How Carbon Taxes Splintered Australia's Government

The prime minister's bid to regulate greenhouse gases has threatened her party's dominance, fractured the political system, and even drawn calls for breaking apart the country

Protesters rally in Sydney against Prime Minister Julia Gillard's carbon pricing plan / Reuters

Last February, Australian Prime Minister Julia Gillard announced a new carbon tax, effective in 2012, the details of which she finally released last Sunday, July 10. If she succeeds in rolling her plan out, Australia will be the first country in the world with an economy-wide tax on carbon emissions. But Australia's economy relies heavily on carbon-intensive agriculture and mining exports and opposition to Gillard's plan has been intense. Now the Prime Minister and her Labor party are struggling to hold onto power as the fight over carbon taxing threatens not just to derail Gillard's plan but to topple Australia's government.

The same day the plan was announced, Mines Minister Norman Moore, one of the top officials in Western Australia, spoke openly about the possibility of Western Australia seceding, citing the unpopular carbon tax as proof that the federation was broken. How did things get so far?

The carbon tax began not so much as an environmental but as a political concession. When Australia's 2010 federal election resulted in a hung parliament, the incumbent Prime Minister Gillard, suddenly in need of support from another party, reneged on her campaign promise not to introduce a carbon tax to woo the Green Party into a coalition. Senator Bob Brown, the leader of the Greens, told the local Adelaide Now newspaper that both Gillard and her primary detractor -- Tony Abbott, the leader of the center-right Liberal party -- made it clear they would accept a carbon tax as part of negotiating a coalition. Brown said he had advocated for the tax because it was an immediate mechanism to moderate pollution.

As conceived by a Climate Change Committee that included the Prime Minister's ruling Labor party, the Green Party, and two independents, the carbon tax would be in place for three to five years as an introduction to a fuller emissions trading scheme. In her announcement last Sunday, the Prime Minister set the carbon price at $24.60 a ton, lower than some of her critics had feared.

Senator Christine Milne, the Deputy Leader of the Greens, told me, "The tax will increase at a rate of 5 percent per year until 2015," when the introduction of a trading system would link the Australian price to the global carbon price, which is currently controlled by the European Union. Milne said the tax aims to reduce emissions levels to 5 percent below 2000 levels, eliminating 159 million tons of pollution by 2020. She cited South Korea's announcement on Tuesday -- Seoul will set Korea's first ever carbon targets for 2020 -- as evidence that Australia's move will encourage other countries to legislate carbon.

Although Milne is confident the tax will win over detractors, opposition leader Tony Abbott claims the legislation, applied to all companies that produce at least 25,000 tons of carbon a year, will cause electricity hikes for consumers by as much as 10 percent. Gillard hoped to ameliorate such concerns by offering a $1.39 billion compensation package to the worst polluters, providing $10 billion in loan guarantees for electricity generators, increasing the tax-free income threshold, and providing a budget buffer to four million low income households.

Nonetheless, Australian citizens have not received the plan warmly. In a Galaxy poll this week, 60 percent said that they oppose the tax. Fergus Hanson, Research Fellow and Director of Lowy Polling, has been tracking Australian opinions on global warming since 2006. He explained, "While there has been a sharp drop in the proportion favoring the most aggressive form of action, 81 percent at a minimum agree 'the problem of global warming should be addressed.'" According to Hanson, the political problem stems from "the type of action people want," suggesting that most people, worried about the state of the economy, would prefer a more moderate approach.

Australian P.M. Julia Gillard / Reuters)

Australia provides 28 percent of the world's coal, and the western regions that produce it have weathered the global financial crisis well. But southern and eastern Australia, where the majority of the population lives, are still struggling: as the faster-to-recover Western areas are driving a rise in the prices of staples, many Australians are concerned about making ends met.

Tim Wilson, a Director at the Institute of Public Affairs, told me that the political situation is increasingly tense -- with many Australians blaming Gillard. "The Prime Minister lied about not implementing a tax, and people are seriously pissed off. The hostility towards the government is incredible -- in a public forum in Queensland, a man asked why a citizen's militia shouldn't take the government back by firearm. That might not sound extreme to you, but we don't have a firearm culture over here." Lowy's polling shows 59 percent of Australians dissatisfied with Gillard as a Prime Minister, and opposition leader Abbott, with 49 percent dissatisfied, isn't faring much better.

How will all this play out? Tim Wilson predicted that the carbon tax will be passed by Parliament sometime this fall. "Prime Minister Gillard only has a government by one seat," he said, and at the next elections, currently scheduled sometime before November 2013, Gillard and the Labor party will almost certainly fall. "Whoever takes over next will repeal the tax," Wilson guessed. "And that will be the last we hear about a carbon tax for a while."

Perhaps, as an island nation, it's appropriate that Australia is the first country in the world where discussions of climate change are capable of toppling a government. According to Fergus Hanson, it's been the key issue over which every Australian Prime Minister and opposition leader has seen their demise since 2007, including former Prime Minister Kevin Rudd, who lost office in 2010 after a failed bid for national climate legislation.

For other Western democratic governments looking on, Australia's turmoil suggests that even the political will for climate legislation may not be enough without strong public support for the proposed plan.