Australia’s Labor party pledge to end fixed price on carbon in 2014, but is this just too little, too late?

Australia will replace its carbon tax with an emissions trading scheme (ETS) a year earlier than planned should Prime Minister Kevin Rudd’s Labor government win this year’s election. Rudd said today he wants the fixed price on carbon emissions to end on 30 June 2014, with a floating market linked to the European Union’s ETS opening the following day.

The Prime Minister’s announcement that he would “terminate the carbon tax” will likely see prices drop from the mandated A$25 (£15.20) a tonne in 2014-15 to a floating price the government estimates at around A$6 (£3.60). The expected shortfall of around A$3.8bn (£2.3bn) over four years is to be covered by savings of A$3.9bn from a range of measures, including ending an energy security fund programme two years early and changes to tax incentives for company cars.

However, several environmental funds will also be raided, with A$200m (£121m) cut from the government’s carbon capture and storage programme, A$213m (£129m) cut from its biodiversity fund and A$200m (£121m) stripped from a clean technology programme. Rudd said the changes would save billions of dollars in carbon costs for the 300 large businesses covered by the carbon tax policy, while also saving householders around A$380 (£231) a year through lower electricity and other prices.

“The government has decided to terminate the carbon tax to help cost of living pressures for families and to reduce costs for small businesses,” Rudd told reporters at a media conference in Queensland. “This is modest relief, but it is real.” The tax had proved unpopular since it was first introduced by Rudd’s predecessor Julia Gillard as her central policy to cut carbon emissions by five per cent by 2020.

Businesses had complained the carbon price was significantly higher than other carbon mechanisms around the globe, such as the EU ETS, where prices have stayed rooted between €3 and €5 per tonne. A plan to withhold 900 million credits from auction temporarily is expected to lead to modest increases in carbon prices, but concerns remain higher prices will not be delivered until significant reforms to the market are introduced.

Opposition leader Tony Abbott has vowed to ditch the carbon price system if he wins the national elections, which are due between late August and November. Abbott, who was campaigning in Tasmania today, said: “What Mr Rudd has announced today is not the abolition of the carbon tax. He has simply brought forward the start of Julia Gillard’s carbon tax by one year.”

Environmental campaign groups called on the government to move to a 25 per cent carbon emissions target for 2020 – a level both parties have said should only be adopted if there is strong and coordinated international action. Meanwhile, Green Party leader Senator Christine Milne, who helped push through the carbon-pricing scheme with Gillard, attacked the proposed cuts to environmental programmes.

“You don’t protect the environment by cutting environmental programmes,” she said. “They are going to cut $1bn from programmes that actually helped protect the environment… in order to make a political point.”