the fence:  from industrials which still defer action to address emissions, to professional services firms which will not add resources to address the market until legislation is passed.

To casual observers reading about carbon pricing here and overseas, it would seem as though it’s a done deal.

However, there is a long way to go yet.  We will be keeping an eye on online betting forums to see what crowd wisdom has to say on the matter.

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