Towards certainty on carbon

The government is opting for a sensible, modest start.

NOW that the clock is ticking towards July 1, 2012, when the Gillard government is set to introduce an interim carbon tax, business leaders and the public undoubtedly have a long list of questions about how the proposal will work.

The queries will relate not only to the tax, but to the emissions trading scheme proposed to replace it in about 2015-16. While The Australian supports a market-based mechanism as the most efficient way to reduce pollution from greenhouse gases, the interim carbon tax will at least provide a degree of much-needed certainty to business after what has been a long and rancorous process, dating back to before the 2007 election.

Commendably, as our front page report revealed on Saturday, the government is opting for a "real-world approach" that will include compensation for the coal and electricity industries. That decision is likely to infuriate the Greens, who refused to back the Rudd government's ETS for similar reasons. But it is essential for protecting consumers, business profitability and the nation's export competitiveness.

It is no surprise that business groups have called for more consultation with the government as a "matter of urgency". Some of their key questions will focus on the initial carbon price and the extent and workings of the proposed compensation. While some industry sectors anticipate an initial, reasonable price of about $20 a tonne, increasing annually at 4 per cent plus inflation, some also fear it could rise to $40 or $45 a tonne by the time the ETS begins, assuming that the government of the day after the next election is committed to it. Sensibly, the initial carbon price will be largely shaped by the findings of the Productivity Commission, which will deliver an important report to the government in May on the effective carbon price across our trading partners and export rivals. That report will help the government set a price that will protect our international competitiveness.

While the news that Australia is unlikely to meet its target of a 5 per cent reduction in carbon emissions by 2020 will upset environmentalists, at least the government has resisted the temptation to move ahead of the rest of the world. This is a welcome contrast to the approach of Kevin Rudd, who was keen to take an international lead on an ETS on the world stage. Once its blueprint is released, the government will face a stiff challenge selling it to consumers who will be wary of electricity price rises. The blueprint will also pose challenges for the independents, for the Greens whose supporters want action and for the opposition, which will need to put forward a realistic alternative for cutting emissions if they continue to oppose the carbon tax.