Australia’s largest airline says the tax will cost as much as $123 million in 2013


Macarthur Coal Ltd., BlueScope Steel Ltd., and Virgin Blue Holdings Ltd. led declines in Australian trading Monday after the government unveiled the country’s first levy on greenhouse-gas emissions.

Polluters will pay AU$23 ($24.74) per metric ton of carbon emissions, Prime Minister Julia Gillard said Sunday in Canberra. Australia, reliant on coal to generate 80 percent of its electricity, will require about 500 businesses to pay the charge and will more than double aviation fuel excises.

The developed world’s biggest per capita polluter will raise AU$27.8 billion and offer AU$47 billion to assist industry and households and spur renewable energy investment through 2020. Gillard, Australia’s least popular prime minister in 13 years, is counting on the Greens Party and three independent lawmakers to pass her program, while opposition leader Tony Abbott has said he’ll repeal the law if he comes to power.

“Companies that are uncompetitive on a global basis are going to suffer the most,” said Prasad Patkar, who helps manage about $1.7 billion at Platypus Asset Management. “Even after the initial subsidies for certain industries, the carbon tax will bring forward the inevitable for some, which may be closure or withdrawal from the industry.” 

The Australian benchmark S&P/ASX 200 index slipped 1.4 percent to 4,590.10 at 11:06 a.m. in Sydney. The S&P 500 Index in the U.S. lost 0.7 percent Friday after American employers added 83 percent fewer jobs in June than economists forecast.

Coal mining companies in Australia will be required to pay for fugitive emissions ― gas emitted naturally from coal operations ― while receiving AU$1.3 billion in compensation, with the biggest polluters getting assistance over six years, according to the government. The tax will make certain projects uneconomical and cost jobs, the Minerals Council said.

“It may very well bring forward closures for some mines that have had continuous issues with gas but it’s a long bow to draw at this stage whether we’ll see previously robust projects put on the backburner as a result of the tax alone,” Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne.

Macarthur, the biggest exporter of pulverized coal used by steelmakers, fell as much as 4.6 percent to AU$10.88 in Sydney trading, the most since Aug. 25. Whitehaven Coal Ltd. dropped as much as 5.8 percent, the most in two months, while Rio Tinto Group lost as much as 1.5 percent, the most since June 16.

The Australian Coal Association said overseas coal buyers may switch to other nations, forcing mine closures.

“What is proposed is not good public policy in the best interests of Australia, rather an expedient act of political opportunism,” Seamus French, the head of Anglo American Plc’s metallurgical coal business, said in a statement Sunday. “The carbon tax puts at risk current and future coal investments in Australia, the jobs of 40,000 direct employees and the jobs of 100,000 contractors, suppliers and other workers indirectly employed by the coal industry.”

The plan may cost as many as 2,700 industry jobs in Queensland, said the Queensland Resources Council. The state is the world’s biggest exporter of coal used to make steel.

Rio, the world’s second-biggest iron-ore producer, said in a statement that a cut in the diesel rebate was a tax imposed without consultation. Operations such as Rio’s iron ore mines in the Pilbara rely on large diesel-powered earth moving trucks.

“There’s no doubt that this is another way in terms of making the mining industry pay more,” said Schroeders. “I don’t think it’s a deal killer and it’s not going to push operations to the wall but it’s another hurdle for the mining industry as a whole to overcome.”

Qantas Airways Ltd., Australia’s largest airline, said Monday the tax will cost as much as AU$115 million ($123 million) in the year ending June 30, 2013, while budget carrier Virgin Blue Holdings said higher fares are “inevitable.” The excise on aviation kerosene, the fuel mostly used by airlines, will rise by 6.604 cents a liter to 10.16 cents a liter in 2014-15. International airlines in Australia won’t be affected by the levy.

Qantas slipped as much as 2 percent, while Virgin Blue tumbled 5.7 percent.

Australia will provide AU$9.2 billion over three years to assist the biggest-polluting businesses such as aluminum smelters, steelmakers and pulp manufacturers.

BlueScope said Sunday it would receive about 60 percent of the AU$300 million in steel industry assistance offered under Gillard’s plan. The rest of the compensation will go to OneSteel Ltd., BlueScope said in a statement. BlueScope shares slumped as much as 6.7 percent, while OneSteel lost 2.7 percent.

“Moving to a clean energy future is not simply about making sure our existing industries can continue to prosper,” Climate Change Minister Greg Combet said on the Labor Party’s website. “It’s also about laying a platform to allow the clean energy industries and jobs of the future to develop and grow.”

Power generators facing losses in the value of their assets will receive AU$5.5 billion in assistance, Gillard said in Canberra. The government will provide loan support to electricity suppliers and payment for the closure of plants to remove as much as 2,000 megawatts of capacity by 2020.

While that offer may help energy producers reduce emissions, some generators will receive nothing and still see their asset values diminished, Brad Page, chief executive officer of the Energy Supply Association of Australia, said in a statement.

Infigen Energy, a developer of renewable-energy projects, was the biggest gainer, jumped as much as 11 percent

“The level of the tax should be sufficient to incentivize a change in the behavior of heavy polluters, and the assistance proposed in the interim will give them time to plan for the full impact without wiping them out,” said Will Seddon, who helps oversee about $350 million at White Funds Management in Sydney. 
(Bloomberg)