Australia Climate Bill Poses Test for Premier

By RACHEL PANNETT
CANBERRA, Australia -- Lawmakers are expected to reject legislation aimed at capping greenhouse-gas emissions in Australia this week in a move that could imperil one of the country's most important economic initiatives in recent years.
The debate is shaping up as the biggest test yet of Prime Minister Kevin Rudd's nearly two years in office, and could result in a call for early elections if he can't get key conservative lawmakers on his side. It could also provide a case study for similar debates in the U.S., where lawmakers are wrangling over a similar plan to set mandatory caps on greenhouse-gas emissions.

That policy is set to be debated by the U.S. Senate next month after it passed the House of Representatives by a slim 219-212 margin in June.
Like the U.S. plan, Australia's climate bill has been criticized by green groups for its relatively weak carbon-emission reduction targets and generous industry allowances, which many argue could make it ineffective.
At the same time, representatives from industry have argued Australia's plan goes too far, threatening jobs and adding new costs for consumers and businesses at a time when the economy is just recovering from a global recession.
Analysts are watching Australia's effort closely. Although Australia accounts for only around 1.5% of global greenhouse emissions, it is the biggest per-capita carbon polluter in the developed world due to its reliance on fossil fuels, mainly coal, for around 80% of its electricity generation. Clean-air advocates say they believe countries such as Australia and the U.S. need to set a better example before other parts of the world agree to curb their worsening pollution problems.
Australia's planned carbon-trading program is similar to a European Union one in place since 2005. It would cap Australia's carbon-dioxide emissions, forcing heavy polluters like power generators and aluminum and cement makers to buy so-called carbon permits to account for their emissions.
To ease criticism from industry, it would allocate 27% of the carbon permits free in the first year to heavy-polluting companies that are highly exposed to international trade. It also sets a relatively low target for overall emission reductions, with a goal of cutting emissions in the country by 5% from 2000 levels by 2020, though it could go higher under certain circumstances.
By comparison, the U.S. plan calls for cuts to U.S. emissions of 17% from 2005 levels by 2020, and 83% by 2050. Japan, a global manufacturing hub for automobiles and electronics, aims to cut greenhouse-gas emissions to 15% below 2005 levels by 2020. The EU has agreed to reductions of at least 20% on 1990 levels by 2020, and will cut by as much as 30% if other developed countries make comparable efforts.
Conservative senators in Australia have nevertheless vowed to kill the program during a vote in the Senate on Thursday if further changes aren't made. Among their concerns: Because the country has so much cheap coal, any switch to cleaner-burning fuels will likely drive up the cost of electricity and threaten energy-dependent industries, including the country's powerful natural-resources sector.
Opposition leader Malcolm Turnbull has offered to deliver enough conservative votes to pass the legislation, but only if the government agrees to certain conditions. Among other things, he and others want emissions from coal mining and agriculture to be excluded from the proposal. They also have called on the government to delay the design of the Australian carbon program until February or March, after the U.S. Senate has debated its climate bill.
Because Australia's center-left Labor government lacks a majority in the Senate, where laws are passed, it needs the support of conservatives -- or other smaller parties that also have concerns about the program -- to pass its plan.
If the vote fails, the government would still be able to revive some form of climate program in future months. But it would likely to have agree to further concessions to win enough support from conservatives.
Write to Rachel Pannett at rachel.pannett@dowjones.com