Australia's Carbon Plan Draws Hostile Response

Australia's embattled Prime Minister Julia Gillard on Monday began a nationwide campaign to win support for a planned carbon tax, even as the policy drew a hostile response from heavy industry, investors and some of the country's biggest employers.

For Gillard, the plan to place a fixed A$23 price per ton on carbon beginning mid-2012 is a gamble which could decide her political survival. Deeply unpopular with the electorate, the minority Labor government has promised billions in compensation for households and the worst affected industries to offset what will be one of the world's biggest carbon trading schemes.

Detailing the plan on Sunday, Gillard said the fixed price will increase by 2.5% annually, on top of inflation, before transitioning to a "cap and trade" model in 2015. Revenues raised from the tax will be handed back to households to compensate for higher electricity costs and billions will be dedicated to promoting renewable energy.

Industry, too, will receive hefty offsets with financial guarantees and free permits available for exposed sectors, such as coal-fired electricity generators and steel works.

Criticism of the carbon plan centres around Australia moving ahead of trading competitors, projections that emissions will continue to rise despite the tax, albeit at a slower pace, and uncertainty about the price a carbon ton will fetch once the floating rate scheme is introduced.

"We are deeply concerned the proposed carbon tax fails to shield Australia's export sector and leaves it at a disadvantage compared to international competitors," said David Peever, Rio Tinto's (RIO.AU) Australia managing director.

Advertisements were also placed in the nation's biggest newspapers by the Australian coal association, emblazoned with the words: "No other major coal exporter has a carbon tax. Not one," and listing coal rivals such as Canada, South Africa and Indonesia.

Airliner Qantas Airways (QAN.AU) said the policy will cost the group some A$110-A$115 million in the first year of its introduction because of an increase in aviation fuel excise, prompting it to hike airfares.

Home builder Brickworks Ltd (BKW.AU) complained the new tax will act as a brake on house construction in an already soft market.

At 0312 GMT, the Australian share market was down 1.3%, weighed by the carbon policy. BlueScope Steel (BSL.AU) was down 3.7% and Macarthur Coal (MCC.AU) was over 3.0% weaker, but above earlier lows.

-By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; [e-mail]