Smoke clears on carbon tax as Gillard unveils the details

Australia unveiled its most sweeping economic reform in decades yesterday with a plan to tax carbon emissions from the nation's worst polluters, reviving hopes of stronger global climate action with the largest emissions trade scheme outside Europe.

Prime minister Julia Gillard said 500 companies including steel and aluminium makers would pay a AUS$23 (about 15) per tonne carbon tax from next year, rising by 2.5 per cent a year and moving to a market-based trading scheme in 2015.

"It's time to get on with this, we are going to get this done," said Ms Gillard.

A parliamentary vote on the scheme is expected before the end of the year.

Australia is the developed world's worst per-capita greenhouse gas emitter because of its reliance on cheap coal for power generation and emissions are set to rise in the booming economy.

The stakes are high for Ms Gillard's Labour party, which relies on the support of Greens and independents for a one-seat lower house majority. Her popularity has slumped to record lows over the scheme.

With the details now finally released after months of waiting, Ms Gillard will now try to convince voters opposed to the plan ahead of a parliamentary vote.

"It is absolutely critical the government sells this very effectively," said Tony Wood, director of the energy programme at think-tank the Grattan Institute.

The scheme aims to cut national emissions by 5 per cent of 2000 levels by 2020, which would mean a cut of about 160 million tonnes.

The package already has the broad support of the Greens and independents, although crossbenchers said they had yet to support extra measures to protect steelmakers and jobs in the vital coal industry.

Parliament twice rejected previous attempts to price carbon in 2009 and any fresh rebuff in a vote expected around October would seriously threaten Ms Gillard's government. The danger is that a vigorous campaign by the conservative opposition and business groups against the tax could erode public support and frighten political backers ahead of elections due by 2013.

Conservative opposition leader Tony Abbott said: "This tax is going to go up and up and up as time goes by. I think this package is going to compound the trust problem that has dogged the prime minister. This package certainly sets up the next election to be a referendum on the carbon tax."

Mr Abbott has seized upon voter fears of a new tax and higher costs from a scheme that aims to transform how the nation generates and uses energy across the economy.

To neutralise opposition, Ms Gillard said more than $24 billion to be raised from pollution permit sales over the next three years would go to households, including through generous tax cuts worth more than $15bn.

The scheme would also set-up a $10bn Clean Energy Finance Corporation to fund new renewable and cleaner generation capacity, such as wind, solar, gas and wave power plants.

Australian Greens deputy leader Christine Milne said: "This is the moment where Australia turns its back on the fossil fuel age, and turns its face towards the greatest challenge of the 21st century, and that is addressing global warming."