Australia today joins a growing number of nations to impose a price on carbon emissions across its $A1.4 trillion economy in a bitterly contested reform that offers trading opportunities for banks and polluters but may cost the Australian prime minister her job.
Australia's biggest polluters, from coal-fired power stations to smelters, will initially pay $A23 per tonne of carbon dioxide emitted, more than twice the cost of carbon pollution in the European Union, currently trading around 8.15 euros a tonne.
The economic pain will be dulled by billions of dollars in sweeteners for businesses and voters to minimise the impact on costs, with the consumer price index forecast to rise by an extra 0.7 percentage point in the 2012-13 fiscal year.
The scheme allows emissions trading from 2015, when polluters and investors will be able to buy overseas carbon offsets, or ultimately trade with schemes in New Zealand, Europe and possibly those planned in South Korea and China.
Australian Prime Minister Julia Gillard's minority government says the plan is needed to fight climate change and curb greenhouse gas pollution. Australia has amongst the world's highest per capita CO2 emissions due to its reliance on coal-fired power stations.
Yet even as it starts, the scheme's future is in doubt. The conservative opposition has vowed to repeal it if they win power in elections due by late next year and have whipped up a scare campaign saying the tax will cost jobs and hurt the economy.
Gillard, her poll ratings near record lows and her Labor party heading for a heavy election defeat, hopes that the campaign will quickly run out of steam once the scheme starts.
"Cats will still purr, dogs will still bark," Gillard said after Opposition leader Tony Abbott's visit to an animal shelter to warn of higher electricity prices on charities.
"The leader of the opposition's fear campaign will collide with the truth."
Impact on Aussie households
Australia's new carbon tax will have an impact on every household in Australia, including nearly 500,000 Kiwis living there.
It is estimated households will be hit by roughly $A10 a week.
However, both businesses and families will get some assistance from the Australian government to compensate.
But some families, like the Lynchs, are worried about whether it is going to be enough.
"One of the ideas about the carbon tax is to encourage you to cut back (on power), but there's not really a lot we can do - maybe down south they can turn off their heating but we don't use heating," father Justin Lynch told ONE News tonight.
He is expecting $500 a year in compensation, but is waiting to see if he will be worse off.
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Voters remain angry that Gillard broke a 2010 election promise not to introduce a carbon tax and many observers think government hopes of a resurgence after July 1 are unlikely.
"The damage is already done," political analyst Nick Economou at Monash University said.
"What will be interesting is whether Labor takes the lemming option and follows her over the cliff, or whether it decides that she is the cause of their problems and has to go."
A poll by the respected Lowy Institute think-tank found 63% of voters oppose the carbon scheme.
Many big polluters, such as miners, also remain vehemently opposed and uncertainty over its future is crimping investment in the power sector.
UBS has cut its earnings estimates for global mining houses BHP Billiton and Rio Tinto by between 3% and 4% ahead of the carbon tax and another tax on mining profits also due to start today.
The Australian carbon scheme is the product of years of fierce bargaining with business and political parties.
It will initially cover just under 300 companies and councils that comprise about 60% of the nation's roughly 550 million tonnes of CO2.
For the first three years, polluters will pay a fixed price for CO2 emissions, reaching $A25.40 a tonne in the final year.
From July 2015, emissions trading with regular auctioning of pollution permits will start, along with rules that allow polluters to buy overseas emission reduction offsets, such as Certified Emission Reductions (CERs), part of the United Nation's Kyoto Protocol climate pact.
A floor of $A15 a tonne and a cap of $A20 above the expected international price will run till 2018.
Billion-dollar prize, maybe
Despite the scheme's soft start and openness to international markets, bankers and big polluters remain cautious, with Australian opposition leader Abbott's "blood oath" to repeal the scheme stirring deep unease.
Traders are also awaiting final rules on implementing the floor price on international units.
Morgan Stanley says it is likely there will be very limited trade in international units until there is certainty on the repeal risk, plus clarity on the 2015-18 floor price and whether Australia agrees to a second commitment period under Kyoto.
"Since a domestic unit auction will most likely not occur until after the next election in late 2013, if the Opposition is still talking about rescission and repeal, it is unlikely that a forward market will develop in these units," Emile Abdurahman, executive director of Morgan Stanley Commodities in Sydney, said in emailed comments.
For now, repeal remains a real possibility because of the way it has polarised the country, Australian National University climate policy analyst Frank Jotzo wrote in a recent commentary.
"Australia's carbon pricing mechanism might enter history as one of the best-designed yet shortest-lived policies for climate change mitigation."
$1 = 0.9976 Australian dollars
$1 = 0.8047 euros
Sydney protest about carbon tax
More than 1000 anti-carbon tax protesters have gathered at Belmore Park in central Sydney on the first day of the controversial tariff.
The protesters marched from Hyde Park to Belmore Park this afternoon.
Protesters were waving inflatable plastic bats and carrying placards saying "why tax the air we exhale", while chanting "axe the tax".
Australian Liberal MP Bronwyn Bishop addressed the crowd, saying the coalition would abolish the tax immediately.
"The next election, whenever it will be held, will be a referendum on the carbon tax," Bishop told the lively crowd.
"Those people who say we can't abolish it are wrong - we can abolish it."
Bishop said the carbon tax would cause large increases in electricity prices and job loses.
Nationals MP Barnaby Joyce addressed protesters through a phone hook up from Queensland.
"We just can't accept this," Joyce said.
"The Australian people are disgusted with this government, they're disgusted with this tax.
"What we need is your support, with your support we can take the nation back."
Liberal MP Craig Kelly also addressed the rally, which grew in size over the afternoon to at least 2000.
Kelly said the federal government was destroying Australia's prosperity by going after the country's competitive advantage.
"This tax is a poisonous, toxic tax," he said.
"Every coalition member will sign a blood oath to get rid of this tax."